Help me with my 401K?

[jively]

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Could someone fill me on on the 'emerging market' funds? How have these done historically and what do they usually include?

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"International" usually means developed international countries. For US investors, it means Canada, most of Europe, Japan, Hong Kong, Singaopre, Australia and New Zealand.

Emerging markets are less developed but faster growing coutries. DFA currently uses these countries: Brazil, Chile, Czech Rep, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Philippines, Poland, South Africa, Taiwan, Thailand, and Turkey. Historically, they have done very well, and they have done very well in recent years. However, they are risky, and can have big down years.

-Tom

[Sniper]

MrNow posted a link to a nice chart here showing relative returns for various investments

[leto333]

I feel for you. You have a [censored] of homework to do before you can make an intelligent decision.

the "mutual funds for dummies" version is this, if it has income in the name, it is pretty conservative and trys to provide 5 or so percent payout for old people who want to live off thier saved money.

If it says value, it tries to buy low priced companies with a good price (of stock) to earnings ratio. unfortunately ford matches this criteria so these funds are good if thier managers are good, bad if otherwise. you have to check thier histories and keep up with them to make sure that the same management is handling them as was when they had thier good track record.

If it has government or money market in it, it is basically a savings account, 2-5% usually closer to the 2%.

If it has index in the name then it is a basket of stocks that reflect whatever index it is trying to mimic. such as the s&p500 or the dow, it might be like an oil index where it trys to correlate to the price of oil. These let you make general assumptions about the market direction and be able to benifit without having to take on the risk of putting all your money with one company..like betting on energy prices to go up, but not having to put all y our money into an enron.

If it says small cap, it is investing in high growth potential companies that are capitalized for less than 500 million, mid caps are some higher range, and then large caps are your multi billion dollar cap companies. sorry, i cant recall the specific cap ranges off hand.

you then have a shares, b shares, and c shares. I am sorry but you are just going to have to wade thru a prospectus to figure out the diff on those... i could give you the 'dummies' version, but you need to understand that completely before you make a decision and i refuse to take on that responsibility of making you feel you understand it, when you really dont.

Hint, one is more advantageous if your a short term holder of the investment, one is more advantages if your a mid to long term holder and one just rapes you either way.

that is the quick and dirty primer on mutual funds....

as a young man you should be 40 to 80 percent growth/aggressive the rest in bonds or money markets...here again it depends on your individual risk tolerance...but let me make one thing clear, and this is the most important thing, if you feel you are not being agressive enough, you are wrong. you are better off making 5 or 10% anually for 20 or 30 years, than to make 60 or 80 % for a few years then experience an 80% drawdown.. trust me, been there done that. the slow and steady accumulation of wealth is the way to go. You can never know your true risk, the worst illusion you can live under is that your money is with a well known mutual fund company and in one of thier "conservative" funds so your risk is limited...that is utter [censored]. if you are not managing your money as far as the major market moves.... then no one is because mutual funds only want you to buy more, they never go to cash, they never reduce your market risk, that is up to you.

If you want a reading list to start your education look for books written by Stein, Schwager, Covel...there are many others that are worthy as well, but brevity is important.

[Moyer]

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Take a look at these 6 portfolios, especially the losses, to see how aggressive you want to be (I apologize for the lack of columns that line up):

POTENTIAL ODDS OF WORST WORST
AVERAGE LOSING MONEY YEAR OF YEAR OF
RETURN IN ANY ONE YEAR 75 YEARS 30 YEARS

Portfolio A 11.0% 1 in 3 -47% -25%
Portfolio B 10.5% 1 in 4 -42% -22%
Portfolio C 9.8% 1 in 5 -38% -19%
Portfolio D 8.5% 1 in 6 -29% -13%
Portfolio E 7.5% 1 in 7 -23% -9%
Portfolio F 6.3% 1 in 8 -16% -4%


Column 1 is the portfolio name: Portfolio A is the most aggressive (with the most amount of stocks), and Portfolio F is the most conservative (with the least amount of stocks, and highest amount of fixed income). Column 2 is the expected return for the portfolio after investment expenses.

Columns 3, 4 and 5 have to do with the risk. How frequently does this portfolio have a losing year? Portfolio A loses about 1 out of every 3 years, but Portfolio F only loses about 1 out of every 8 years.

Column 4 is what a really bad year could look like, and it the worst year in the last 75 years (which includes the crash of '29 and the Great Depression). Portfolio A lost 47% in a year. Portfolio F, with a lot of fixed income, still lost 16% in one year (when interest rates shot up in a big hurry).

Column 5 is what a typical bad year looks like, and it is the worst year of the last 30 years. Portfolio A lost 25%, and Portfolio F lost 4%.

So, concentrating on the loss columns, what kind of losses would you feel comfortable with? Risk and reward go together, and to get a higher return, you have to be willing to accept periodic losses.

When you have an idea of what kind of losses you'd be able to handle, then you can convert the portfolios to target allocations:

Portfolio A: 100% stock
Portfolio B: 90% stock, 10% fixed income
Portfolio C: 80% stock, 20% fixed income
Portfolio D: 60% stock, 40% fixed income
Portfolio E: 45% stock, 55% fixed income
Portfolio F: 30% stock, 70% fixed income


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Which portfolio do you think would be most appropriate for someone that has 17 years until retirement? I'm doing some research for my mother. Right now she has 100% in stock. I understand the columns you posted, but I'm dreading the thought of trying to explain that to her. Thank you all for your help.

[Xerion]

10% is indeed generous. My company only matches 50% up to 6%. That's a bit lousy, but I learned that it was still better than many other companies.

Have you asked if your company offers Roth 401k? If so, I think that is a better choice than 401k, if you are in no hurry to reduce your tax burden. Roth 401k works like a Roth IRA, it will allow your earnings to be withdrawn tax-free, but has a yearly limit equal that of the 401k.

[prohornblower]

I'm signed up with One America through AUL.

I'm 27 and have been in the program for a little over a year.

My allocations are:
MFS Value 15% (Large cap)
Fidelity VIP Contrafund 30% (Large cap blend)
Vanguard Explorer 20% (Small cap growth)
Thornberg International Value 35% (international blend).

The international fund is blowing up. Doing over 14% this year TO DATE. I just picked it up and dumped my S&P 500 fund because I assumed the S&P would top-off soon (looks like it is, having dropped over 400 points recently).

Of course this is a 401K so you don't have to alter your elections too often.

My company puts in 3% automatic. I add 4%. No match. Our year-end bonus is up to 7% of our salary in form of 401K contribution. It takes 3 years for me to be vested in the bonus allocations though.

My personal rate of return is 19.18% over the last year.

You should have been given a prospectus and it should pretty much lay out what kind of approach you need. You are still pretty young so you should go fairly aggressive. Not 100% stocks, though. You aren't THAT young.

Good luck.

[Liz L.]

jively is giving very good advice.

If you want to learn more, morningstar.com is great, specifically the "Vanguard Diehards" forum, which is fantastic for the kind of decisions you're trying to make, even if you're not a Vanguard customer. It's the Two Plus Two of investing.

[Liz L.]

One more thing: jively, I am interested in working with a financial advisor who has access to DFA funds. Could you e-mail your contact info to me at sickofnyc@gmail.com? Thanks.

[4Kings]

I am also new to investing (I just signed on with my first "real" job this week) and I have a simple question. Why would you want to take money out of funds that are doing well and shift them to funds that are not doing as well?

[punkass]

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I am also new to investing (I just signed on with my first "real" job this week) and I have a simple question. Why would you want to take money out of funds that are doing well and shift them to funds that are not doing as well?

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This is assuming both funds are well-regarded funds and that the slump/surge is just due to market fluctuations and not something more detrimental.

When you take money out of funds that are doing well, you are selling high. When you increase your holding in the fund that wasn't doing well, you are buying low. This is what you want to be doing.

Things to make sure:

Note any fees that you will incur when you do this.
Make sure that the fund that was slumping wasn't due to it being a bad fund. Obviously, this will take some research.