I am not the most investor savvy person around, but I am slowly learning more about how to disperse the money I contribute to my 401k. Here is my situation. I am 28, almost 29, and have never maxed out my 401k, but put away a decent chunk of money the past 3 years ($6000/yr on average). My wife and I have no major debt, except a house mortgage and related bills, so I'd like to make next year a year to max out our 401k's. Since I am almost 30, I am trying to get a better feel as to what funds I should place my money. I have always been a firm believer in index funds, as they typically outperform or at least perform as well as managed funds over the long haul. But I don't want to place my contributions 100% into index funds. Is there a good way to determine how much money I should place in high-, medium- and low-risk funds? Or is it going to be more a factor of how much my wife and I want to earn and how long we are willing to wait for such returns? I may be asking too broad a question, so let me know what other info I can provide to help you all.

Right now I would estimate that I have 50% of my money in index funds, 15% in bonds, 15% in foreign funds and 20% in medium-risk funds. So I have really no true high-risk funds right now. That is my personality - I am conservative when it comes to money. But I am willing to adjust to meet our goals.

Thanks in advance!

 

actually, based on your investment allocation, you're not all that conservative, you're more a moderate than anything else. put it this way, the 401k IS a retirement account, and you are still young...you have room to be more aggressive. if i was in your boat, i would maintain the 50% in index funds because i too am a strong believer in index funds. BUT, i would move money out of bonds and medium risk funds and put them in a fund that has an aggressive profile. who cares if it goes down in the short term....in fact, i would rather the fund go down now, so that i can buy more shares with my dollar today (expecting it to rise decades in the future).

my portfolio...50% in a S&P 500 tracking index fund, 50% in an aggressive growth profile fund.

 

Thanks! See, I learned that I don't even know what kind of investor I am!

But the S&P 500 index funds make up 40% of my account and the other 10% is in the Russell 2000 index fund offered. I will look into doing a little bit more agrressive investing since I still have some time on my side.

 

some additional comments...nothing to do with you. i find it amusing how many people today are so clueless about 401k's and retirement planning. i have many co-workers, i'll use one as an example, that had been working for many years and never participated in the company 401k plan...and the company matches up to your first 6%. yeah...throwing away free money. anyways, i finally sat down and explained to her the value of the plan (aside from the company match), and convinced her to enroll. she's 24, and as she was about to submit her application, which included what type of funds she wanted to allocate her contributions to, i bumped into her in the hallway. a brief conversation divulged that she had allocated 100% towards a guaranteed fund (money market) yielding 1.9%. i had to break it down how much money she would be losing by the time she retired had she gone with the 1.9% versus an averaged 8-9% annual return on even an index fund. obviously she didn't understand inflation and how she would actually be losing real money going with the 1.9%.

 

1.9% barely covers inflation, if at all. Like I said, I am not the most savvy, but I know that a money market is a pretty shitty investment if that is ALL you are doing. Might as well stuff it in your mattress.

 

exactly...inflation usually hovers around 3% give/take. it sounds like you already have just about everything covered, just need to gauge what type of risks you can take given your current age and retirement wishes. remember...14K is the maximum allowable contribution next year.

 

Yeah, that's a good point. My wife and I have had some pretty big expenses related to a new home these past 2 years, but those should be minimal next year, hence my desire to max this puppy out!!

 

always maximize your 401K, as my boss's boss always tells me, "remember to pay yourself first"... 401K is pre-tax, even without company match, you should maximize as much as possible.

as where to put the money, diversity, diversity and diversity, evenly distribute them into aggressive, small cap, large cap, foreign bonds, government bonds, whatever your company porforlio offers. i suggest also look at your company 401k porforlio's past performace, you should get some idea where to put. also, do not forget to check how your 401k is doing every half year or so, and adjust accordingly.

 

When you say max out, do you mean 15% into the 401K or do you mean it as putting in the $12,000 or whatever it is a year and "maxing it out". Putting in the 15% is a great play. If you can do it, go for it. Maxing it out is the way to go to, depending on salary, etc.

The wife and I are at 15% for the 401K and making full contributions to the Roths. Anything that is left, we put into other accounts. What I don't want to do is put everything into our 401Ks; rather have some seperate taxable accounts... What if we need money in a pinch? Withdrawing from a 401K creates penalties and other issues...

I think you're in a very good position right now. Put in the 15% and see how it goes. You can always back off the percentage if it stretches you.

 

Also, do you have a broker that works with you on personal investments? I always have my guy review our accounts every 6 months. He/she should do that for you... Especially if you're paying them to monitor your personal accounts (commision fees).

 

I don't have a broker, but I want to open some Roth's for my wife and me next year, so I may get one then. See, I have never invested to supplement my income. My sole objective with investing is to save for retirement. That's is why I have never gotten a broker. I examine my 401k's funds' performances every quarter and see what the top 10 holdings are so I am not overlapping too much. So I keep tabs on things, but try not to adjust things too much unless it is really necessary.

About diversifying, that is why I like index funds. They are natually diverse and have low fees. I may put a little more in growth funds next year as I become more knowledgable, but I will continue to keep at least half of my contributions in index funds.

Thanks for all the feedback!

 

how much does your broker charge, and what service does he provide exactly? i've always felt confident that i'm doing what i can to prepare for retirement, as well as invest during the interim, so i've never felt the need for third-party assistance. but, i do try and keep an open mind.

i guess...pros/cons with having someone look over your books?

 

I get a pretty heavy discount as a result by the fact that my father has established such a good business with our broker. I don't even pay attention to the commision fees, but I think it's somewhere in the $30 range.

But it's well worth it. The amount of knowledge and research ideas I get from him are priceless. He manages all our IRAs (rollovers and Roths), all personal investments and helps us plan for the "contingencies" like children, unemployment, etc.