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401k/investment question

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FatHobbit's avatar

FatHobbit

Senior Member

8,651 posts
Jul 22, 2011 10:34 AM
The adviser we have with our company 401k is pretty much worthless, so I was hoping someone could point me in the right direction. I will admit up front that I know very little about investing. I try to keep my portfolio somewhat diversified, but in the most aggressive options we have available. Other than that I just let it ride out the ups and downs of the market. So far it has been doing fairly well, but the impending debt ceiling crisis has me concerned.

So my question is, can I move this into something that is guaranteed to not lose money if everything goes to hell?
Jul 22, 2011 10:34am
thePITman's avatar

thePITman

Senior Member

3,867 posts
Jul 22, 2011 10:38 AM
My Roth 401k through Fidelity has the following chart:


Basically, the philosophy is the earlier you are in your career, the more aggressive. My plan automatically, gradually moves me from more aggressive (volatile) to more conservative (secure funds) the closer I get to retirement. But if I wanted to, I could change my "estimated retirement date" to alter where in that progression they think I am, thus changing what mix I have.
Jul 22, 2011 10:38am
B

BlueJayRay

Senior Member

106 posts
Jul 22, 2011 10:40 AM
Eack 401k program has it's unique features... In our program, we can move our money into a "Fixed account" that is guanateed not to lose value, but be very careful, because once it is there, we can only move 20% per year back out of that account... which really bites.
Jul 22, 2011 10:40am
FatHobbit's avatar

FatHobbit

Senior Member

8,651 posts
Jul 22, 2011 10:43 AM
thePITman;837542 wrote:Basically, the philosophy is the earlier you are in your career, the more aggressive. My plan automatically, gradually moves me from more aggressive (volatile) to more conservative (secure funds) the closer I get to retirement. But if I wanted to, I could change my "estimated retirement date" to alter where in that progression they think I am, thus changing what mix I have.

I agree with that philosophy and I know nothing about stocks so I wouldn't even want to pick my own. My investments are split up into the four most aggressive funds available to me and the value does go up and down frequently. I don't try to change anything because I don't think I'm smart enough. But I am worried about the next couple of weeks and having everything go down the drain if they can't come to an agreement and we end up defaulting. (Although I looked today and my investment is up 1.5% from yesterday so it doesn't seem to be too affected by it right now.)
Jul 22, 2011 10:43am
FatHobbit's avatar

FatHobbit

Senior Member

8,651 posts
Jul 22, 2011 10:45 AM
BlueJayRay;837551 wrote:Eack 401k program has it's unique features... In our program, we can move our money into a "Fixed account" that is guanateed not to lose value, but be very careful, because once it is there, we can only move 20% per year back out of that account... which really bites.

I think once we move money out of a fund, we can't move it back for 30 days. I'm not sure and I do have a call in with our account rep, but I don't have any confidence in her at all. My guess is that she will only be able to confirm the 30 day rule and not be able to offer any useful advice.
Jul 22, 2011 10:45am
R

raiderbuck

Senior Member

1,623 posts
Jul 22, 2011 11:39 AM
BlueJayRay;837551 wrote:Eack 401k program has it's unique features... In our program, we can move our money into a "Fixed account" that is guanateed not to lose value, but be very careful, because once it is there, we can only move 20% per year back out of that account... which really bites.

Hmmm...you wouldn't happen to work for a local or state government would you?
FatHobbit;837566 wrote:I think once we move money out of a fund, we can't move it back for 30 days. I'm not sure and I do have a call in with our account rep, but I don't have any confidence in her at all. My guess is that she will only be able to confirm the 30 day rule and not be able to offer any useful advice.

Keep in mind that a 401k is a retirement plan. I'm not sure how old you are or how long you plan on working, but these are long term accounts. Granted, the current financial crisis of our Government impacts everything, but that doesn't mean that our economy won't recover.
Jul 22, 2011 11:39am
FatHobbit's avatar

FatHobbit

Senior Member

8,651 posts
Jul 22, 2011 11:44 AM
raiderbuck;837664 wrote:Keep in mind that a 401k is a retirement plan. I'm not sure how old you are or how long you plan on working, but these are long term accounts. Granted, the current financial crisis of our Government impacts everything, but that doesn't mean that our economy won't recover.
I am 37 and have no plans to retire any time soon. Typically I just let it ride because I wouldn't even try to predict what the market is going to do. But I think it's fairly obvious that the us defaulting will have an impact.
Jul 22, 2011 11:44am
McFly1955's avatar

McFly1955

Senior Member

1,441 posts
Jul 22, 2011 12:15 PM
I do the 401k recordkeeping for several companies....Most plans have a money market fund, something that is not very volatile that you can transfer too....Look out for redemption fees, especially if you plan to move the money and then move the money back again soon, you will probably get dinged in that case.

I'm 25, so I throw it all into the most aggressive funds and let it go...You aren't going to time the market and get rich quick off of your 401k and its going to be growing for 20 - 30+ years, so I just keep doing what I'm doing.
Jul 22, 2011 12:15pm
FatHobbit's avatar

FatHobbit

Senior Member

8,651 posts
Jul 22, 2011 3:02 PM
McFly1955;837725 wrote:I do the 401k recordkeeping for several companies....Most plans have a money market fund, something that is not very volatile that you can transfer too....Look out for redemption fees, especially if you plan to move the money and then move the money back again soon, you will probably get dinged in that case.

I'm 25, so I throw it all into the most aggressive funds and let it go...You aren't going to time the market and get rich quick off of your 401k and its going to be growing for 20 - 30+ years, so I just keep doing what I'm doing.

I don't doubt that I can't time the market in normal circumstances, but the possibility of the government not getting their shit together in time is pretty real. My 401k dropped 42% in 2008 and I would like to avoid that if I can.

She did call me back and she also recommended that I just let it ride. There is no penalty for me to move the money from one fund to another. I just have to wait 30 days to move it back.
Jul 22, 2011 3:02pm
thedynasty1998's avatar

thedynasty1998

Senior Member

6,844 posts
Jul 22, 2011 6:48 PM
How do OC'ers manage their 401k different than their IRA's? Or do most not have both?
Jul 22, 2011 6:48pm
dwccrew's avatar

dwccrew

Not Banned

7,817 posts
Jul 22, 2011 7:31 PM
Let it ride. The gov't is going to raise the debt ceiling, they are just posturing right now. When they do raise it, watch the market soar and your money grow.
Jul 22, 2011 7:31pm
tk421's avatar

tk421

Senior Member

8,500 posts
Jul 22, 2011 7:37 PM
Until the time comes when all our debts are called in, then this country is screwed.
Jul 22, 2011 7:37pm
McFly1955's avatar

McFly1955

Senior Member

1,441 posts
Jul 22, 2011 7:45 PM
thedynasty1998;838186 wrote:How do OC'ers manage their 401k different than their IRA's? Or do most not have both?
I put money in a Roth IRA first --- Max I can contribute to that is 5K per year.

My company puts 6% into my 401k -- no match, just profit sharing...I don't contribute to this plan.

I'm young so super aggressive in both accounts -- basically the same risk, just different funds...

For most people I would say:

1 - 401k to get the maximum co. match

2 - max out a roth IRA (I like the fact that you can get contributions out with no penalties -- Can serve as retirement and a worst case emergency fund)

3 - put more into your 401K (above and beyond the amount in #1)
Jul 22, 2011 7:45pm
thedynasty1998's avatar

thedynasty1998

Senior Member

6,844 posts
Jul 22, 2011 7:58 PM
McFly1955;838230 wrote:I put money in a Roth IRA first --- Max I can contribute to that is 5K per year.

My company puts 6% into my 401k -- no match, just profit sharing...I don't contribute to this plan.

I'm young so super aggressive in both accounts -- basically the same risk, just different funds...

For most people I would say:

1 - 401k to get the maximum co. match

2 - max out a roth IRA (I like the fact that you can get contributions out with no penalties -- Can serve as retirement and a worst case emergency fund)

3 - put more into your 401K (above and beyond the amount in #1)

Pretty much my same thoughts.
Jul 22, 2011 7:58pm
coyotes22's avatar

coyotes22

Go Tigers

11,298 posts
Jul 22, 2011 9:36 PM
Gold. Invest in GOLD!!!!!
Jul 22, 2011 9:36pm
j_crazy's avatar

j_crazy

7 gram rocks. how i roll.

8,372 posts
Jul 22, 2011 9:52 PM
I'm young so I'm being pretty aggressive with my 401k. i'm also putting a lot (aka the max, something like 15,500) into it so I'm not as agressive as most people my age.

I earn too much to qualify for a Roth, otherwise I would do that. Unfortunately since we file jointly, my wife can't even get one.
Jul 22, 2011 9:52pm
thePITman's avatar

thePITman

Senior Member

3,867 posts
Jul 23, 2011 9:09 AM
thedynasty1998;838186 wrote:How do OC'ers manage their 401k different than their IRA's? Or do most not have both?

I let Fidelity manage my Roth 401k (recently changed to Roth 401k instead of normal 401k). I set my "estimated retirement year" on the web site, and it gradually moves from more aggressive to more conservative for me automatically as I get closer to retirement. I put in 12% and my company matches 6%, so I'm essentially contributing 18% monthly. I read on the site that the average/encouraged amount is 12-15% total.

I have had a Roth IRA through AmericanFunds (MMA financial services in Kidron) since before I got my current job and 401k, and I contribute $50 monthly to my IRA (not much, I know). I am allowed to take out of it free of charge as long as I don't take out more than I have put in. However, I've never had to take money out of it. What's nice is when applying for a mortgage (or other large loan), you can include the withdrawable money in the IRA as "available funds" to increase approval levels. I know the IRA is not my retirement fund, so the amount I contribute depends on the market and whatever I can afford to contribute outside of my weekly $200 contributions to my bank savings account (more accessible). When the market was really bad in 2009 I was putting in $100+/mo when share prices were low, and I've slowly gone down to $50/mo now. Over 3-4 years, the amount has had good growth by only putting in $50-$100 per month.
Jul 23, 2011 9:09am
G

gut

Senior Member

15,058 posts
Jul 23, 2011 12:15 PM
You're generally limited in your 401k to the 10 or so choices they offer (unless you have directed investment, then can put it into about any listed security). The only way to protect against things going to hell is international bond/equities and commodities. Money markets aren't doing jack, and even high quality bond funds, while not returning much, leave you 100% exposed to the dollar and that's the big risk against inflation/devaluation you want to protect against.

Forget my 401k mix, but in my other retirement accounts I am approximately 20% commodity, 40% foreign, and 40% US. The 80% non-commodity mix breaks down to about 20% bond (half high-yield and half high quality) and 80% equity.

Now, a significant dollar rally would kill me, but I'm very bearish on the dollar long-term unless Washington makes a dramatic reversal on the debt and deficit. Truthfully the only reason I have money in US assets is because the returns have generally been much better than most other developed markets (especially Europe and Japan, wihch have more or less sucked as investments for years and years).

My only other quick advice is, as far as commodities, don't buy gold and don't buy oil - they have huge speculative swings and the volatility can be tough to stomach. Rather, find yourself a good basket commodity ETF or fund to give yourself some additional diversification. And look at the weightings on gold and oil because you will usually get significant exposure to both, sometimes 40% or more combined. Personally I wouldn't want more than 5% of my total allocation to either gold or silver. That's as much risk (10%) as I would be comfortable taking.
Jul 23, 2011 12:15pm
G

gut

Senior Member

15,058 posts
Jul 23, 2011 12:18 PM
I've never put money into a Roth and feel like I should given where I expect taxes to head. If your tax rates remain the same, you get the same after-tax from either a Roth or 401k. If your marginal rate is higher in retirement, that makes the Roth superior. Most people historically have lower marginal rates in retirement, making the 401k superior. But like I said with what me may be looking at for taxes all bets are off.
Jul 23, 2011 12:18pm
C

Con_Alma

Senior Member

12,198 posts
Jul 23, 2011 12:41 PM
gut;838815 wrote:... If your tax rates remain the same, you get the same after-tax from either a Roth or 401k.


This is very true and a point a lot of people don't understand. Of course all things, tax rates, being equal at contribution and withdrawal time is the key. The Roth does provide flexibility with regards to principle withdrawal though.
gut;838815 wrote:... ... But like I said with what me may be looking at for taxes all bets are off.
Yep. Because you plan to having lower earnings in retirement no longer means you're total tax liability will be lower!
Jul 23, 2011 12:41pm
G

gut

Senior Member

15,058 posts
Jul 23, 2011 1:04 PM
Con_Alma;838836 wrote: Yep. Because you plan to having lower earnings in retirement no longer means you're total tax liability will be lower!

True, which is why a balance between the two is probably the most reasonable approach. I'd have to look, but I think the ability to contribute to a Roth is phased out (yep, looks like between $107-$122k). Some companies had a plan to also contribute to a Roth, but I think that was part of the Bush tax cuts.

So, from that perspective, I might argue maxing out the 401k first because if you're making under $100k I'm not sure how high a tax bracket you can really end-up in. Keep in mind, also, that capital gains are 15%, maybe going back to 20%, so that makes the Roth less appealing vs. simply investing your money in a standard brokerage account and paying capital gains, unless capital gains go to 25% then the dynamic changes.
Jul 23, 2011 1:04pm
C

Con_Alma

Senior Member

12,198 posts
Jul 23, 2011 1:05 PM
There certainly are benefits to having options when withdrawing from investment assets. It gives one the ability to manage taxable liability.
Jul 23, 2011 1:05pm
G

gut

Senior Member

15,058 posts
Jul 23, 2011 1:33 PM
Con_Alma;838865 wrote:There certainly are benefits to having options when withdrawing from investment assets. It gives one the ability to manage taxable liability.
Absolutely. You have to put money in a 401k to get the company match, at a minimum. The Roth vs. standard brokerage account is a much tougher call, IMO. I'm sure if you're a fairly diligent and savvy investor, you can make a combination work better for you than either by themselves. Of course, most people with the money to max a 401k and have left over are phased out of the Roth, anyway.

Although I'd have to look again, I think my current 401 plan gives me the option of splitting the 16,500 between Roth and 401. Of course, the prudent approach would be 401k distributions up to a marginal rate of about 20%, and then take capital gains from a brokerage account that would be 20, maybe 25%. The tax-free compounding offers some advantage to the Roth over a brokerage account, but not if you're marginal rate is high in retirement.
Jul 23, 2011 1:33pm
C

Con_Alma

Senior Member

12,198 posts
Jul 23, 2011 1:45 PM
gut;838909 wrote:..., but not if you're marginal rate is high in retirement.
...and no one knows what their marginal rate will truly be thus the benefit of having options.
Jul 23, 2011 1:45pm
G

gut

Senior Member

15,058 posts
Jul 23, 2011 1:51 PM
Con_Alma;838918 wrote:...and no one knows what their marginal rate will truly be thus the benefit of having options.
Right. Just curious to your perspective on whether a Roth offers real advantage to a brokerage account, because that brokerage account is also very liquid so gives you some increased flexibility.

I suppose my thinking is, if I have too much in my 401k then I'm already getting the extra benefit of compounding a Roth would provide. In other words, as opposed to starting contributions to a Roth (i.e. take away from my 401k contribution), I'm not sure there's any benefit there. If I traded frequently, then it makes sense to do active investing from a Roth (which would be ordinary income in a brokerage account). But I'm an asset allocator and mostly use new contributions to rebalance.

I'm in a fairly high marginal bracket now, so I tend to favor the 401. My thinking is, if I do well enough in retirement that my choice proves to be sub-optimal, then it's a nice problem to have. My conservative approach says if I'm not wealthy when I retire, then taking the big deduction now makes more sense.
Jul 23, 2011 1:51pm