Author Topic: Please help me with my 401k  (Read 4241 times)

lkleeb

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Please help me with my 401k
« on: October 01, 2013, 12:13:54 PM »
Hello all,
I have been lurking awhile on this site and love everything on it. Thanks to everyone for making it such a useful site. My wife and I have always been pretty frugal, but since reading this site, we are really starting to trim the fat off of our expenses. I have a question regarding my 401k at work. Fortunately, they do offer two vanguard products. They match only 4% which kind of sucks, but it is better than nothing. By default, they have put me in a 2050 target date fund which I suspect is a crappy fund. I was wanting to know what to do. I have several questions but I have ranked them in importance.
1)Which funds and at what percent should I invest in my 401k? (I do not see any bonds offered through vanguard or REIT's)
2)What strategy should I use to get out of debt? As of right now, my strategy has been to only put in the minimum amount to get my match from my employer and then with all leftover cash to snowball first into the used vehicle, and then snowball that to pay off student loans. Assuming that I have about $4000 each month to use on debt, this should take me 1 year and 7 months. Should I pay less towards my debt and put more towards my 401k at work? Or should I keep doing what I am currently doing.
3)After the student loans and vehicle are payed off, should I pay off home early, or maximally contribute towards 401k and IRA(if I qualify).

Some info about me:
married
single income family with one baby
About to turn 30
Take home pay is around $110,000
Student loans $56,000     3% interest
Used Vehicle $15,000       3%
15 yr Mortgage $168,000 3.1%


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Greenbeard

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Re: Please help me with my 401k
« Reply #1 on: October 01, 2013, 12:46:19 PM »
Vanguard offers REITs.   Vanguard REIT Index Fund Investor Shares (VGSIX)

All your debt is at low interest rates, so that's good.  I think if I were you I'd go ahead and max out your 401K.  You're so young, that money will have a long time to grow.  It would be nice to take advantage of the tax savings now and let Uncle Sam's money work for you for the next 29.5 years.

The car is a depreciating asset, so I would either pay that off, trade it for a cheaper car that you can afford to purchase outright.  Either way that would be the debt I'd be going after first.

Then I would concentrate on the student loans, but you'll want to build up an emergency fund if you don't have one.  Tying up too much capital by putting everything in the student loan could leave you exposed in an emergency.

Once your comfortable with your emergency fund then start funding a taxable investment.  I started with a Vanguard Lifestrategy fund that closely matched my desired asset mix (VSMGX 80/20 stocks/bonds)  Then I use other Vanguard Mutual funds to fine tune my stock/bond ratio, plus a little in a REIT (VGSIX).
« Last Edit: October 01, 2013, 02:51:20 PM by Greenbeard »

willn

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Re: Please help me with my 401k
« Reply #2 on: October 01, 2013, 02:43:45 PM »
Smash the debts, car first, then student loan. I'm ok with you putting up to the match in your 401k.  I'd choose 3 our 4 funds and divide the contribution evenly, Vanguard or not--just pick the 4 that have the highest return over the last 10 year period.  Maybe they are the Vanguard, maybe not, just look for good performance over the long haul.

Lots of folks here will disagree with me regarding smashing the debt first but I believe it represents a mathematical risk and also a subtle emotional burden, that's why I recommend holding back a on the retirement contribution until you get rid of it.  Getting rid of debt will be important if something bad happens--a job loss or an illness.    Once you are free of those big debts, and then build an emergency fund of 3 - 6 months cash.  Only after that should you dump a metric crapton of money into your 401k. 

Once the debt is gone max the 401k and open a Vanguard account for your Roth IRA and max that out each year, probably get your college savings account started there too.

lkleeb

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Re: Please help me with my 401k
« Reply #3 on: October 01, 2013, 02:59:13 PM »
Appriciate the advice. Anybody have any experience with the two vanguard options through my employer? (the large and small cap)

Petunia 100

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Re: Please help me with my 401k
« Reply #4 on: October 02, 2013, 12:57:22 PM »
I disagree with the above advice to simply choose the 4 best performing funds and split your money.   You will  merely buy the asset class(es) which has(/ve) performed the best in the past decade.    That is no way to build a diversified portfolio.   Especially since what performs best in the next decade will likely be something different.

Vanguard's index funds are excellent.  Yes, use those two for US large and US small.   You should also have some international and some bonds.   If you want  to own Reits, hold some of those too.   Since there aren't any in your 401k, hold off until you are ready to invest more than the minimum to get your full match, and buy them in an IRA.

I'd take the Pimco total return bond fund and the Oakmark Intl OAKIX over the other choices.   

Splitting those 4 funds equally (25% into each) is a reasonable plan.   Tweaking it a bit is reasonable too.

You can learn more about the funds in your plan at morningstar.com.

Agree with the advice to invest only the minimum until you have eliminated all debt except the mortgage.  At that point, contribute the maximum and also max Roths for you and spouse.   Throw additional available money at the mortgage.

willn

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Re: Please help me with my 401k
« Reply #5 on: October 02, 2013, 02:27:43 PM »
I disagree with the above advice to simply choose the 4 best performing funds and split your money.   You will  merely buy the asset class(es) which has(/ve) performed the best in the past decade.    That is no way to build a diversified portfolio.   Especially since what performs best in the next decade will likely be something different.

Point taken. I should have encouraged some diversification. If it were me and they had solid track records (at least 8-9% over 10 years) I'd get the 2 Vangaurds, the best international, and then the best small or mid cap.  I don't do bonds. 

GreenGuava

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Re: Please help me with my 401k
« Reply #6 on: October 02, 2013, 02:46:46 PM »
Is this your first 401(k)?

Do you have any IRAs or other retirement assets?

What are the expense ratios of other funds you're considering?  What is the expense ratio for the default fund?

lkleeb

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Re: Please help me with my 401k
« Reply #7 on: October 03, 2013, 09:34:36 AM »
Guys, thanks so much for your help. I kinda assumed this thread died.  :D
My original question was answered with one of the newer posts about 25% vanguard small cap 25%vanguard large cap 25%PIMCO (bond) 25% international. I think i may fine tune that suggestion with a little more emphasis on the vanguard funds maybe 70% because of my youger age. This is my only retirement account thus far as I have been in school my whole life. My wife has an Roth IRA through edward jones which her mom started for her years ago. Thanks to this website and the jcollinsnh.com website, I now know the real benifits of going through vanguard. I plan to open a Roth IRA through them. Unfortunatley, the edward jones agent is my first counsin, godfather of my child and we are the godparents of their children and is a real good guy, so it may make for an akward conversation if I take my wifes ROTH and move it to vanguard. I really dont know how I will approach that. Maybe go with an index fund through edward jones or just bite the bullet and move the account. I think I will try to look at the vanguard REIT and bonds for my ROTH. I will continue to pay off the car and student loan debt, then probably stick with my 15yr mortgage and try to invest at least 50% of my income. Any other suggestions would be much appriciated. And once again, thank you so much for your help!

lkleeb

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Re: Please help me with my 401k
« Reply #8 on: October 03, 2013, 09:46:40 AM »
and to answer the expense ration question do the defalt target fund it seems to be .8% I am sure all of you have had some troubles finding out the ACTUAL ER as it seems they make it hard to find out intentionally. The vanguards are a typical low amount. I think one is .05% and the other is .1%. Readers of the jcollins website would know that he typically does not recommend investing in international stocks when you are in an large cap index fund using the reasoning that the large companies are in large international companies and he feels that you do get international exposure with those funds. THoughts???

willn

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Re: Please help me with my 401k
« Reply #9 on: October 03, 2013, 06:39:18 PM »
and to answer the expense ration question do the defalt target fund it seems to be .8% I am sure all of you have had some troubles finding out the ACTUAL ER as it seems they make it hard to find out intentionally. The vanguards are a typical low amount. I think one is .05% and the other is .1%. Readers of the jcollins website would know that he typically does not recommend investing in international stocks when you are in an large cap index fund using the reasoning that the large companies are in large international companies and he feels that you do get international exposure with those funds. THoughts???

That's reasonable, large multinationals will benefit from foreign economies on the rise.

But a fund solely in international has higher risk, along with a possibly higher return.

So I view it as a "barbell approach"--one end of the barbell, you do heavy investing in the lower risk, national and multinational indexes etc, but expose a smaller percentage of your investment share (5? 10?) to higher risk that may have a larger payoff; you are risking a small share of your total net  assets, but because stocks and even entire national economies can increase in scale very rapidly, you expose yourself to an upside that is large in proportion to the percentage of your net worth invested.