The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: NewJourney on January 09, 2016, 09:54:08 PM
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So my employer offers a 401K..and in the package you have to choose you want to invest your 401K with. There are over 15 choices and none of it makes sense so I just picked one while I was there and they told me I can change later. Does it really matter which one I have? Is there a way to pick the best one? Any help is appreciated, really confused. All other 401K plans I've had, I've never been offered these choices.
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So my employer offers a 401K..and in the package you have to choose you want to invest your 401K with. There are over 15 choices and none of it makes sense so I just picked one while I was there and they told me I can change later. Does it really matter which one I have? Is there a way to pick the best one? Any help is appreciated, really confused. All other 401K plans I've had, I've never been offered these choices.
So what are the "choices"? Are these different funds that you can invest in? Can you only pick one "choice" or multiple ones and can you allocate specific percentages of your money to these choices?
Yes, in the long run it matters what you pick. Even if you can change your choices, it's important to look into this now, otherwise you'll postpone this forever. So you're doing the right thing, by asking these questions now, but it needs a bit more information to be able to help.
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So my employer offers a 401K..and in the package you have to choose you want to invest your 401K with. There are over 15 choices and none of it makes sense so I just picked one while I was there and they told me I can change later. Does it really matter which one I have? Is there a way to pick the best one? Any help is appreciated, really confused. All other 401K plans I've had, I've never been offered these choices.
So what are the "choices"? Are these different funds that you can invest in? Can you only pick one "choice" or multiple ones and can you allocate specific percentages of your money to these choices?
Yes, in the long run it matters what you pick. Even if you can change your choices, it's important to look into this now, otherwise you'll postpone this forever. So you're doing the right thing, by asking these questions now, but it needs a bit more information to be able to help.
Yes, they are different funds you can invest in. and you can designate certain percentages to go to different ones.
I'm going to see if I can post the options I have
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Here is a summary of my options...I can get more details of them if anyone wants to see.
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Do you have expense ratios for these that you can share?
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Do you have expense ratios for these that you can share?
I'm not sure what that is, or how to find it..I did attach a breakdown of on of the options to see if that information is on there.
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Also, the MAX amount I can contribute to have a match is 7%. If I contribute 7% my company will add 4%.
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I also found this chart (see attachment) and I'm currently in the Lifepath 2055. If I want to retire by 40..isn't this a bad option for me? Shouldn't I be in something closer to LifePath 2030?
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The way target date funds work is that the allocation shifts from more aggressive to more conservative for retirement dates that are closer. It does not get you to the goal faster. It preserves more of what you have allocated the closer the target date the fund is. These are designed for typical 40 year careers. There is a big difference between a 45 year old working another 15 years (the typical 2030 customer) and a younger person who plans to FIRE in 15 years and needs more growth to achieve that goal.
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Those LifePath funds have pretty high expense ratios (over 1% for the 2020 version (https://www.blackrock.com/investing/products/227789/blackrock-lifepath-2020-portfolioclass-i-fund), for example). I would probably put the bulk of my account into the Vanguard Institutional Index (https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/productoverview?fundId=0094) fund. It's an index fund with a 0.04% expense ratio and tracks the S&P 500.
It sounds like you're just getting started with investing. Read the JL Collins stock series (http://jlcollinsnh.com/stock-series/) to learn more about how investing works. As part of that process, develop an "investment policy statement" that covers what your long-term goals are and your asset allocation (what percentage of your investments should be in US stocks, international stocks, bonds, etc.). The Vanguard Institutional Index fund is a decent place to put your whole 401(k) while you're figuring that all out.
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Go to the library and take out a book called "Boglehead's Guide to Investments", or any Boglehead book. Read it. What you've done so far is okay for now, but you should come to understand what you're investing in. Once you have a basic understanding (this isn't rocket science, really!) then what choice(s) are best for you will become clear.
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Seattlecyclone's advice of reading the JL Collins stock series is also an excellent one!
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+1 for "it matters what you pick" and a target date fund probably not being right for someone looking to fire early.
I found Tony Robbin's Master the Money Game helpful, it has a number of portfolio models you can choose from and what to look for.