Author Topic: I'm an idiot. Really need help!  (Read 4830 times)

Rivals

  • Guest
I'm an idiot. Really need help!
« on: November 25, 2013, 08:41:18 PM »
Hey guys and girls,

I am new to this forum and ashamed to admit it, but I've been horrible with managing my money and wasted everything. I could have invested in 401k through my company 10 years ago but never did and I'm kicking myself for it.

I have nothing to my name now, so I really need some help.

I just started a new job and wanted to make this a fresh start and invest for my future the right way.

Wondering if anyone can give me some advice/tips about 401K...... always avoided 401k as it was intimidating to me and I never knew much.


So heres my situation.....

My company matches up to 4% on my 401K. So I have it set to contribute 4% of my paycheck to get that full match.

I want to be REALLY aggressive for the 1st year or 2 as I have nothing in my 401k so I have nothing to lose. I won't lose any sleep if my 401K takes a dip, as I wont be retiring for at least 30+ years.

I just dont know if I picked the right funds for my needs and how much to allocate to each fund. I list what I picked below:



US Large Cap Equity Index Fund - (No ticker symbol???) - Seeks to track the performance of the S&P 500 Index - Estimated fund expenses: 0.05%

US Small /Mid Cap Equity Index Fund - (No ticker symbol???) - Seeks to track the performance of the Russell 2500 Index - Estimated fund expenses: 0.07%



I only picked those two funds and allocated 50% of my contributions to each.

I have so many questions but I know I probably cant get them all answered. Any help will be greatly appreciated.

Are these aggressive enough for what I want?
Is picking just 2 funds ok or should I pick 3? Or maybe I should go with just 1?
Is 50% enough or not?? SHould I raise one to 75% and drop one to 25%?

Please help and sorry in advance if anything I wrote is dumb! If you want me to post all the funds in my 401K I will.


Thank you.





Dulcimina

  • Stubble
  • **
  • Posts: 182
  • Location: Maryland
Re: I'm an idiot. Really need help!
« Reply #1 on: November 25, 2013, 09:59:58 PM »
I think it's great that you are doing something now.  I'm not the best at giving this type of advice so I'm not going to answer whether 50% or 75% is the best.  But I'll point you to a strategy I've been following for several years: http://paulmerriman.com/the-ultimate-buy-and-hold-strategy/

I don't "slice and dice" to the extent he shows both because I don't want to keep track of that many funds and because finding an international small cap value fund with low fees isn't as easy as it sounds!  So don't be intimidated by that.  Instead, you could use the article to find  the simplest allocation that would balance returns and your personal risk tolerance.

Khan

  • Pencil Stache
  • ****
  • Posts: 616
Re: I'm an idiot. Really need help!
« Reply #2 on: November 25, 2013, 10:11:55 PM »
For fund choices, those two aren't bad ones to pick, however diversifying markets is a good thing to do. You're not scared of volatility, and don't have a nest egg to worry about, but you're investing in the US with those two funds, what about emerging markets(BRIC)? What about Japan and Europe?

We don't know what fund choices you have, but expense ratios are absolutely critical for evaluating them, and so your initial two choices are good.

Now, as for yourself, these are the initial questions to ask yourself, and to ask us after you've had a conversation with yourself on them.

How much do you make?
How much can you afford to put into your 401k? If you can max it and make more than 70k/year, you should do so(however 4% is your minimum contribution, as that maxes the employer match and doubles your money). If you can afford to put away 5.5k into a ROTH IRA, or fill up an HSA(health savings account) you should look to do that
Do you have a emergency fund/money outside of the 401k that you can access? You should build some money up, ending up with at the very least a taxable investment account later on.
What are your monthly expenses and do you think you can do better(do you live in 2000 sq ft by yourself? Do you have vices?)

Khan

  • Pencil Stache
  • ****
  • Posts: 616
Re: I'm an idiot. Really need help!
« Reply #3 on: November 25, 2013, 10:14:13 PM »
Also

You're not an idiot. You came upon a new way of living your life(being financially aware and concious) a little later than some of us, but a lot sooner then a hell of a lot of Americans. You're not in debt, sounds like your at a decent 0 point.

That's not bad. That's not terrible. You'll be fine, and you're not an idiot.

Rivals

  • Guest
Re: I'm an idiot. Really need help!
« Reply #4 on: November 26, 2013, 12:03:44 AM »
Thanks for the link Dulcimina, I'll definitely take a look at it.

And also thanks for the support Khanjar, I'm motivated to make this work.

As for the questions...

I only make 60K a year, but need to save a little emergency fund in my bank account then I'll start pouring more into my 401K.

I definitely want to look into a roth IRA as well.

Forgive me if this is a noob question but when you say taxable investment account do you mean Roth IRA?
Not sure if its better for me to use the money I could put in roth IRA into 401K instead. Or is it good to have both?

As for my monthly expenses, I have a car expenses (car payment/insurance/gas) but that's about it. I don't pay rent.




Rivals

  • Guest
Re: I'm an idiot. Really need help!
« Reply #5 on: November 26, 2013, 12:30:29 AM »
Heres a list of my 401K options, there are also target date fund options and company stock which i have not listed. Any tips/advice?


STABLE VALUE
Stable Value Portfolio - Citigroup 3-Month Treasury Bill Index -  (0.40%)

BONDS
US Fixed Income Index Fund  - Seeks to track the performance of the Barclays U.S. Aggregate Bond Index - (0.08%)
Core Plus Fixed Income Portfolio - Barclays U.S. Agg Bond Index- (0.57%)

US STOCKS
US Large Cap Equity Index Fund -        Seeks to track the performance of the S&P 500 Index - (0.05%)

US Small /Mid Cap Equity Index Fund -  Seeks to track the performance of the Russell 2500 Index - (0.07%)

Multi-Asset Inflation Hedge Portfolio -   Seeks to provide returns 3% above inflation as calculated by the U.S. Consumer Price Index over a market cycle - (0.71%)

US Large Cap Equity Portfolio -             Seeks to provide long-term growth of capital by investing primarily in stocks of large U.S. companies, as represented by the Russell 1000 Index - (0.44%)

NB Socially Responsive -     TICKER:NBSLX -  FundTotalExpenseRatio(net): 0.71%     FundTotalExpenseRatio(gross): 0.71%

Fidelity Contrafund -           TICKER:FCNTX -  FundTotalExpenseRatio(net): 0.74%     FundTotalExpenseRatio(gross): 0.74%

Fidelity Growth Company - TICKER:FDGRX -   FundTotalExpenseRatio(net): 0.90%     FundTotalExpenseRatio(gross): 0.90%

US Small/Mid Cap Equity Portfolio - Seeks to provide long-term capital appreciation by investing primarily in stocks of small to mid size U.S. companies, as represented by the Russell 2500 Index - (0.85%)

NON-US STOCKS
Non-US Equity Index Fund  - Seeks to track the performance of the MSCI All Country World ex-US Index (MSCI ACWI ex-US) 2 over a market cycle  (0.14%)

Non-US Equity Portfolio -      Seeks to provide long-term growth of capital and future income by investing primarily in stocks of large companies based outside the U.S. and to outperform the MSCI international equity benchmark (MSCI ACWI ex-US) over a market cycle (0.80%)

EMERGING MARKETS STOCKS
Emerging Markets Index Fund - Seeks to track the performance of the MSCI Emerging Markets Index over a market cycle. (0.18%)

Emerging Markets Equity Portfolio - Seeks to provide long term growth capital by investing primarily in stocks of large companies based in emerging markets and to outperform the MSCI Emerging Market Index over a market cycle (1.04%)

Khan

  • Pencil Stache
  • ****
  • Posts: 616
Re: I'm an idiot. Really need help!
« Reply #6 on: November 26, 2013, 12:53:46 AM »
Quote
Forgive me if this is a noob question but when you say taxable investment account do you mean Roth IRA?
Not sure if its better for me to use the money I could put in roth IRA into 401K instead. Or is it good to have both?

Taxable investment account is one that's free and clear of IRA or any other rules, but investments held in it are taxable(the gains made). By contrast, a 401k is taxed when it's withdrawn as income, and funds inside of a ROTH IRA are never taxed because they're post-tax money you have(and that's why the contribution limit is so low).

Myself, I jumped in with taxable investments before really considering the tax side of things. I've since switched to maxing my ROTH contributions and 401k, but it's really nice to know you have a lot of money outside of the tax shelters, that you can do anything with at any time. I don't keep much of an emergency fund... about 1-2 months because I have a lot of money in my taxable investment account which I consider my true emergency-emergency fund.

There's benefits to both the ROTH and the 401k, and IMO you should have both. The 401k itself, depending on your employer, you may be able to contribute after-tax earnings to it, which then fall under some of the ROTH rules. The benefits to the 401k is that your using pre-tax income to invest, and you may retire and draw it down in a no-income tax or lower-income tax state. The ROTH contributions on the other hand can be withdrawn at any time, but you only have(currently) 5500$ to deposit in them per year. Slipping in pre-tax income into your 401k, combined with the employer match will really raise your net worth a lot quicker then anything else, so it can be pretty motivating to see it happen.

So, there's
-ROTH IRA
-Traditional IRA(if your employer has a 401k plan, not really worth looking into that much, except for the roth pipeline if you ever FIRE before 60)
-401k
-Roth 401k
-HSA

As for your fund choices
-Stable value fund is a cash holding option that should be ignored for all ages before 80.
-I'd put a little bit at least of your money(>10%) into the non-US and the emerging market index funds. You can read the prospectus and find out some of the biggest holdings to understand who it's investing in. The expense ratio cost for taking the "Portfolio" vs index fund option is really high so it's not really worth looking at that much.

You're with Fidelity, so the target date funds likely carry ~.8% expense ratio's, and you can achieve your own "target date" fund with a lower expense ratio by diversifying across sectors, and by using the (100-age) rule of thumb for bonds

nikki

  • Pencil Stache
  • ****
  • Posts: 645
  • Age: 32
  • Location: South Korea
Re: I'm an idiot. Really need help!
« Reply #7 on: November 26, 2013, 01:56:11 AM »

I only make 60K a year, but need to save a little emergency fund in my bank account then I'll start pouring more into my 401K.

ONLY! ONLY! You make over twice as much as I do. No need to be so humble :-p

Ipodius

  • 5 O'Clock Shadow
  • *
  • Posts: 88
  • Location: Johannesburg, South Africa
Re: I'm an idiot. Really need help!
« Reply #8 on: November 26, 2013, 02:44:32 AM »
Well, don't be too hard on yourself - you've picked two of the best funds available to you :)

The only other two listed there I would recommend getting into are the following:


Non-US Equity Index Fund  - Seeks to track the performance of the MSCI All Country World ex-US Index (MSCI ACWI ex-US) 2 over a market cycle  (0.14%)

Emerging Markets Index Fund - Seeks to track the performance of the MSCI Emerging Markets Index over a market cycle. (0.18%)


I'd do an allocation something like this:

50% Large Cap US
20% Mid Cap / Small Cap US
15% International Developed World
15% International Developing World

Then, if you want to buy some bond funds, rather do it in a taxable account in the future - none of the options they give you in your 401K are great fee-wise when it comes to bonds.

Good job on making the change! And don't feel depressed / upset. You've got a great income ($60k, once you learn some Mustachian ways, can go a long way!) and you are still young (I'm guessing mid 30s), so really you have a lot going for you.

 

judgemebymyusername

  • Guest
Re: I'm an idiot. Really need help!
« Reply #9 on: November 26, 2013, 04:12:38 AM »
This wiki contains the answer to absolutely any question you may have on the subject http://www.bogleheads.org/wiki/Main_Page

pom

  • Bristles
  • ***
  • Posts: 288
  • Location: Paris, France
Re: I'm an idiot. Really need help!
« Reply #10 on: November 26, 2013, 05:06:41 AM »

I'd do an allocation something like this:

50% Large Cap US
20% Mid Cap / Small Cap US
15% International Developed World
15% International Developing World


I would also recommend something like that.

Rivals

  • Guest
Re: I'm an idiot. Really need help!
« Reply #11 on: November 26, 2013, 08:45:19 AM »
Wow.. waking up to find all these replies is really encouraging.

I'm glad I decided to post on these forums as it seems there is a great coummnity here.

I definitely value everyones input and will take everything into consideration as I move forward. I thank everyone for their support. I know that I'm headed in the right direction now and hope to learn all I can about the mustachian ways lol.

Thanks so much!!!

Iron Mike Sharpe

  • Bristles
  • ***
  • Posts: 397
Re: I'm an idiot. Really need help!
« Reply #12 on: November 26, 2013, 12:35:43 PM »
I'd suggest reading a book or two from your library.  One I recommend is The Boggleheads Guide to Investing.  I'm sure others can give you other good books to read.  You really need to get a good understanding of everything so you don't end up panicking and moving money around when there is a dip in the markets.

As far as 401K vs Roth IRA, no one can tell you what to do without more info.  If you are single with no dependents, you are in the 25% tax bracket.  So, probably bumping your 401K contribution rate up until you drop down to the 15% tax bracket would be more beneficial to your situation than investing in the Roth IRA.

oldladystache

  • Pencil Stache
  • ****
  • Posts: 629
  • Age: 74
  • Location: coastal southern california
Re: I'm an idiot. Really need help!
« Reply #13 on: November 26, 2013, 01:29:04 PM »
The 2 funds you have selected are fine. The most important thing now and for the next few years is how much you invest, not where you invest it.

Take the next few years to study the bogleheads forum at your leisure. When you really know what you are doing, and why, you'll have plenty of time to get things right. If you've been saving as much as you reasonably can it will be time to start optimizing your investments.


WillPen

  • 5 O'Clock Shadow
  • *
  • Posts: 57
Re: I'm an idiot. Really need help!
« Reply #14 on: November 26, 2013, 01:58:49 PM »
I second Iron Mike's advice -- Get the Bogleheads book. I found it to be very helpful and not too "deep" or technical, but still very informative. It helped me plug in some holse on subjects that I wasn't too knowledgeable of.