Making sense of my 401k

[winkeyman]

I am looking for guidance regarding my company 401k. I am new to MMM and investing in general but I am trying to absorb as much as I can.

My company provides a 401k plan through T Rowe Price. I have been with the company for 3 years, and have maxed out the employer contribution all 3 years to a total of %15 of my salary.

My return over this time period is only about %3.5 which is discouragingly low. I started looking into it and I can't really make sense of what I am seeing. My holdings are a mixture of the following securities, and I am listing the 3-year growth along with them.

VSMGX %9.85
VASGX %12.53
VASIX %4.50
Company Stock %7

I guess I don't understand how if my holdings have grown like this yet my account overall has done so poorly. The expense ratios for the Vanguard funds are 0.14, 0.16, and 0.17 does this and whatever fees T Rowe charges for managing the account eat into my returns that badly?

I am thinking about changing to %90 Vanguard Total Stock Market Index and %10 company stock going forward.

[seattlecyclone]

The three-year growth numbers you're reporting: what period does this cover? Is it through the end of 2014, by chance? Most stock indexes are down a few percent since the beginning of the year, and this could explain much of the discrepancy between the three-year return numbers you're seeing and the actual return you have in your account.

[RangerOne]

Is there any reason you want to tie 10% of your retirement to company stock? General investment advice is to not carry stock in a company you work for because you are already heavily invested in them since it is your source of income. Some people do get paid in RSU's and also get stock purchase discounts, but these usually don't apply to 401k company stocks.

Most would do a 100% stock, 90/10 stocks and bonds or 80/20 stocks and bonds.

With my company I try my best to mirror the Vanguard Retirement Fund allocations to balance, US Stock, Foreign Stock, and US Bonds.

- Figure out your appropriate stock to bond ratio based on time to retirement
- Figure out your Domestic to Foreign Stock split
- For domestic stocks try to match your total investment diveristy to the morning star US Total Stock market. T Rowe should have tools to determine which funds will give you a specific morning-star box index. That way you can attempt to mirror the US Total Market. [url]https://www.bogleheads.org/wiki/Approximating_total_stock_market
- Then pick a good bond index and maybe get some help from T Rowe on picking a reasonably diverse fund for foreign investments.

T Rowe may also have targeted retirement funds that basically do the above for you, but you have to trust the way they are re-balancing each year.

If you have not done the above that may be why your 3 year returns look different depending on what you are comparing yourself to.

I believe you last 3 year returns should have been higher. Though if you look at just this year for instance they would be very low. Fidelity only lets me look at the last 2 years easily, but for that period I am seeing closer to 10% return and I have cared 80-90% stock for the past 3 years with a balance close to above. I am sure there are people getting more and less depending on their specific allocations.

If you trust your allocations and follow a methodology you shouldn't worry too much about short term returns since some time spans just wont look very good even though you are making good choices. Like this year so fare seems to be a bit negative on returns.

[RangerOne]

I'll second that if you didn't match date ranges then your comparison will look wrong.

[winkeyman]

Good point on the company stock. I guess my answer would just be "Because that's how I have always done it" which isn't a very good reason.

Regarding the return numbers I guess I must just be overlooking something.

As far as date ranges, I am comparing my 3-year growth to the 3-year growth of the securities that I hold. At least that's what I thought. I'll have to look again to be sure.

[norabird]

Chiming in that my 401k which I converted recently to a rollover IRA with everything held in VFIFX has been flat/negative this year, but that the market is the likely culprit. I wouldn't switch out to 10% company stock if I were you.

[winkeyman]

I am thinking that it should be more like

%90 Vanguard Total Stock Market Index
%10 Vanguard Total Bond Index

[beltim]

Regarding the return numbers I guess I must just be overlooking something.

Are you just comparing the value now to the value of your contributions?  That would be my guess of where your mistake is.  Assuming equal contributions every month over the last 3 years, your average age of invested dollars is just 1.5 years.  If you've increased your contributions in that time frame, then the average age is even less.  You can't receive 3 years of returns on the 35 out of 36 months of contributions that haven't been invested that long!

[fattest_foot]

You also have to consider that you're buying in to each fund on a pay period basis. So the money you invest pay period 1 gets the earnings of the entire year, while pay period 20 would only get 8 months worth. If the market has a huge swing at some point in the year, your entire contribution is not going to reflect that.

[winkeyman]

Ok, I am seeing the bigger picture now. The "average age" of my investments as illustrated turned on the light bulb.

I will pointed out that I worked my ass off for a "D" in college algebra 10 years ago. Takes a bit of work to wrap my mind around numbers.

Thanks for the help!

[beltim]

Thanks for the help!

Happy to!  Feel free to ask more questions too.

[winkeyman]

Thanks for the help!

Happy to!  Feel free to ask more questions too.

Well, if you insist :)

Maybe you folks can critique my overall financial plan that I have been developing since getting into MMM and others.

Wife and I will continue putting %15 into our 401ks
Next year we will begin contributing the max to our individual Roths via total stock market index funds.
We are on track to pay off both of our car loans by the end of this year
By the end of next year we will knock off our $20k "avoid PMI while only putting down 10 percent cash) mortgage which is at 5.5 interest (bought the house this year). We will leave our lower interest %80 30-year mortgage alone for now
We will also pay off my ~$7k student loans by the end of next year.
At that point we will have no debt other than the 30-year mortgage
After that begin socking away additional money into either Total Stock Index funds or Dividend stocks (still reading up on this). May look into buying rental properties if we decide we are up to that task.
The plan being to do all of this while living off of the smaller of our two incomes and paying debt/investing with the rest. Goal is to be FI and/or RE in 10-15 years. Currently 29 and 25 years old.

Some of these goals may be accelerated by bonuses. In the past we have blown bonus money on toys and entertainment. I say "may" because this has been a rough year for oil and we both work in oil and gas.

[Scandium]

I would pick one of the target retirement funds, rather than have several with lots of overlap. Or total stock + total international if you have access to it and don't mind making it more complex. I would also avoid company stock, unless you get a discount and can sell it ASAP.

Your plan sounds good to me. Depending on the interest rates I might have held off on the roth a year and rather pay off car and student loans first, but shouldn't be a big difference. Assuming you're in a high tax bracket the value of the roth is a bit limited (but certainly contribute to it once you can).

[ShoulderThingThatGoesUp]

Why don't you contribute the legal maximum to your 401k, which is $18,000?

[winkeyman]

Why not max out my 401k? Short answer is the concern that withdrawing the money in early retirement is problematic.

But as I research more, it appears that there are ways around this? Looks like I need to do more reading...

[winkeyman]

Yeah, one car load is %0 and will be paid off naturally in december. The other is %4.5 and we will be paying it off 2 years early.

[ShoulderThingThatGoesUp]

All sorts of guides to withdrawing early. Max it!