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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Qblunt on June 18, 2019, 01:39:53 PM

Title: Noobie here. Have questions on 401K investments.
Post by: Qblunt on June 18, 2019, 01:39:53 PM
Hey everyone. I have 2 big questions on 401K's. I'm not big into investing as far as knowing what I should or shouldn't buy into. I'll take any recommendation you guys have on how I should allocate my money in my 401K. I am in my young 40's wife and kids etc.. I am putting 20% of my salary towards 401k. I didn't realize till 5 yrs later that my 401k is using a basic fund.  I'm 100% vested in my corporate Fidelity Vanguard Target 2040 fund, which isn't doing crap. My options are below. I am looking on recs on what you would choose instead of what I have above. Not anything super extreme but somewhere in the middle or better. I'm looking to retire I guess at the standard age of what most people probably do. I have an easy work from home IT job.  I have $93K in my Fidelity account. This is my 2nd question that I have that ties into my first. At my old employer, I never rolled over or moved my 401K when I got laid off 5 yrs ago. It is a Merrill Lynch and it currently has $206K in it. Fortunately, it wasn't stuck on some stupid basic blended fund. I actually had a friend who was a portfolio manager tell me what funds I should buy and re-allocate every month, so I was buying a bunch of diff stuff. The ML fund is still doing pretty well. I am not able to change anything on that 401K since I am no longer employed there. Should I move this $206K out of ML and into my Fidelity or just leave it as is? What would you do? I'll also post my funds that 401K is locked in to if that matters.


My Fidelity Options
FID GR CO POOL CL 2 12/13/2013
FID 500 INDEX (FXAIX) 02/17/1988
DODGE & COX STOCK (DODGX) 01/04/1965
FID LPS POOL CLASS 2 03/14/2014
FID DIV INTL PL CL 2 12/13/2013
VG IS TL INTL STK MK 04/04/2019
VANGUARD TARGET 2015 06/30/2015
VANGUARD TARGET 2020 06/30/2015
VANGUARD TARGET 2025 06/30/2015
VANGUARD TARGET 2030 06/30/2015
VANGUARD TARGET 2035 06/30/2015
VANGUARD TARGET 2040 06/30/2015
VANGUARD TARGET 2045 06/30/2015
VANGUARD TARGET 2050 06/30/2015
VANGUARD TARGET 2055 06/30/2015
VANGUARD TARGET 2060 06/30/2015
VANGUARD TARGET 2065 07/24/2017
JPM HIGH YIELD R6 (JHYUX) 11/13/1998
MIP II CL 3    2.37%

My ML 401K fund.
Investment   % of account
BAC COM STK FUND    10.68%
Title: Re: Noobie here. Have questions on 401K investments.
Post by: newloginuser on June 18, 2019, 02:02:45 PM
The inception year of the fund isn't as important to know as much as the expense ratio of each fund. Without knowing more, a simple strategy would be to just select a further target date fund, as that will be more heavily invested in stocks. It sounds like you are looking for larger gains (requires more risk).
Title: Re: Noobie here. Have questions on 401K investments.
Post by: Qblunt on June 18, 2019, 02:24:27 PM
I take it this is what you were wanting to see?

Title: Re: Noobie here. Have questions on 401K investments.
Post by: BicycleB on June 18, 2019, 03:07:30 PM
I'm pretty sure newloginuser was looking for something else. What you posted is a report showing past returns for the various fund options. Funds charge fees. Lower fees are usually better for you, the investor; I think newloginuser was suggesting to learn the fees, then pick a fund that has low fees. That is a fairly standard method for Mustachian investors. I'd make the same suggestion.

Please realize that past performance of a fund doesn't tell you very much about how it will do in the future. That sounds crazy, but it's true. Picking a low fee fund is usually a better way of getting good future performance than just picking a fund that went up a lot in the past.

Re "Fidelity Vanguard Target Date 2040 fund not doing crap," please remember that investing takes time and a target date fund usually takes a sort of slow but steady approach that works pretty darn well over time. You're welcome to run around switching funds, but you're not that likely to do a whole lot better in the future than a good target date 2040 fund will do. The target date fund is probably doing a lot better this year than last year, because last year sucked for most investors and this year is a lot better so far. Check into that before you dump it.

Your best bet might be to read JL Collins' stock series. It's super informative.

PS. Merrill Lynch tends to charge a lot of fees. That one, you might be better off moving into your current 401k. But you should check the fees in both carefully to be more sure. Remember to check the fees in the funds, not just the fees of the overall company.

Depending on how good or bad the fees are in your current 401k, another option is to roll the Merrill Lynch 401k into a traditional IRA held in the investment company of your choice (Vanguard is very good; Fidelity can be good too). You can do that if the fees in your current 401k are high. Personally I'd read the stock series first, then revisit the question. Sorry for the long answer but many thousands of dollars are at stake. You could easily benefit yourself over $100/hour with this reading.
Title: Re: Noobie here. Have questions on 401K investments.
Post by: Qblunt on June 18, 2019, 03:14:47 PM
Thanks for the reply BicycleB. Is this the fees you are asking about? Do you have any thoughts of rolling over my ML 401K to my Fidelity 401K? I see you edited your post and answered it after I posted my reply. I will definitely check out that link you provided and read up on it.

Thanks again
Title: Re: Noobie here. Have questions on 401K investments.
Post by: BicycleB on June 18, 2019, 03:23:32 PM

The key column is "Gross Expense Ratio." That's how much fees they're charging you. The lower, the better.

See how all those target date funds are charging a tiny .05%? Very cheap, very efficient!

You're almost certain to come out ahead by switching the Merrill Lynch to your Fidelity 401k. I just don't want to say for sure without knowing the fees and such at Merrill Lynch.
Title: Re: Noobie here. Have questions on 401K investments.
Post by: Qblunt on June 18, 2019, 03:36:28 PM
Ah ok, I never knew there were fees let alone the fees differ based on what I selected for an investment. I'm digging around the ML site trying to find the same thing. I got a feeling it isn't displayed so easily like Fidelity. OK, I had to ask via chat how to find it. So, if you were me and had the $300K to invest, you would pick the regular Vanguard Target stuff?

And I think I was wrong as well. It looks like I can reallocate what stuff I invest in on the ML 401k plan. I thought I couldn't since I no longer worked there. It allowed me to go through the steps like If I was going to.

The ML is posted below.

Title: Re: Noobie here. Have questions on 401K investments.
Post by: BicycleB on June 18, 2019, 04:49:10 PM

I'd keep digging to find out if Merrill Lynch charges additional fees beyond the funds themselves. There are a couple of funds in there that look pretty good...they're from Vanguard, and have very low fees (0.01%, 0.02%). Those particular funds invest purely in stock. That's a little riskier than the Target Date funds, which include some bonds in their investment mix, but over the long haul, they might deliver even higher returns.

If there aren't other charges of note from ML, I personally would be tempted to keep the money in the Vanguard funds at ML for now. Because I can always switch them later if I wanted, and they would already be in super low cost stock funds. Also, if I'm not mistaken, having them in the 401k of a former employer means that you can convert to a self-directed IRA if you want, something you might not be able to do from a current employer (I think). However, I'm prepared for the likelihood of a bumpy road where those risky stock funds could drop 30% or 40% in a year. I've been through that before. The risky stocks pay off over time IF you have the guts to hold onto them when they're down.

I would get my $ out of the other Merrill funds, though.
Title: Re: Noobie here. Have questions on 401K investments.
Post by: Qblunt on June 19, 2019, 08:07:08 AM
Thanks for the info BicycleB. Here are all the funds that I can invest in for my ML 401K. I only posted the funds that I was currently in. I currently invest already in two of those Vanguard funds.

This was what my former coworker told me to invest in and how much:

and in my 401K at ML I have 10% going into buying Bank Of America stock. I wonder if I should dump that into something else.

Any of these others look below look good?

Title: Re: Noobie here. Have questions on 401K investments.
Post by: BicycleB on June 19, 2019, 09:30:08 AM
I'm not sure you're hearing most of what I'm saying.

I can't just pick funds for you. If that's what you use this for, you're missing most of the point. You need to learn how this works, not just make a decision right now and move on. If you stay at the "just pick something for me" level, you're going to lose big time at some point, either by getting taken advantage of or by making easily avoidable mistakes. Take some hours and learn this stuff.

Please understand that a well-considered investment decision takes into account your age, employment situation, tolerance for risk (ability to be comfortable when your investments drop in value), current expense and savings rate, and your expected time of any future expense changes (things like whether you will marry, buy a house, have kids, otherwise spend money). Which investment you should get could be different depending on how these things stack up. I know almost none of that, so I can't guess reliably what is right for you. What you should really do is take all those into account yourself after learning to invest. Again: read the Stock Series linked above!

When I make comments here about specific funds, I am guessing about all the unknowns in your case, and applying core principles that I am also explaining as I go. It's just a starting point. You need to learn what I'm explaining. Can you read the documents you posted and find the funds with the lowest fees?

Are you in fact willing to accept that your investment values will fall during the next stock market downturn? If not, the two funds you're invested in, the same ones I suggested from your list, will just fall down and then you'll sell them without getting the big uplift that probably occur later - so buy something safer, something with bonds in it, like more of the Target Date 2040 or even a Target Date 2025. If you are willing to accept falling investment values, keep the two funds from the post above. Which is it? (If you're not sure...Read the Stock Series. Main lesson: When stocks go down, don't sell.)

Upthread, someone suggested staying in Target Date funds. Vanguard has excellent ones. The LifePath funds you list at Merrill Lynch are also target date funds, also fairly low fee, probably also decent. Being Target Date funds, they will have bonds as well as stocks, be managed for you, will be mostly stock now and more bonds later (when the target date approaches). For the time being, they will go up and down almost as much as the stock market. Therefore they will be almost as risky but almost as profitable as the all-stock low-cost funds that you detailed in your last post. If you pick one, it doesn't matter a whole lot which date you pick, but the best date to pick is the date closest to when you think you'll actually retire.

The Vanguard funds you specified and the Target Date funds have much lower fees than the other options in your documents. As I said before, it's more reliable to find low fees than most other ways of picking a fund. On that principle, whichever 401k you use, I suggest using either the Vanguard funds or the Target Date funds.

Please note that IF you're realistically going to hate it when your investment values drop, and you'll be tempted to sell them, the Target Date funds are better. But don't sell any of these things if they drop a lot - that's the worst mistake most people make.