Retirement Contributions

[HCL_06]

Greetings All,

I am new to the community. I just stumbled upon this blog while trying to do some financial research. I have recently started pursuing the goal of early retirement without realizing there was a whole community full of valuable knowledge.

I am a recent graduate, age 25, that just started my first full time job. I setup my retirement a few months ago just picking a few different mutual funds and allocation funds without much thought and making to the minimum contribution to get the maximum employer match.

I have recently read a lot about Vanguard and VTSAX and remember there were some Vanguard options through my retirement. So I checked to see what options I have. I don't have VTSAX as an option but came across one called the Vanguard Employee Benefit Index which is passively managed and tracks the S&P 500. It jumped out to me with an expense Ratio of 0.01%, but I don't want my decision to based solely on expense ratio. Is anyone familiar with this Index? I am thinking of switching my contributions to this Index.

Other options include Vanguard Extended Market Index (VEMPX) (ER 0.05%), Vanguard Primecap Core Fund (VPCCX) (ER 0.46%), Vanguard Developed Market Index Fund (VTMNX) (ER 0.06%), Vanguard Explorer Fund (VEXRX) (ER 0.34%), and Vanguard Target Retirement Trust Select (0.05%), as well as some other Funds/Indexes with expense ratios around 1%. 

I am looking to increase my contribution % and adjust my allocations for my 401k. Would it be best to spread it out over multiple choices or focus on one or two?

Any thoughts and opinions would be appreciated.
Thanks!   

[Monkey Uncle]

I'm not familiar with the Vanguard Employee Benefit Index, but if you're going to put money into a S&P 500 index fund, it's a no-brainer to pick the one with the lowest expense ratio.  You couldn't get much better than an expense ratio of 0.01.

Regarding your question about how to allocate contributions among funds, it really depends on your goals, your level of knowledge about the various choices, and the beliefs you have formed based on that knowledge.  If you don't feel like you can make an informed choice, a lifecycle fund might be the best way to start (that's a fund that allocates among various index funds based on your age and/or projected time to retirement).  Fees would be a little higher that way, but it's probably better than making uninformed guesses about how to allocate your money.  At your age, it would probably put you in something like a 90% stock 10% bond mix.  Not a bad way to go.

Personally, I think investors at any age/stage benefit from some diversification among US large caps, US small caps, and developed international stocks, with anywhere from 10 - 40% diversified corporate and govt. bonds thrown in for ballast.  The percentage in bonds really is based on your tolerance for big crashes in the stock component.  In the early accumulation phase, I personally would not go more than 10% bonds, but I've got the stomach for riding out crashes.

[Car Jack]

Jump on that 0.01% thing that follows the S & P 500.  At your age, you can be 100% in equities because you have a long way to retirement.  I have my own rule of thumb that until you have $100k invested, there's no reason to set up an asset allocation. 

Don't be afraid to take investments and give them exactly 2 characteristics.  Are they US equity or international equity or US Bond or international Bond or something else.  I'm only a couple years from retirement with FU money already hit and I choose first by the class (the things listed above) to match my asset allocation, then by ER (expense ratio).  Nothing else.  Invest absolutely as much as you can now and let time do the work for you.  401k to employer match....then fill your Roth to $5500, then fill the 401k to the max, then look to other things like CDs or taxable account or savings bonds. 

Of course, if you have debt, get rid of that before doing any of the above (or to this level, anyways).

[Heroes821]

Firstly, Welcome to MMM.

Second take a deep breath.

Slow down, study up, check out JL Collins http://jlcollinsnh.com/stock-series/

Congrats at finding us by 25. I wish I had.

[Cwadda]

Firstly, Welcome to MMM.

Second take a deep breath.

Slow down, study up, check out JL Collins http://jlcollinsnh.com/stock-series/

Congrats at finding us by 25. I wish I had.

This.  Or read his book "Simple Path to Wealth".  Either works.