Author Topic: The heartbreak of my 401k. A vent.  (Read 6778 times)

missundecided

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The heartbreak of my 401k. A vent.
« on: July 21, 2013, 09:55:17 PM »
I recently got my 401k statement for the second quarter of the year. I ripped it open, excited to see how it's doing...amd groaned in dismay. 0.13% rate of return?! What?

On the flip side, I know I should be grateful that my employer matches up to 4%, so at least I have some growth, but it was such a disappointment to see.

I haven't figured out my allocation yet, so in the meantime I've been putting my 401k in VTIVX, a target retirement fund. A rollover from my previous employer, in a different account, is in the same fund, so I guess this means I need to change both. I had originally planned to break up my rollover out of that fund and match THAT allocation in order to get a lower expense ratio (averaged across the the three) but now I'm second-guessing myself.

Thanks, I just wanted to get that off my chest.

icefr

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Re: The heartbreak of my 401k. A vent.
« Reply #1 on: July 21, 2013, 11:19:55 PM »
Did you look at how the markets did in Q2? IIRC, my investments had a major loss in June, more than the amount they gained in April and May. So it's quite possible to have come out even for the quarter.

GreenGuava

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Re: The heartbreak of my 401k. A vent.
« Reply #2 on: July 22, 2013, 12:11:31 AM »
How is that computed, and are you sure that's the fund you're in?  It's up over 7% over the past three months.  Please double-check where your money is.

The only thing I can think of is if they use a stupid formula for rate of return.  It's not unheard of for some investments to have their return calculated as "current value / total contributed" - which means that your total return is closer to 0% every time you contribute.  If it's early in your contribution time, or if you recently increased contribution amounts significantly, then it looks like you're gaining nothing.  In short, your 401(k) provider might be stupid on their math.

A rollover from my previous employer, in a different account, is in the same fund, so I guess this means I need to change both. I had originally planned to break up my rollover out of that fund and match THAT allocation in order to get a lower expense ratio (averaged across the the three) but now I'm second-guessing myself.

First, see how that did.  Chances are, it did much better.  That's because you weren't adding to it regularly, and thus diluting the perceived returns.

Second, you shouldn't use past performance as an indicator of what to invest in, especially short-term performance.  These are among the worst predictive factors of future performance.  Sorry if that's perceived as shouting, but it's important - it's very counter-intuitive, but studies have borne this out.

Unless you plan to actively manage your portfolio (this is not recommended, and you don't seem all that interested in doing so, which is good), you should decide what your desired asset allocation is and use low-cost, low-turnover funds to fill these assets; index mutual funds and wrap funds based on the same are fantastic ways to go about this.  If 10% bonds, 27% international stocks, 63% domestic stocks is your preferred allocation, VTIVX is a great way to go.  If you want to manually manage the re-balancing, especially in order to gain the better expense ratio of Admiral shares, that's great (because VTIVX costs you exactly what it would cost you for investor shares of each of the underlying funds - it's somewhat ironic that the low cost triggers a SEC regulation that keeps there from being Admiral shares for target date funds).  This would also allow you to take better advantage of tax efficiency for your pre-59.5 stash (assuming you're going the 'stocks & bonds' route for it).

matchewed

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Re: The heartbreak of my 401k. A vent.
« Reply #3 on: July 22, 2013, 04:36:41 AM »
Also what is the timeframe of the rate of return?

jfer_rose

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Re: The heartbreak of my 401k. A vent.
« Reply #4 on: July 22, 2013, 07:14:25 AM »
I googled your fund. It's a Vanguard Total Retirement Fund. These are great funds for lazy investors. Vanguard's Target Retirement funds are a collection of four different index funds. Basically, I would strongly advise you not to panic and switch funds because of some short term bad returns. Your returns will go up and down through the year. Since your fund is all index funds, if the market goes up, your fund is guaranteed to go up too. Because that's what index funds do. That's really pretty remarkable! Green Guava offered a good explanation for why it might appear that your money isn't growing when markets are going up.

Once you learn more about investing, you may wish to switch up your asset allocation. For example, you may wish to have fewer bonds, etc.  But index funds are still a very wise move even then.

I guess the only other thing that could be happening is if your 401k provider is someone other than Vanguard, perhaps they are adding additional fees? But even if that is the case, you don't have any control over who to use for your 401k and the tax benefit now is likely worth any added fees they charge.

oldtoyota

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Re: The heartbreak of my 401k. A vent.
« Reply #5 on: July 22, 2013, 08:08:08 AM »
Which Vanguard Target Retirement fund are you in? (Different ones exist for different retirement years.) Maybe you're in one that invests more in bonds because you have a short timeline? My target retirement fund has gotten 13% over the past year and, more recently, 7-8%.




jfer_rose

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Re: The heartbreak of my 401k. A vent.
« Reply #6 on: July 22, 2013, 08:11:27 AM »
VTIVX is the 2045 Fund so it is only 2% in bonds. The low 0.13% returns are just a blip. Blips are expected in the short term.

matchewed

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Re: The heartbreak of my 401k. A vent.
« Reply #7 on: July 22, 2013, 08:15:09 AM »
Here's a picture explaining the "blip" as jfer_rose puts it.

Trying to look at your investment returns in short time frames is silly.

kyleaaa

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Re: The heartbreak of my 401k. A vent.
« Reply #8 on: July 22, 2013, 09:13:51 AM »
You're dismayed by a 0.13% POSITIVE return? You're in trouble. How will you react when your portfolio drops 40% in a year, which will almost certainly happen at some point during your career? As stated above, judging your investment returns over such short periods of time is silly. Just don't look at it if it causes you that much pain.

jfer_rose

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Re: The heartbreak of my 401k. A vent.
« Reply #9 on: July 22, 2013, 10:51:28 AM »
You're dismayed by a 0.13% POSITIVE return? You're in trouble. How will you react when your portfolio drops 40% in a year, which will almost certainly happen at some point during your career?

And when the market does drop 40% in a year, so long as you're still a ways off from retirement you can put on your rose colored glasses because that means the additional contributions you make to your retirement account are like shopping a really great sale. 

GreenGuava

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Re: The heartbreak of my 401k. A vent.
« Reply #10 on: July 23, 2013, 11:21:21 AM »
VTIVX is the 2045 Fund so it is only 2% in bonds. The low 0.13% returns are just a blip. Blips are expected in the short term.

It's actually 10% bonds - 8% of the portfolio is in domestic bonds (total bond market index) and 2% in international. 

The rest is absolutely correct, especially this:

And when the market does drop 40% in a year, so long as you're still a ways off from retirement you can put on your rose colored glasses because that means the additional contributions you make to your retirement account are like shopping a really great sale. 

jfer_rose

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Re: The heartbreak of my 401k. A vent.
« Reply #11 on: July 23, 2013, 11:32:41 AM »
VTIVX is the 2045 Fund so it is only 2% in bonds. The low 0.13% returns are just a blip. Blips are expected in the short term.

It's actually 10% bonds - 8% of the portfolio is in domestic bonds (total bond market index) and 2% in international. 



Oops, good catch. I had done a quick Google of the fund and I looked too quickly. I saw the 2% international but totally missed the 8% domestic.

Cecil

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Re: The heartbreak of my 401k. A vent.
« Reply #12 on: July 23, 2013, 12:23:03 PM »
Here's a picture explaining the "blip" as jfer_rose puts it.

Trying to look at your investment returns in short time frames is silly.

Also note that as of today, VTIVX is trading at 16.60 which is off the top of this chart.

Freeyourchains2

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Re: The heartbreak of my 401k. A vent.
« Reply #13 on: July 24, 2013, 12:13:29 PM »
You should buy a small katana letter opener, so that way next time you can stab the letters that give you bills or bad news! It helps a little. Then you pickup the ERE book and read some more: http://earlyretirementextreme.com/