Can someone please help me with 401k?

[foeplay]

My company matches up to 4% of my contributions and I've been working for this company for 5 years now. I'm stupid for not joining earlier, but no sense in crying over it now. I want to turn in my paper work tomorrow so I can stop procrastinating already and I need to choose Funds. However, I have no clue what any of this means so hopefully you guys can help me choose them. Otherwise I am just going to throw darts to pick them. Thanks

 

https://www.americanfunds.com/funds/returns...habetically.htm

 

Edit: I can choose up to 12.

Edited September 7, 2010 by foeplay

[foeplay]

I am interested in the EuroPacific fund, but from what I know I shouldn't put all my eggs in one basket.

 

Edit: I was wrong, I can only choose a percentage to contribute for up to 12 of the following:

 

EuroPacific Growth Fund

New World Fund

SMALLCAP World Fund

The Growth Fund of America

The New Economy Fund

Capital World Bond Fund® (bond fund)

Fundamental InvestorsSM (growth-and-income fund)

Capital Income Builder® (equity-income fund)

American Balanced Fund® (balanced fund)

Intermediate Bond Fund of America® (bond fund)

The Bond Fund of AmericaSM (bond fund)

American Funds Money Market Fund® (money market fund)

Edited September 7, 2010 by foeplay

[radi8]

I am just going to throw darts to pick them.

 

 

That method may yield results equal to asking a highly-paid financial advisor.

 

What did you end up picking?

[Kevin20]

You could spend a lot of time trying to analyze those funds, and trying to develop a perfect portfolio allocation. But really it's close enough to pick 5 funds, put 20% allocation into each. Your 5 funds should represent different asset classes and/or approaches so you can be diversified.

 

Diversification does two things: moderates the risk, while capturing returns from the one or two asset classes that perform best over a given period of time (which you cannot predict, so cast a wide net).

 

Not knowing anything about those particular funds, a reasonable approach might include:

one of the bonds funds,

one equity-income or growth-and-income fund,

one foreign fund (e.g., EuroPacific)

one small-cap fund

one growth fund

 

You do that much, you'd have a surprisingly well-designed and very diversified portfolio.

Edited September 7, 2010 by Kevin20

[foeplay]

Thanks guy, dartboards it is! They are grouped into six sections so I picked 5 and ditched one.

 

(Growth Investments)

EuroPacific Growth Fund

 

(Equity-income Investments)

Capital Income Builder

 

(Balanced Investments)

American Balanced Fund

 

(Bond Investments)

Intermediate Bond Fund of America

 

(Cash-equivalent Investments)

American Funds Money Market Fund

[TroyP]

For what its worth, my investment adviser has me in that EuroPacific Growth Fund.

 

Remember to re-balance your portfolio every 6 months or so. Lets say there is a huge run-up in bonds over the next year, and despite the fact that 20% of your 401(k) gets initially invested in the bond fund, you end up with 30% of your portfolio in bonds. By re-balancing, you ensure that when that fund takes a dive (and it will, they all will eventually) you don't have a disproportionate amount of your holdings allocated to that fund.

 

I wouldn't try to time market swings, just re-balance periodically to make sure you're properly allocated among the various asset classes.

[Kevin20]

Thanks guy, dartboards it is! They are grouped into six sections so I picked 5 and ditched one.

 

(Growth Investments)

EuroPacific Growth Fund

 

(Equity-income Investments)

Capital Income Builder

 

(Balanced Investments)

American Balanced Fund

 

(Bond Investments)

Intermediate Bond Fund of America

 

(Cash-equivalent Investments)

American Funds Money Market Fund

 

 

I actually wouldn't bother with the money market fund. Preserves capital but it's dead money at current rates, might as well stuff currency under your mattress.

[foeplay]

Thanks guy, dartboards it is! They are grouped into six sections so I picked 5 and ditched one.

 

(Growth Investments)

EuroPacific Growth Fund

 

(Equity-income Investments)

Capital Income Builder

 

(Balanced Investments)

American Balanced Fund

 

(Bond Investments)

Intermediate Bond Fund of America

 

(Cash-equivalent Investments)

American Funds Money Market Fund

 

 

I actually wouldn't bother with the money market fund. Preserves capital but it's dead money at current rates, might as well stuff currency under your mattress.

Ugh, wish you would have told me that earlier!

 

Alright I changed it to Fundamental Investors

Edited September 7, 2010 by foeplay

[frank22]

I think you should get another equity fund instead of the Balanced. I was actually going to suggest the Fundamental Investors, but I see you beat me to it. I would get the Growth Fund of America. The balanced fund has a mixture of everything, and you already have a bond fund. I am going just by asset type, not fund specifics.

 

 

Much has to do with your tolerance for risk, and how old you are. I would do a bit of research on asset allocation, but in the first year the exact makeup won't matter too much. I would only reallocate every year unless there is a bit market shakeup. You can go to Morningstar and research how each of the fund are doing, and base some decisions based on that, if one equity fund gets a lower rating, go to another one close to the same type.

 

 

Asset Allocation:

http://money.cnn.com/retirement/guide/inve...ymag/index7.htm

 

 

 

http://www.morningstar.com/

 

You have to register for Morningstar, but it is free and it is a good site to look at individual funds. OK if you don't want to do any research now, you will be fine for a year or two, the main thing is to start.

[athensgaguy]

Lazy Portfolios

[frank22]

Lazy Portfolios

 

Sadly, OP doesn't have an index fund to choose from, which I see is often the case. I think mutual fund companies don't like them because they bring in less fees. I worked for a mutual fund company that did not offer index funds for public 401K's, but did for it's employee 401K's. It is up to us and our employers to find fund families that offer them. Many employers don't seem to care to much about picking low fee companies either.

[foeplay]

Alright well all my stuff was submitted already so I'll have to wait. Once I get login info etc I think I might be able to change things around myself.

 

This is what I chose for my funds @ 20% each

 

(Growth Investments)

EuroPacific Growth Fund

 

(Equity-income Investments)

Capital Income Builder

 

(Balanced Investments)

American Balanced Fund

 

(Bond Investments)

Intermediate Bond Fund of America

 

(Growth & Income Funds)

Fundamental Investors

Edited September 8, 2010 by foeplay

[foeplay]

Am I supposed to be saving 10% of my income as well or should I stick more into the 401k? I just opened an Alliant savings that I wanted to use to save. Should I be saving 10% of my gross income before my 401k gets pulled or 10% of what I have left after taxes and everything?

[hegemony]

Thanks guy, dartboards it is! They are grouped into six sections so I picked 5 and ditched one.

 

(Growth Investments)

EuroPacific Growth Fund

 

(Equity-income Investments)

Capital Income Builder

 

(Balanced Investments)

American Balanced Fund

 

(Bond Investments)

Intermediate Bond Fund of America

 

(Cash-equivalent Investments)

American Funds Money Market Fund

 

how old are you and how long do you expect to continue to work?

 

 

do you really need an income fund now? if you are young you probably should think more about growth.

 

and I am not sure 1/5 into a bond fund is a good idea. seems high especially given the current situation for US bonds.

 

I recommend some exposure to emerging markets, such as this companies New World Fund.

Edited September 8, 2010 by hegemony

[hegemony]

are you in a high tax bracket now? if so, consider maxing your 401K to $16500 if you can to avoid current tax liability.

 

do you have a 12 month emergency fund that is not in a retirement vehicle? if not I would not max pre-tax vehicles until you do.

[foeplay]

I am 34 years old, make 58k but just re-enrolled at my University to pick an telecommunications degree so I can become the network administrator of the entire company (one office in orange county and one in downtown LA) since our current one will retire in a couple years. They are paying for my classes provided I pass them and I need 6 more courses in total. I am taking one or two this semester (one is full and trying to squeeze in) but I want to get them done asap. This will get me into a desirable salary bracket (for me) so I can one day purchase a home on my own (no chicks allowed).

 

I don't have an emergency fund because I focused the last two years getting myself out of debt and repairing my car ($6k) . Ok, so now I've accomplished to get down to just my school loans ($35k @ 2.5%) and my car note ($3.5k @ 6.5) which is very manageable for me especially since I only pay $600 rent at the moment. I've been terrible with my money because I love to travel and party, but this entire year I've finally taken control and no longer live so lavish. After I pay for my courses next paycheck I will now have disposable income to start my emergency savings at alliant as well as this 401k that I've been procrastinating for 5 years on.

 

If I take two classes I will be eligible to defer my student loan payments, however I think it's better to keep paying them down since I have a job and also the interest paid really helps me during tax season so I get some money back.

 

I was planning on just moving $100 to my Alliant savings a week, but after doing the math that's like pennies to me at the year mark so i feel I need to contribute more to it. I also want to make two trips next year, one to a bachelor party hike of Machu Picchu, Peru and then the wedding in Maui, so the more I save the better!

 

I also need to see how much 5% of 401k deduction leaves me with after it's deducted from my check. I will know that next week. I was planning on upping that to 10k from October to years end because I wanted to contribute the full amount that my company will match, which is 1% of my salary.

 

Any ideas how to tackle all this and where to begin?

 

Edit: Yea, my tax bracket is terrible because I am a single man with no kids. That is why I'm loving paying back my student loans. Also, this tuition I'm about to drop will help as well.

Edited September 8, 2010 by foeplay

[Repairerer]

I also need to see how much 5% of 401k deduction leaves me with after it's deducted from my check. I will know that next week. I was planning on upping that to 10k from October to years end because I wanted to contribute the full amount that my company will match, which is 1% of my salary.

 

Did you mean to write that they will match up to 10%?

 

Take at least the full matched amount if possible. You'll have a better idea next week, but this money doesn't hurt your take home as much as you probably think, since it's pre-tax. If you are looking to optimize tax savings, you can't go wrong since your taxable income is reduced.

 

I acknowledge that you are in need of liquid savings, though. You won't miss the 401k money as much as you may think, so if you can do 10% for now and manage to scrape a few hundred or a little more a month into liquid savings, it will add up quick.

[frank22]

On the fund picks: I was trying just to tweak what you had, but Hegemony was right to go further. His picks seem spot on. Growth at your age should be your goal and I wouldn't be rushing into a bond fund right now.

 

Darts really are for individual stock picks and not fund type, or even individual funds. Although a fund that used darts would be fine.

[foeplay]

I also need to see how much 5% of 401k deduction leaves me with after it's deducted from my check. I will know that next week. I was planning on upping that to 10k from October to years end because I wanted to contribute the full amount that my company will match, which is 1% of my salary.

 

Did you mean to write that they will match up to 10%?

 

Take at least the full matched amount if possible. You'll have a better idea next week, but this money doesn't hurt your take home as much as you probably think, since it's pre-tax. If you are looking to optimize tax savings, you can't go wrong since your taxable income is reduced.

 

I acknowledge that you are in need of liquid savings, though. You won't miss the 401k money as much as you may think, so if you can do 10% for now and manage to scrape a few hundred or a little more a month into liquid savings, it will add up quick.

oops, I meant 10%...my company will only match 1% of my salary. So in order to get to 1% by the end of the year i was going to up my contribution to 10% of my check weekly.

 

My new years resolution last year was to fix my credit and then work on savings and retirement planning. I'm well on my way with the credit part so now I really want to get on this as ambitious as I was with the credit repair. Plus it will give me something else to do while my credit accounts age.

 

And you're right about the pre-tax so it might end up not even being that much less which is great. We'll see next week!

Edited September 9, 2010 by foeplay

[foeplay]

On the fund picks: I was trying just to tweak what you had, but Hegemony was right to go further. His picks seem spot on. Growth at your age should be your goal and I wouldn't be rushing into a bond fund right now.

 

Darts really are for individual stock picks and not fund type, or even individual funds. Although a fund that used darts would be fine.

I'm going to message our Accounting guy tomorrow and ask if I will be able to change the funds myself once I get my welcome kit. I really hope so because I don't want to annoy him with changes.

 

I guess I'll try to change the (Bond Investments) Intermediate Bond Fund of America to the New World Fund.

[Kevin20]

also need to see how much 5% of 401k deduction leaves me with after it's deducted from my check. I will know that next week. I was planning on upping that to 10k from October to years end because I wanted to contribute the full amount that my company will match, which is 1% of my salary.

 

Foeplay, w.r.t. federal taxes you are squarely in the 25% tax bracket. The IRS withholds 25% of income tax from your last dollar of pay each paycheck.

 

What that means is, if you contribute $100 to the 401k during a pay period (not counting any employer match), you'd see your paycheck reduced by $75. Whatever you put in the 401k, your take home is reduced by 75% of that number because your marginal tax rate is 25%.

 

(I.e., in a sense, for your contribution to a 401k, you only have to put in 75% and the IRS puts in the other 25%.)

 

Well, for fed taxes. I guess you also have to withhold California taxes, and I don't know what's the implication of that, other than you probably get screwed. And maybe local taxes too? Sheesh, my gf lived in Hermosa Beach. But the principle should be the same, using your California marginal tax rate and any local income tax rate.

Edited September 9, 2010 by Kevin20

[foeplay]

I always end up owing money for both fed and state (nothing crazy), but once I started paying school loans back I actually get money back from the feds but I still owe cali.

 

I usually multiply my pay by 26% and subtract it and I'm usually close to my take home. I'm contributing 4% so I think that's like $50 ish. I'm definitely going to up to 10% in oct so I can max my company's match ($580) by dec 15.

Edited September 9, 2010 by foeplay

[TroyP]

I always end up owing money for both fed and state (nothing crazy), but once I started paying school loans back I actually get money back from the feds but I still owe cali.

 

I usually multiply my pay by 26% and subtract it and I'm usually close to my take home. I'm contributing 4% so I think that's like $50 ish. I'm definitely going to up to 10% in oct so I can max my company's match ($580) by dec 15.

 

On that note, a couple things.

 

Student loan interest is deductible as long as you're below a certain Modified Adjusted Gross Income threshold. It starts to phase out around $60,000. That said, 401k contributions are excluded from your Modified Adjusted Gross Income (because they are non-taxable) so you may get a larger deduction if you contribute more to your 401k if your income is above the lower limit for the phaseout.

 

You'll also save about 8% in California income taxes on your 401k contribution, so when you get right down to it, $100 contribution to your 401k only costs you $67 from your net pay.

[foeplay]

I always end up owing money for both fed and state (nothing crazy), but once I started paying school loans back I actually get money back from the feds but I still owe cali.

 

I usually multiply my pay by 26% and subtract it and I'm usually close to my take home. I'm contributing 4% so I think that's like $50 ish. I'm definitely going to up to 10% in oct so I can max my company's match ($580) by dec 15.

 

On that note, a couple things.

 

Student loan interest is deductible as long as you're below a certain Modified Adjusted Gross Income threshold. It starts to phase out around $60,000. That said, 401k contributions are excluded from your Modified Adjusted Gross Income (because they are non-taxable) so you may get a larger deduction if you contribute more to your 401k if your income is above the lower limit for the phaseout.

 

You'll also save about 8% in California income taxes on your 401k contribution, so when you get right down to it, $100 contribution to your 401k only costs you $67 from your net pay.

Alright thanks for the tips. Well as long as I'm still getting deduction I rather pay down the SLs. I want to get them down under 30k so they don't look so depressingly high. In two weeks I will be upping my 401k to $100 weekly contribution as well so the should both help out a lot come tax season.

[TroyP]

I always end up owing money for both fed and state (nothing crazy), but once I started paying school loans back I actually get money back from the feds but I still owe cali.

 

I usually multiply my pay by 26% and subtract it and I'm usually close to my take home. I'm contributing 4% so I think that's like $50 ish. I'm definitely going to up to 10% in oct so I can max my company's match ($580) by dec 15.

 

On that note, a couple things.

 

Student loan interest is deductible as long as you're below a certain Modified Adjusted Gross Income threshold. It starts to phase out around $60,000. That said, 401k contributions are excluded from your Modified Adjusted Gross Income (because they are non-taxable) so you may get a larger deduction if you contribute more to your 401k if your income is above the lower limit for the phaseout.

 

You'll also save about 8% in California income taxes on your 401k contribution, so when you get right down to it, $100 contribution to your 401k only costs you $67 from your net pay.

Alright thanks for the tips. Well as long as I'm still getting deduction I rather pay down the SLs. I want to get them down under 30k so they don't look so depressingly high. In two weeks I will be upping my 401k to $100 weekly contribution as well so the should both help out a lot come tax season.

 

Paying down a loan is always a good idea. A tax deduction for paying interest is nice. Not paying interest is nicer

 

The 401k contributions will cause your withholding to decline slightly (since your withholding is based on your taxable income in each specific check, which will decline as a result of your 401k contribution). So your tax refund shouldn't change much in April, but your total tax should be somewhat lower than last year, all other things equal.