401k distribution

[aquadisiac]

I initially put 100% in bonds because someone said other options are not as stable. I put 50% in a bond with the highest return and spread the remaining 50% into other bonds.

 

When I called to transfer 401k from previous employer, the guy kinda explained it to me and put ALL of it(100%) into some Lifepath 2040 plan. His explanation is that because Im young(27), i have the opportunity to invest in higher risk options.

 

I dont feel comfortable investing all of it into one option but i dont know sh*t about all this because my previous employer did the investing for us. Did he do the right thing?

[p11]

That fund has a very high operating expense. I suggest you look at Vanguard 2040. Same idea but you get to keep more of your money.

 

At your age I think this type of investment is a reasonable risk. Be sure to keep investing regularly, even when the market is down (really, especially when the market is down). Dollar cost averaging works.

[hegemony]

why would you roll an old 401k into a new one instead of rolling it into an IRA which would give you 100% control over the funds and the investment choices?

 

note that you should also make sure you know what kinds of bonds you're investing in. some are riskier than others and in a low interest rate environment, putting too much $$ into bonds might backfire as interest rates rise.

 

good luck!

[aquadisiac]

That fund has a very high operating expense. I suggest you look at Vanguard 2040. Same idea but you get to keep more of your money.

 

At your age I think this type of investment is a reasonable risk. Be sure to keep investing regularly, even when the market is down (really, especially when the market is down). Dollar cost averaging works.

So the guy that works for Fidelity that suggested it will make more money off me? Sorry I really know NOTHING about this. Do you suggest putting all 100% into Vanguard 2040?

 

why would you roll an old 401k into a new one instead of rolling it into an IRA which would give you 100% control over the funds and the investment choices?

 

note that you should also make sure you know what kinds of bonds you're investing in. some are riskier than others and in a low interest rate environment, putting too much $$ into bonds might backfire as interest rates rise.

 

good luck!

How was I supposed to know? Like I said I know nothing about it. Wouldn't the tax be very high if I put it in an IRA? I haven't sent the check to them is it too late to change it?

[hegemony]

 

How was I supposed to know? Like I said I know nothing about it. Wouldn't the tax be very high if I put it in an IRA? I haven't sent the check to them is it too late to change it?

for the most part you can move an old 401k into an IRA with no tax implications. Moreover, you can open the IRA at many places, including Fidelity, Vanguard, T Rowe Price, Scottrade, Chase, etc. Within an IRA you can buy individual stocks, gold, mutual funds, etc whereas in most 401k you are limited to a set of pre-selected investment options.

 

I am not sure if it is possible to change your transfer. You might want to talk to the Fidelity rep about moving the funds to an IRA and see what he or she says.

 

this article introduces the 401k rollover

 

http://www.smartmoney.com/retirement/planning/how-to-rollover-a-401k-1306212047593/

Edited August 1, 2012 by hegemony

[aquadisiac]

 

How was I supposed to know? Like I said I know nothing about it. Wouldn't the tax be very high if I put it in an IRA? I haven't sent the check to them is it too late to change it?

for the most part you can move an old 401k into an IRA with no tax implications. Moreover, you can open the IRA at many places, including Fidelity, Vanguard, T Rowe Price, Scottrade, Chase, etc. Within an IRA you can buy individual stocks, gold, mutual funds, etc whereas in most 401k you are limited to a set of pre-selected investment options.

 

I am not sure if it is possible to change your transfer. You might want to talk to the Fidelity rep about moving the funds to an IRA and see what he or she says.

 

this article introduces the 401k rollover

 

http://www.smartmoney.com/retirement/planning/how-to-rollover-a-401k-1306212047593/

 

Thanks H! Ill read the article ASAP. What do you suggest I do with the new 401k? I don't see a Vanguard 2040 in the list but I see others like VANG INST INDEX PLUS, VANG EXT MKT IDX IP, VANG INFL-PROT SEC and VANG TOT BOND MKT IP.

[hegemony]

well I am not an advisor for investments or anything for that matter. You need to read the materials for the various fund options and decide which meet your investing style and goals.

 

smartmoney has had stories on the target date funds like Vanguard 2040. These funds have pros and cons. I suggest reading about target date funds before jumping into one.

[Kevin20]

Thanks H! Ill read the article ASAP. What do you suggest I do with the new 401k? I don't see a Vanguard 2040 in the list but I see others like VANG INST INDEX PLUS, VANG EXT MKT IDX IP, VANG INFL-PROT SEC and VANG TOT BOND MKT IP.

 

Aquadisiac you need to be diversified. Being 100% in bonds was a bad idea, so I'm glad you're getting out of that. There's nothing risk-free about bonds -- if interest rates were to go up a little bit, bond funds would tank.

 

If you're like you, and basically have no clue what you're doing, one of those target retirement funds is a good idea. You're exactly the person it's for. No the guy who suggested it was not ripping you off, more like he was saving you from a horrible mistake.

 

If you don't want to rely on a target-date fund, good diversification is not that hard. Those four funds you cite make a good mix actually. Two stock funds and two bond funds.

 

A totally naive toss-up of going 25% each into those 4 funds is even a decent approach. But at your age nearly anyone would advise you to be mostly in stocks, but with some bonds for diversification. Yes the stock market could tank next week. But your time horizon is presumably 35-40 years. It's profoundly unlikely you won't make good money in diversified index funds over the course of four decades.

 

A decent enough bit of advice then is to put maybe 70% of your money into those first two funds you name (which are stock funds) and the other 30% split up into those next two funds (which are bond funds, including inflation-protected government bonds). If you talked with a financial advisor he might bust out some sophisticated software aiming to calculate the best possible "efficient frontier" with a more specific allocation down to one decimal point. But there's no promise that that would do any better than what I just told you.

[aquadisiac]

well I am not an advisor for investments or anything for that matter. You need to read the materials for the various fund options and decide which meet your investing style and goals.

 

smartmoney has had stories on the target date funds like Vanguard 2040. These funds have pros and cons. I suggest reading about target date funds before jumping into one.

Thank you. Ive already learned a lot from that website.

 

Thanks H! Ill read the article ASAP. What do you suggest I do with the new 401k? I don't see a Vanguard 2040 in the list but I see others like VANG INST INDEX PLUS, VANG EXT MKT IDX IP, VANG INFL-PROT SEC and VANG TOT BOND MKT IP.

 

Aquadisiac you need to be diversified. Being 100% in bonds was a bad idea, so I'm glad you're getting out of that. There's nothing risk-free about bonds -- if interest rates were to go up a little bit, bond funds would tank.

 

If you're like you, and basically have no clue what you're doing, one of those target retirement funds is a good idea. You're exactly the person it's for. No the guy who suggested it was not ripping you off, more like he was saving you from a horrible mistake.

 

If you don't want to rely on a target-date fund, good diversification is not that hard. Those four funds you cite make a good mix actually. Two stock funds and two bond funds.

 

A totally naive toss-up of going 25% each into those 4 funds is even a decent approach. But at your age nearly anyone would advise you to be mostly in stocks, but with some bonds for diversification. Yes the stock market could tank next week. But your time horizon is presumably 35-40 years. It's profoundly unlikely you won't make good money in diversified index funds over the course of four decades.

 

A decent enough bit of advice then is to put maybe 70% of your money into those first two funds you name (which are stock funds) and the other 30% split up into those next two funds (which are bond funds, including inflation-protected government bonds). If you talked with a financial advisor he might bust out some sophisticated software aiming to calculate the best possible "efficient frontier" with a more specific allocation down to one decimal point. But there's no promise that that would do any better than what I just told you.

Very helpful advice. I think I will do what your last sentence suggested. Im glad I posted on here....I might PM you if I have any more questions if you dont mind?

[Kevin20]

Sure no problem.

[Gwennie]

At 27, you shouldn't have anything in bonds. Simply put, you'll lose money every year. Your dollar balance won't may not go down, but your buying power will be in the toilet. Find a good for-fee financial advisor to help you. Otherwise you'll find yourself broke at retirement even though your investments never "lost principal".

[bjk123]

Something else you can do is check to see if your employer's plan also provides access to Financial Engines. My 401k through Fidelity offers it to me on the netbenefits page. You can tell the program your future plans as well as any other investments (rollover accounts, IRAs, etc) you have and it will recommend a distribution of funds in your plan to meet a target risk level. You can choose to lock the percentage for a specific investment at a level that is comfortable to you and then let it recalculate the rest of the percentages.

 

Take the recommendations with a grain of salt, of course. A computer program is no substitute for a solid understanding of your investments and goals (either yourself or through a hired adviser you can trust), but it can give you a starting point for research and a conversation.