[lmilhan]

I have a few questions for any financial investment experts out there.

For the last 7 years I have been socking away a large portion of my income into my 401k plan. I have all of the money in a fund called the "2030 fund" (or named something similar to that). The way it works is that my money (supposedly) goes into the hands of professional investors. They then take my money and invest it for me in a bunch of diversified socks/bonds, etc, under the assumption that I will be retiring in the year 2030. So the way it works is, the investors put my money in the more aggressive stocks near the beginning of the plan, and as the years go by, they gradually put it into more and more conservative stocks as my retirement date approaches.

Well, for the past several months, my 401k has been doing pretty miserably (and I'm sure I am not alone here). I understand that the US economy is in pretty bad shape right now, and thus it is safe to assume that my 401k investments are not doing that hot as a result. I also understand that I shouldn't consider the short term investment of my 401k, but should consider it's entire duration, and supposedly everything will eventually work out over the long term, and in the end I should see a decent return on my investments when I finally retire.

So my question is this:

Should I leave my money in the hands of the experts, and ride out this bumpy patch, and remain confident that everything will work out in time and just trust the experts?

Or should I take full control of my investments, and put all of my money in conservative stocks/bonds temporarily, and wait until things start to look a bit better with the economy, and THEN give my money back to the experts to invest back into the aggresive stocks?

I'm really torn here as to what to do, and any insight from people with financial investment experience would be greatly appreciated.

Thanks!

 

[Tull1996]

Hi Imilhan,

Keep in mind that this is just what I, Tull1996 would do. I am not TELLING you this is what you MUST do or you're an IDIOT. This is just my own opinion.

First...don't stop putting money into your 401k. In all likelihood, your company is putting in a matching contribution up to some percentage (in my case, they match 50 cents on the dollar up to an employee contribution of 6% (in other words, they throw in 3%)....that equals free money.

You are putting in whatever percentage of your paycheck you decided to invest....if you are doing it on a pre-tax (vs post-tax) basis...you save on your taxes at the end of the year, because it makes it look like you make less. This is another good thing.

Yeah...my plan has taken a good hit (I also do the retirement date plan....changed over to it a couple years ago....and the fee percentage is actually lower than the previous funds I was putting it into)

Remember...you are putting in a certain percentage....let's say 10%.....when the stock market is doing poorly, the share price of your fund has probably dropped quite a bit. This means that you are buying MORE shares with your 10% than you are when the fund is riding high.

THAT means, that when the market finally turns around (and though there are no guarantees, it always has before) you will have a BUNCH more shares...and when the price of that fund goes up....you'll have more $$ when you retire!

Now...this is all assuming that you aren't retiring in the next couple years (and with a target date of 2030, I feel safe in assuming you aren't)

So...what am I saying after all that? Leave your money as is. Hell, if you can swing it, you might even want to up the percentage you're putting in....at LEAST make sure you're maxing out the company match!

I hope this helps.

 

[lmilhan]

Yes, that definitely helped.

Thank you for your insight.

I am currently putting a healthy 15% of my income toward my 401k, which does indeed mean that I am maxing out my company's contribution (who doesn't like "free" money?). Now that my wife has finished school and has a job, I will look into putting even more into my 401k (I believe my company allows up to 40% - DOH!). And you are correct, 2030 is my planned retirement year. Unless someone can come up with a compelling reason otherwise, I think I will just stick to my original plan and "let it ride" and have confidence in historical data that indicates that 401k plans work out eventually in the long run. If it isn't obvious yet, I am not exactly a financial wizard myself. Stock market investing is a mystery to me. It's probably better if I leave it to the pros to invest for me.

Quote:

Originally Posted by Tull1996 /img/forum/go_quote.gif Hi Imilhan, Keep in mind that this is just what I, Tull1996 would do. I am not TELLING you this is what you MUST do or you're an IDIOT. This is just my own opinion. First...don't stop putting money into your 401k. In all likelihood, your company is putting in a matching contribution up to some percentage (in my case, they match 50 cents on the dollar up to an employee contribution of 6% (in other words, they throw in 3%)....that equals free money. You are putting in whatever percentage of your paycheck you decided to invest....if you are doing it on a pre-tax (vs post-tax) basis...you save on your taxes at the end of the year, because it makes it look like you make less. This is another good thing. Yeah...my plan has taken a good hit (I also do the retirement date plan....changed over to it a couple years ago....and the fee percentage is actually lower than the previous funds I was putting it into) Remember...you are putting in a certain percentage....let's say 10%.....when the stock market is doing poorly, the share price of your fund has probably dropped quite a bit. This means that you are buying MORE shares with your 10% than you are when the fund is riding high. THAT means, that when the market finally turns around (and though there are no guarantees, it always has before) you will have a BUNCH more shares...and when the price of that fund goes up....you'll have more $$ when you retire! Now...this is all assuming that you aren't retiring in the next couple years (and with a target date of 2030, I feel safe in assuming you aren't) So...what am I saying after all that? Leave your money as is. Hell, if you can swing it, you might even want to up the percentage you're putting in....at LEAST make sure you're maxing out the company match! I hope this helps.

 

[cAsE sEnSiTiVe]

As long as your company is contributing, and it appears they are, keep up with the 401k.

Another option, and one that I have been with for years, is a Vanguard 500 mutual fund. Very consistant return, one of the best around....and very good people to work with.

Whatever amount of savings you have decided you'll need to retire on by the year 2030, figure on half again as much. You never know what the future holds.

Good to see you're socking away....you'd be surprised how many don't.

 

[Spiritboxer]

The world is going to end in 2012.

 

[gilency]

I agree with Tull1996. I have been investing in my 401K since 1991. When the stock market crashed in the early 2000's I took a big hit but then recovered nicely. Over time, stocks still beat conservative investments. You could lose a lot of money if you switch to conservative now (you could miss the next increase). If you have a long horizon, (I am sure you do, based on your fund), just wait and don't change your account. Now I am assuming your 401K 2030 fund has very low fees (I have fidelity but have invested in a lot of the Vanguard funds). If you have Fidelity or Vanguard, I think you should be OK.
You should however start reading more about investments and eventually when you are comfortable, think about setting aside lets say 5 or 10% of you incoming money stream to buy stocks or funds you research. In my 401K, I am actually doing direct investment in about 2/3 of my money, but it takes a lot of time and research. The retirement (ie 2030) funds change strategy risk as you get closer to retirement.
Also, the fact that you are being wise saving for retirement speaks volumes about you. You are ahead of the curve. Only wish more Americans would participate in theirs.
Now, I am not a professional investor, therefore take my advice with a grain of salt, but for the most part, this is the recommended strategy by many.
Good luck!