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Hello, and a 401k question...
Old 05-29-2007, 11:57 PM   #1
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Hello, and a 401k question...

Greetings! I've been lurking here for some time, and have learned a tremendous amount from the members of this board. More than anything, I've learned is that I'm not as close to ER as I'd originally thought.

I'm 34, and DW is 38, and we have 2 small kids. We both work, and are fortunate to earn very good salaries. I have $200K in 2 401k accounts, and DW has $165K. We have about $90K currently sitting in high-yield savings accounts, and no non-mortgage debt. We have around $500K in equity in our home, though I've had to re-adjust my thinking there, because we'll likely be in this house at least until our kids are grown and on their own. We live in an expensive area of Southern California, and probably wouldn't be able to extract a significant amount of equity without leaving the area, which we'd rather not do.

Given all of the above, we'll probably need to significantly alter our spending habits if we both want to retire early. Neither of us are extravagant spenders, but we don't really have a household budget. We just pay our expenses each month, and sock the rest into savings. I know we can do a lot better with some concrete goals and planning.

I'm sure I'll have lots more questions as we get further along in our planning, but my initial question is with regard to my 401k accounts. I have accounts from 2 previous employers. I've recently started a new job, and will soon be eligible to participate in my new employer's 401k. The new employer offers accounts with 2 firms: Fidelity and American Funds. What's odd to me is that the AF funds are load funds(2%). Apparently the load has something to do with the amount of money the company's 401k. The 401k rep spent some time selling me on the American Funds accounts, but I'm having a hard time getting past the load aspect of them. Am I wrong to be so hesitant? If they truly will outperform the Fidelity accounts (and he indicates they have historically, though past performance is no guarantee of future performance, yadda yadda yadda), I could get past the fees. I could also just roll the existing accounts into Fidelity funds just to avoid the $4k load hit, and then try the American Funds with my new payroll contributions. Obviously, no one can predict the future, but can anyone give me any input or advice? Is it realistic to think that the AF funds would outperform Fidelity funds, even with the load factored in? I realize that I'm probably being far too general (no details on the specific funds), but I'm curious is anyone has personal experience with American Funds. I hadn't heard of them before joining this company, but have found quotes here from folks that seem to find them reputable...

Thanks in advance for any insight or opinions!
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Old 05-30-2007, 12:30 AM   #2
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Welcome ProspectiveBum. What kind of w*rk do you hope to retire from?
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Old 05-30-2007, 06:11 AM   #3
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ProspectiveBum, welcome to the forum.

American Funds have a good track record, but the load plus the 'yadda, yadda' would cause me to avoid them in favor of Fidelity. Others may will feel differently but for me the avoidance of high expense ratios is an important factor in all my fund investment decisions.
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Old 05-30-2007, 07:13 AM   #4
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Quote:
Originally Posted by ProspectiveBum View Post
Greetings! I've been lurking here for some time, and have learned a tremendous amount from the members of this board. More than anything, I've learned is that I'm not as close to ER as I'd originally thought.

I'm 34, and DW is 38, and we have 2 small kids. We both work, and are fortunate to earn very good salaries. I have $200K in 2 401k accounts, and DW has $165K. We have about $90K currently sitting in high-yield savings accounts, and no non-mortgage debt. We have around $500K in equity in our home, though I've had to re-adjust my thinking there, because we'll likely be in this house at least until our kids are grown and on their own. We live in an expensive area of Southern California, and probably wouldn't be able to extract a significant amount of equity without leaving the area, which we'd rather not do.

Given all of the above, we'll probably need to significantly alter our spending habits if we both want to retire early. Neither of us are extravagant spenders, but we don't really have a household budget. We just pay our expenses each month, and sock the rest into savings. I know we can do a lot better with some concrete goals and planning.

I'm sure I'll have lots more questions as we get further along in our planning, but my initial question is with regard to my 401k accounts. I have accounts from 2 previous employers. I've recently started a new job, and will soon be eligible to participate in my new employer's 401k. The new employer offers accounts with 2 firms: Fidelity and American Funds. What's odd to me is that the AF funds are load funds(2%). Apparently the load has something to do with the amount of money the company's 401k. The 401k rep spent some time selling me on the American Funds accounts, but I'm having a hard time getting past the load aspect of them. Am I wrong to be so hesitant? If they truly will outperform the Fidelity accounts (and he indicates they have historically, though past performance is no guarantee of future performance, yadda yadda yadda), I could get past the fees. I could also just roll the existing accounts into Fidelity funds just to avoid the $4k load hit, and then try the American Funds with my new payroll contributions. Obviously, no one can predict the future, but can anyone give me any input or advice? Is it realistic to think that the AF funds would outperform Fidelity funds, even with the load factored in? I realize that I'm probably being far too general (no details on the specific funds), but I'm curious is anyone has personal experience with American Funds. I hadn't heard of them before joining this company, but have found quotes here from folks that seem to find them reputable...

Thanks in advance for any insight or opinions!
save yourself the 2% and use the no load options in your 401k. List the choices for Fidelity and choices from American... but all things being equal, I'd go with no load funds.
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Old 05-30-2007, 08:14 AM   #5
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Welcome ProspectiveBum. What kind of w*rk do you hope to retire from?
My wife and I are both software engineers. We both enjoy the work, to a point, but there are many other interests that we'd pursue if we were FI.

I recently left a management position at a larger company - where there was a lot of mismanagement and BS - to take a hands-on engineering position at a small company. Took a pretty significant pay cut to make the switch, but I don't dread going to work these days, so I think it was worth it.
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Old 05-30-2007, 04:05 PM   #6
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Can't you transfer your previous employer 401k's to E-Trade or something similar? Did I miss a reason why you couldn't?

That would be the obvious step for me. Then you have a pick from all mutual funds / stocks, no load, low commissions, etc. You really should take that step if it's possible.
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Old 05-31-2007, 10:13 AM   #7
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Originally Posted by Ceberon View Post
Can't you transfer your previous employer 401k's to E-Trade or something similar? Did I miss a reason why you couldn't?

That would be the obvious step for me. Then you have a pick from all mutual funds / stocks, no load, low commissions, etc. You really should take that step if it's possible.
Thanks, Ceberon. So stunningly obvious, and yet I didn't see it myself. That's why I'm a fan of this board!

I think I'm going to to 50% AF/50% Fidelity on my new contributions, and see how the returns are over 18-24 months, and decide which I like better based on that.
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American Funds
Old 05-31-2007, 10:28 AM   #8
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American Funds

AF is indeed a reputable company, but as has been mentioned they do have fees. Once you get over a certain level, the fees reduce and eventually go away (at like $1M).

I have had favorable experiences with some of their funds, such as:

Income Fund of America
Balanced Fund

Of course, Fidelity is a fine company and they probably offer equivalent products. If I were in your shoes, I would check out their target date retirment accounts.
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