New to 401k's, so help me out

[korn6499]

So Im 30 and finally have a job with a 401K with a match. I realize the match is the only reason to participate, but I want to have performance as well and retire young . I have participated for 5 months, and want the community to check out my numbers and let me know if anything is wierd:

Total Contribution: $2082.69
Bi weekly contribution: $208.27
Period: 10 investments
Gain (if I sold today at fund stock price): $37.03

Fees (admin, trade, fund expense ratio, and admin expense ratio): $10.42

Not entirely sure how the fee structure works, but dollar amounts are listed on the website and statement for trade and admin, and the ratios are not listed yet and vary per fund and the admin expense ratio is 0.25% and also is not posted. I am pretty sure though that if I took my money out, they would expect their cut on the funds so I have included it

So just follow me here, basic return equations would state:

(F/A, i, 10) and you are able to find your return?

F=2082.69+37.03-10.42=$2109.29
A=$208.27

F/A=10.13

I go look in my economics book, and my return is something like 0.3%. This doesn't even hedge inflation!

Is there something wrong here? The approach seems logical to me.

 

[2035]

It looks good to me....keep it up! Are you also able to fund a Roth IRA?


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[hnzw_rui]

So just follow me here, basic return equations would state:

(F/A, i, 10) and you are able to find your return?

F=2082.69+37.03-10.42=$2109.29
A=$208.27

F/A=10.13

I go look in my economics book, and my return is something like 0.3%. This doesn't even hedge inflation!

Is there something wrong here? The approach seems logical to me.

That's 0.3% per period. For biweekly pay periods, that's 0.3% * 26 = 7.8% per year.

 

[jwkde]

does that amount include the 'match'?

 

[pb4uski]

That's 0.3% per period. For biweekly pay periods, that's 0.3% * 26 = 7.8% per year.

+1

The most precise approach be to use Excel's RATE function, where the equation would be solving for the rate of return per period given a beginning balance of 0, periodic investments of 208.27 for 10 periods and an ending value of $2,119.72 (investment of $2,082.69 plus the gain of $37.03). The equation is "=RATE(10,-208.27,0,2119.72)"

You weren't clear so I assumed the ending value was $2,119.72 .... the investment + gain rather than the investment + gain - fees.

That gives you .39%, but it is for bi-weekly period. To annualize you would take .39% * 26 which gives you a 10.16% annual return.

But don't fret over 5 month returns, you have a long ways to go. Slow and steady wins the race.

 

[travelover]

I'd investigate the fees further and see what they really are as a percentage. If the fees are high (more than 1%), I'd only contribute to the match maximum and then invest in a Roth IRA and any extra would go into an after tax account.

They took almost 1/3 of your gains in fees. That counts up.

 

[pb4uski]

+1 the fees look quite high

 

[MRG]

Not entirely sure how the fee structure works, but dollar amounts are listed on the website and statement for trade and admin, and the ratios are not listed yet and vary per fund and the admin expense ratio is 0.25% and also is not posted. I am pretty sure though that if I took my money out, they would expect their cut on the funds so I have included it me.

The fee's for each fund should be available in the prospectus. If it's not available(?) just Google the fund ticker or name and you'll find it.

 

[utrecht]

I didnt check your numbers because that's not what is important here. What is important is that you are a little freaked out that you got a 0.3% return over 5 months. Again, not sure what your actual return was but if you are worried abut a very slight return over a 5 month period, you are setting yourself up for disappointment. Over your career you will almost certainly do better than that but there have been long periods of time (think years) where stocks have lost money.

There was a 10 year period pretty recently where the Sp500 was basically flat. Again, long term the stock market is the place to be but sometimes the long term can be very long. Relax.

 

[Big_Hitter]

I realize the match is the only reason to participate,

Absent the 401k, do you have the ability to defer 18K annually pre-tax into mutual funds that accumulate tax-free?

 

[InTheSticks]

How much is your companies match? What's the vesting period?

 

[pb4uski]

Absent the 401k, do you have the ability to defer 18K annually pre-tax into mutual funds that accumulate tax-free?

I'm guessing that the OP is in a low tax bracket so the tax deferral benefits are not compelling, but the match is.

Besides, contributions are tax-deferred, not tax-free since it is a conventional 401k and not a Roth 401k from what the OP wrote.

 

[Big_Hitter]

I'm guessing that the OP is in a low tax bracket so the tax deferral benefits are not compelling, but the match is.

Besides, contributions are tax-deferred, not tax-free since it is a conventional 401k and not a Roth 401k from what the OP wrote.

yes the earnings accumulate tax-free until withdrawn, huge advantage compound interest wise as we know - still a great vehicle to take advantage of even without a match

 

[Car-Guy]

I'm guessing that the OP is in a low tax bracket so the tax deferral benefits are not compelling, but the match is.

I know when I was in my 30's, the thing that enticed me to join my companies 401k was the matching funds. It seemed like free money to me, even if it was deferred. Some years later I started to realize the tax deferring value, savings value, compounding value as well as the matching funds. I don't remember when but at some point I started maxing out my annual contributions. Never missed the money coming out of my checks and now the account is worth a lot more than I ever dreamed it would be. (Into 7 digits)

Back in my 30's, several older and wiser business men advised me to get in ASAP, invest in the company stock and forget about it. That was some of the best financial advice I ever got.