Investing for a youngster

[bode316]

Ok, here is a little about myself. I am a college graduate, almost 23 years old, no debt, car paid for + company truck and gas. I have 15 k saved up from odd ball jobs and what not. I make 50k with an annual bonus and stock options. Great medical, dental, vision, etc.(Now for the bad part, I am engaged and live at home. I am kidding, I love my fiance, and I am going to live at home until I can put 20% down on a house, or marraige, whichever comes first.

My company offers a 6% match for the 401k, plus a 6% retirement package fully funded by the company. I plan on putting in 12% of my salary which will bring me up to a whoping 24% of my salary.

My main problem is this. We are only allowed a few funds, money market, and managed income mutual funds. So far we dont have index funds or anything of that nature available. We are with Fidelity, and they allow us a brokerage account on only the 401k, for a 75 dollar a year fee, plus transactions fees.

I believe that since I am young, I need to invest in stocks mostly. A professor once told me to subtract you age from 100, and thats the percentage in stocks you should have. Do you people think I need to invest in stocks or keep the mutual funds offered? I will be back soon with a list of the mutual funds available. Thanks.

[MasterBlaster]

That's the dilemma with many company 401k plans.

You get the match (which is great) but you are limited to some really crappy funds often with very high expense ratios.

My advice is to take the 401k cause' it gives you a 100% return on the match. Show us the funds and we'll help you pick the best of the bunch even if the bunch ain't that hot.

[mickeyd]

Hey Bode,

You seem to have a pretty good plan so far someone your age. Getting started on ANY kind of savings/investment plan seems to be the hardest thing that foks your age* have trouble with. Congratulations on getting such a good start and asking such thoughtful questions as you have done here.

If your 401(k) plan already has access to Fidelity you already have a big edge as Fidelity has many excellent low-cost funds. There is someone at your company (benefits dept?) who selected the funds in your 401(k) plan or at least, gave approval for them. You need to find out who that is and inquire when they will be adding some index funds.

Many company employees do not realize that they have a right to ask for changes to the 401(k) Plan.* Don't ever forget that this is your retirement plan and the squeeky wheel will have the plan reflect their investment plans.

I would invest 6% so as to capture the maximum ER match. I would then fund a Roth IRA with your next $4000 and then reconsider your additional contribution to the 401(K) until they have the funds that you want/need.* Squeeky wheel stuff...

[justin]

Quote:

Originally Posted by mickeyd If your 401(k) plan already has access to Fidelity you already have a big edge as Fidelity has many excellent low-cost funds. There is someone at your company (benefits dept?) who selected the funds in your 401(k) plan or at least, gave approval for them. You need to find out who that is and inquire when they will be adding some index funds.

We have fidelity 401ks for our smallish company of ~30 employees. I kept asking about better index options and was told that fidelity essentially picks the funds that are available and we get whatever they give. Luckily we have the spartan total mkt index and extended market index funds. The only other one I would like is the total international index. No good international or bond indexes at all currently though.

[azanon]

Micky's right, at least capture the match first, then probably go with a Roth IRA, but just finishing off their plan to the maximum contributions isnt really that bad of a choice either. The reason why is they take it off your paycheck before you see it, so you're liable to always save more than to be tempted to not contribute.

I'd go with the so called "crappy" mutual funds before i'd pay for a brokerage account. I hear that a lot, but usually the funds are not all that crappy. Do they invest in US Stock? Great! They're not crappy. Sure sometimes they look dull (maybe they micic the S&P500) or maybe they invest in large caps so there are any really big years, but if you're investing in "stocks", you almost couldnt go wrong if you tried. The only way you can mess up is if you pay a really high management fee. I'm not talking the standard 1% or so, but more like 3-4%. Also, I have many times seen funds that had several consecutive bad years, to go on and be some of the super star funds of the future.

Another advise i have for you is never to think of matches and the like into your % of savings. You're saving 12% of your income not 24%. That's important because you're going to be accustom to living off of the other 88%; the part you'll have to replace someday

Azanon

[brewer12345]

bode, what are the funds you are offered in the 401k?

[Jay_Gatsby]

Getting the match, funding a Roth, and then maxing out the 401(k) is normally the way to go. Maxing out the 401(k) lowers your taxes, while your money is accumulating tax free for years and years. There's one little fly in the ointment. Bode wants to buy a house, and he wants 20% as a downpayment. Maxing out the 401(k) doesn't help him, but perhaps he should take a year or two and get the 20% downpayment, buy the house, then max his 401(k). In the intervening time, housing prices should soften or at least stabilize.

[azanon]

I don't personally advise using any retirement account for a purpose other than for your retirement.* *If you need money for a downpayment, use a taxable account.* I realize Roth's have various provisions for taking the money out, including a first-time house, but i'd do every possible to avoid taking money out of retirement account for any reason.

I have no problem with funding a Roth IRA though, just per se.* But to be in a mindset to withdraw it for any reason other than retirement is not a good mindset to be in, me thinks.* *In fact, use this house example as a reason to NOT do it, because you'll be tempted to withdraw it.

[spideyrdpd]

Az
Although I usually mention the fact that you can get your money back from the roth with no tax and no penalties as a plus. I often wonder with people if thats too much temptation.

I am curious about the funds. I also have fidelity and while they have done some serious cutbacks as to which fund I can pick its still a lot of choices.

[kaudrey]

Do you people think I need to invest in stocks or keep the mutual funds offered?

Bode - when people suggest an allocation like "60% stocks" they don't necessarily mean individual stocks. Mutual funds that buy stocks count toward the percentages. Just wanted to clarify based on this question.

Karen

[PsyopRanger]

bode,

I would also ask about the vesting period, 12% match is great, I would just want to know when those funds will be exclusively mine.

Lance

[bode316]

Here are a list of the funds I know of right now. There may be more or less whenever I get my Fidelity account information.

Retirement Money Market
Managed Income Portfolio
Intermediate bond
Western Asset Core Portforlio
Puritan
Van Kampen Comstock Fund
Spartan US Equity Index
American Beacon Small Cap Value
Ariel Fund
Blue CHip Growth
Growth Company
Davis New York Ventrue Fund
MSI International Equity B
MFS International New Discovery
Freedom 2040 Fund
Apache Corporation Stock

Another thing, my company is very good with bonus' and at the beginning of the year, they set a stock quote, and if we reach it, we get a certain amount of shares.

Let me know what you great people think about these funds. Take care and thanks for all your help.

[justin]

Spartan US Equity Index - looks like a great fund. 0.1% expense ratio. Broad US market index, mostly S&P 500.

Don't know much about the rest of the funds, except most of the fidelity funds I rejected in favor of fidelity's spartan index funds in my own 401k account.

[brewer12345]

I think if you did 25% Managed Income fund 75% Spartan Index fund you would do just fine with low expenses. I will poke around the 2040 fund to see if it is any good.

[LOL!]

The fund selection in the 401(k) is not half-bad and not as bode316 characterized it.

Quote:

Originally Posted by bode316 My main problem is this. We are only allowed a few funds, money market, and managed income mutual funds. So far we dont have index funds or anything of that nature available.

As written above the the Spartan US Equity Index fund quacks like an index fund, quacks like a total market index fund, quacks like a stock fund. Guess what? It is an excellent low-expense ratio index fund.

One should probably have an asset allocation to international as well. MFS International New Discovery is a fine small-cap international fund. We own it. It might be worth 5% of your allocation, with another 15% going to another international fund.

[brewer12345]

bode, the Feedom 2040 fund looks like it might be a good all-in-one choice, with the exception of its expense ratio (.76%, on the high side of OK). Its a mix of about 15% international equity, 12% bonds, and the balance in varous US equity funds. Not a bad one stop shop f you want to keep it simple.

[mudbuddha]

bode,

You have* a good start.* Either way you decided on is okay considering your age.* The important thing is to be discipline in saving and work on up to the max 401K contribution allowed.* There are many factors involve since you have a lot of time and ideas that you get from this board are a great start.*

You must plan for your short and long term goals so to speak.* How long are you planning to stay at your current job?* Management may change and so does your saving program.* I would stick with a targeted retirement fund like what brewer mentioned and avoid the headache of having to pick the funds available.*

What about marriage and kids- all these are expenses that you must sit down and plan with your finance.* You* mentioned about purchasing a house.* For this 20% down payment is required, how are you planning to save?* For example, you can max out your 401k program while your partner can save for the down payment or make sure to save enough for the company matching then save some more for the house- it's a team work kind of thing but go with what you are comfortable with.* We did the same 10 years ago when we wanted to move out sooo bad but realize that we can't afford to do so, so we both had plans to work hard and saved like crazy for two years to be able to afford our first condo.* It wasn't easy by any means, in fact we were stretching it but we were able to get by with basic necessities.* Looking back, we are glad that we did it.* The market was hot 3 years ago for so many people, so we sold our condo
for a SFH that now is a part of our solid back up plan for ER.* The point is that until we were able to move out and get our own place, we were not be able to save for our retiremnet let alone FIRE.* But knowing that realestate is the foundation for other means to early retire, we did what ever it took to get there.* *At this early ages, you and your fiance are already ahead of the curve so kudos to you both.

Duke* *

[canent]

Some companies might also allow a retroactive period for the matching. A friend of mine joined his company's plan (a Canadian RRSP matching plan) once he found out that the company offered it (it wasn't well advertised)...anyway, he asked if they'd match for the previous 6 months if he chipped in his own proportion and they went for it.