I have a 401k through work and I was interested in some advice on how to administer it to get the most out of it.
First, let me explain a few points about it:
-I can move funds from most investment choices to another at any time (there are a few funds that you have to wait 30 days to move out of).
-There is no fee for transferring funds between investment choices
Ok, now onto the funds available to invest in. I will group those that are similar:
-Stable fund -(makes about 2% a year, no matter what)
-Bond fund (makes a bit more than the Stable fund (4-5% per year) that I've seen)
-S&P Index fund
-Russel 2000 Index fund
-Mid Cap fund
-Various retirement projection funds (which I don't use because they charge higher fees and under perform most of the other funds when the market is doing well)
-Emerging Markets fund
-Company stock fund (I normally avoid this, though had I had everything in it this year, I'd be 10 years closer to retirement)
Normally I just put all my investments in the Russel 2000 fund when I think the market's going up, and then move it to the stable/bond when it looks like it's going to go down for a while.
My questions are mainly two-fold. What would an ideal mix be? If the market is generally in a bullish mood, it makes more sense to leave all my investments in the S&P/Russel/Mid-Cap funds. Why, put any in the Stable/Bond if they're going to under perform. Likewise, when the market is being bearish, I know to take it out those funds for a while.
I suppose it would be easiest if I could trust when I thought the market had hit a peak or valley (or was close to) and I could just move funds and wait it out, but I'm unfortunately not in the financial sector and all I know comes from watching CNBC in the background when I'm working from home. I did for a while try to work out a system where I'd start with 50% of my money is the S&P/Russel/Mid-Cap funds and half in the Stable/Bond and move a % from one to the other each day depending on if the market went up/down that day, but it didn't seem to work either when I applied it to how the market went this year.
So, thanks for reading. Does anyone have any constructive advice on how to maximize my return over the next 20-25 years before I plan to retire?
Sun Dec 21, 2014 4:48 am
Wino Senior Member
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Re: 401k Investment Advice
quote:Originally posted by albanypark35 ...how to maximize my return over the next 20-25 years ...?
Quit moving the money around. Put relatively equal amounts in midcap, international, S&P500, and Russel2000. This gives you a good spread/diversification and it should allow for decent growth. I am assuming these funds have no or very low fees. Depending on your bent, you may want to add emerging markets to the mix as well. By using both the Russel and the S&P, you're also leaning toward index funds which are usually the lowest fee and a relatively safe harbor compared to swinging sector funds or indices.
You will lose over time by trying to time the market, and that's exactly what you're doing. Just diversify and leave things alone with MAYBE an occasional rebalance of your investments.
Mon Dec 22, 2014 4:47 am
albanypark35 New Poster
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I appreciate the advice. To be honest, over the last ten years, I've pretty much had 100% of it in the Russel. I don't move it around, though I easily could. To answer your question, yes, all of the funds available are quite low in fees.
As for diversification, I do understand it. You want the performers to be cover the non-performers to at least be propped up by them when things are bad. My concern (and I'm sure most people's) are that it seems that some things are going up, while other go down, and why leave money in funds that continue to lose it. You would think it would be easier to recognize market patterns and know when you should move/re-allocate the bulk of your funds to safer places such as bonds/stable funds and out of the index type funds.
Perhaps this is just an OCD or short term perspective or just that of a complete novice.
Mon Dec 22, 2014 4:58 am
blixet Preferred Member
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quote:Originally posted by albanypark35 You would think it would be easier to recognize market patterns and know when you should move/re-allocate the bulk of your funds to safer places such as bonds/stable funds and out of the index type funds.
You'd think, but no one seems to be able to do it on a consistent basis. Best to accept that market timing isn't an efficient strategy and move on. Or not and learn the hard way.
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Mon Dec 22, 2014 2:44 pm
oldguy Senior Member
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I agree completely with the others.
A 23-yr study was done by brokers some years ago - clients who did what you suggest (moved out in a downturn and bought back later) earned approx 3%/yr for the 23 yrs. And the 'buy incrementally & accumulate' group earned 14%/yr for 23 yrs. The clients who moved every few years received about the same as a CD. Clients must wait until a downtrend is established, ie watch it for a few weeks to make sure it's not just a fluctuation - and then sell. And then wait a yr or so - you hear the phrase "wait for the Market to recover so that it's safe to get back in". lol - think about that - another way of "buying high".
To further make the point - 15% of the pro fund managers beat the SP500 Index - 85% fail. Worse yet, it's not the same 15% every year.
Another point - there are 1000s of books, software, etc on how to beat the Market, a new book every week. But if there was actually a way, a small pamphlet would define it. The fallacy - the Market is about the future - based on things that will happen tomorrow - and the predictions in the books are based on history, the hope that history will repeat and that it can be extrapolated.
I would put the entire 401k in the SP500 Index. It is essentially a diversification of the commerce of the world - international, emerging, big, small, Eg, GE alone covers most of those categories. Plus, if you use the SP500, you will be dealing in US currency - the currency that you will be using when you spend the money.
This site shows the SP500 since the beginning of time. Most any 30-yr block of time shows an 11%/yr average +/- 2%. So if you invest $5000/yr incrementally for 30 yrs and never buy/sell you should have about $1,100,000. Factor from that - eg, if you want $2.2M invest $10,000/yr. Just accepting the 11%/yr (rather than trying to beat it) gives most of us an acceptable outcome, $1M or $2M works for many.