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Subject:  Re: 401(k) help Date:  10/20/1998  11:37 AM
Author:  TMFPixy Number:  6117 of 88535

Greetings, edesman, and welcome. You asked:

I need some Foolish advice for a 401(k) plan. My company has a terrible selection of mutual funds. However, they do allow one to open up an account with Schwabb & I can then trade on my own. Currently, after getting slaughtered in the previous company managed fund, my holdings are down to a measly $7000. (I have been investing in this for only one year.)

Here is the problem: With the little cash I currently have, I think any profits of a fool 4 approach will be eaten up by the $30 transaction fee for each buy/sell with Schwabb. My alternate plan was to just stash the dough into an index 500 fund. NOW, if I invest in the Schwabb index fund, there is no fee for the transaction and all of my money will go into the fund, whereas if I invest in the Vanguard 500 fund, there will be a $30 charge. I plan to keep the $ in the fund until I have accumulated about 20k and to start with a foolish 4 based portfolio.

With $7K and a charge of $30 per trade it seems to me you have enough now to start a Foolish Four portfolio. In the first year it will cost you $120 to buy the initial shares. That's 1.7% of your portfolo, which is well within the range of the 2% to 2.5% maximum trading costs we adhere to in Fooldom. On average, you will have two buys and to sells on your trading anniversary dates, or four trades for $120. Even if you add no further money to the account, you'll stay within the limit. And, as your account grows those trades will represent less and less as a cost percentage on the portfolio total.


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