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Hi,
I am back for more help. I am now able to contribute to my company's 401k plan. They match dollar for dollar up to six percent. I can contribute another 4% pre-tax. This is great I know. The problem are the investment options. No index fund!!! The following is the list of options...
Stable Fund
Evergreen U.S. Governement Fund
Evergreen Balanced Fund
Evergreen Foundation Fund
Enhanced Stock Market Fund (S&P 500 Futures)
Evergreen Fund
Evergreen International Equity Fund
Mentor Growth Fund
First Union Corp Stcok Fund
I am 25 years old and have no problem with market volatility, or short-term market fluctuations. I am in this for the long, long, long term. My monthly expenses are low and I am almost completely out of debt.
Questions....
1. Should I contribute more than what they match?
2. How should I divide my contributions?
3. How often should I rebalance my portfolio?
4. Is there such a thing as self-directed 401k plans?

Humbly asking for advice. I am young with limited experience and am looking for good sound advice. The kind of advice I can pass on to co-workers.

I would also like to add that this site and this board in particular has given me more information than all my experiences and job training combined. Please keep up the good job. I love this place.
Dan
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foolishlypoor wrote:
1. Should I contribute more than what they match?

I want you to understand that I am new to this too, but I get a kick out of practicing doing italics and I read and commented on similar question in another thread.
Also, I like to read my own messages in the folders that are not real busy, sorta keep up the chatter.


I believe the general answer is that you only contribute more than the matching amount if the funds available to you perform well and I dont have a clue how any of your options perform.

If you can beat the peformance of the funds by say buying an S&P index fund outside your company plan, then that is what you should do once you have maximum matching by your employer.

In General Fools dont like Managed Mutual funds and are convinced that the S&P 500 Index funds will substaintially beat 90% of managed funds (but in rereading you message it appears you know that).

But they do allow as how there can be some good ones too.

So now wait for some one qualified to give you good advice and who can respond to the rest of your question(s)

oldred22


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Thanks for the response.
I too like to read my own messages and that of everyone else's too. I love this place and the good and honest answer I get.
I know a lot of veteran employees who have done well with their 401k plans but I do not know if they are measuring it against the S&P 500. I doubt it.
I will only contribute the matching if the investment options are not all that good. The problem is I know the Evergreen Family, as I am licensed to sell them. However, I do not know about the enhanced stock market fund which invests in S&P Futures. I know nothing about futures other than it is like going to VEGAS (You can win Big, but loose even BIGGER). Also I know nothing of the mentor growth fund other than it invests in small caps and had not all that hot a record. I do believe in my company's stock, but do not want to risk my whole future on the basis of one company.
Thanks Again!
Dan
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foolishlypoor wrote:
I know nothing about futures other than it is like going to VEGAS (You can win Big, but loose even BIGGER)

Love this, just great.
And all I know about futures (or ever will care to know) too.

oldred22
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Hi Oldred22,
I just read your profile and it says you are 37 and recently retired. Congratulations! Please fill me in. I would like to join the ranks of early reitrement some day so please enlighten me as to how you became able to do this!
Dan
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foolishlypoor wrote:
I just read your profile and it says you are 37 and recently retired.

Well I better run and fix that profile, wow, no more late night thinking projects.

I have just recently (11 months now) retired, but I am not 37, I turned 60 earlier this year.

Sorry about the confusion.

But having said that, I can also say, by pumping some money for a long time into company stock (Ford, Loral plus some others that were Wise) for a long time, and then maxing out on the company contributions and 401k I am pretty sure I will be ok.


I did one smart thing (Foolish thing) and that was to get rid of credit card debt and never let it get started again, way early in my career. I love credit cards but not the interest, so I strongly believe you have taken a very significant first step already.

The rest was just luck as I never had much choice in how to invest (sorta like you) and in the beginning it was just the option to invest in Ford, but the company matched and that was before 401 K even.

But over the long haul, Ford has been a great stock for me.

In May (of this year) I finally moved my 401k funds to an IRA so I can start to manage (or mismanage) them.

The other thing that I think you are doing right is getting started as young as you are, I let 10 years go by before I started.

Compounding and luck are hard to beat.

You should have seen me last November as I found out that my dream of someone else managing my assests were torn away by the Fools and their book (MFIG).
Panic might be a bit strong but.....

Anyhow I have tried to learn at a great rate of knots since then, so the one thing that I can say is I have not been bored with retirement so far, and then there is also learning to bank via computer etc.
Hell I never owned Quicken till last November (was the first thing I did, try to figure out where I really was, I sorta knew in general but...).


And I, like you, have been getting smarter (more Foolish???) by using this site and books and maybe before I die I will know what I should have 30 years ago.

But hey sometimes it is better to be lucky than good
(or Foolish).

Look in the Fribble archive for Tom Guy, "Another road to fooldom" (about a week ago) for more if you are interested.

http://www.fool.com/Fribble/1998/Fribble980924.htm


(Lol, sorry but I am laffing as I take out this brazen plug for my fribble and this is like the third try at posting a link, man, I just love this internet stuff)

Thanks for asking

oldred22
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Most importantly, go with what you know and what makes your most comfortable. Since you are in it for the long-term, stay away from 'stable', 'guaranteed investment contract', balanced, or bond funds. These will only reduce your return, in the long-term. Choose what you think will give you the best long-term return.

Regarding rebalancing, if you disregard my advice regarding balanced or bond funds, you could use asset-allocation, saying 10% of my portfolio is in a bond fund, and 90% is in an equity fund. At the end of some period you choose (1 year, for example), you rebalance your portfolio back to a 10/90 ratio. This always forces you to sell high, and buy low.

Regarding putting in more than your match, some advice says put the next $2000 into a Roth IRA. Even though you can't deduct the principal, the returns are tax-free, and you would have a self-directed Roth IRA. Then put more money into you 401K.

401k plans can only be run by your employer, sorry.

Also, don't forget to invest money outside of any retirement plan for your long-term spending goals.

Zev
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I would love to know your strategy for early retirement too!
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I am 30 years old and have been investing in my 401K since I was 24. I recommend you do the following:

- Put the maximum contribution into the 401K for the first 5 years. After the first 5 years (or longer if you chose) decrease your investment. Obviously, don't put in any amount less than what your company will match. (I have been putting the maximum into my plan which is 16% + 4% company match).
- Immediately open a Roth IRA. Since this investment yields tax-free returns, it is preferable to a 401K. Put $2000 in every year. Be aggressive with this investment.
- Lobby your HR department to get better investment options. Ask for at least and index fund and an aggressve growth fund.
- Look at each of the funds. Rule out any that are not 100% equities + cash. Look up their long term performance - 10+ years (most charting sites can give your a chart which compares against S&P500).

The trick with any investment is not so much the amount you put in, but how early you invest the money. (This is very easy to show with a spreadsheet). A small amount of money invested early on will easily outperform 2x/3x the amount which is invested 10 years later. Your income will increase over time which will enable you to put more dollars into the plan. But the initial dollars are the ones which will reap the highest return.

I know that when I was 25, I tended to look in the present (when it came to money) instead of the future.
You may have to forgo some luxuries initially to do this, but it will be well worth it. Even if you do this plan for only 5 years.

rustedSoul
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Dan asked:

I am 25 years old and have no problem with market volatility, or short-term market fluctuations. I am in this for the long, long, long term. My monthly expenses are low and I am almost completely out of debt.
Questions....
1. Should I contribute more than what they match?


Maybe, but then again maybe not. Beyond the company match you have to compare your options. A $2K contribution to a Roth may be better, and so may a taxable investment. If you maintain the same discipline in the alternative as that required by the 401k (i.e., automatic payments that increase as your pay does), then it's possible the alternative is a better choice. One way to see if that's so is to do an analysis similar to that I described in Step 4 of the 13 Steps to Foolish Retirement Planning. View it at http://www.fool.com/retirement .

2. How should I divide my contributions?

At your age, most Fools would say 95% or better in stocks. However, that's strictly up to you based on your comfort level with the ups and downs of the marketplace.

3. How often should I rebalance my portfolio?

If you opt for 100% stocks, never. Otherwise, once each year is a good rule of thumb. Again, it's up to you.

4. Is there such a thing as self-directed 401k plans?

Yes, but very few plans allow it. They are by far the exception instead of the rule for many reasons. Cost of administration is one and fear of litigation is another. Employers don't like either, so they avoid the problem by not using that option.

Regards…..Pixy

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Oldred22 sez:

In General Fools dont like Managed Mutual funds and are convinced that the S&P 500 Index funds will substaintially beat 90% of managed funds (but in rereading you message it appears you know that).

But they do allow as how there can be some good ones too.


That we do. We also point out that it's extremely difficult to find those funds that will out-perform, too. In fact, it's much tougher than finding a good stock. Managers change, fund philosophy changes, expenses change. In short, there are few long-term objective measures one can use in fund selection. Thus, we say why fight the problem? Go with the index fund as a no-brainer instead of putting forth all that effort that is more than likely to be a wasted task in the long run.

Regards…..Pixy

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Oldred22 wrote in part:


You should have seen me last November as I found out that my dream of someone else managing my assests were torn away by the Fools and their book (MFIG).
Panic might be a bit strong but.....

Anyhow I have tried to learn at a great rate of knots since then, so the one thing that I can say is I have not been bored with retirement so far, and then there is also learning to bank via computer etc.
Hell I never owned Quicken till last November (was the first thing I did, try to figure out where I really was, I sorta knew in general but...).


And I, like you, have been getting smarter (more Foolish???) by using this site and books and maybe before I die I will know what I should have 30 years ago.


LOL. Who says an old dog can't hunt? Now me, I'm only 29, and in four months will celebrate my 31st anniversary of attaining that age. Nevertheless, I still am learning what this investing business is all about. Ain't it great to be Foolish?

Regards….Pixy

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RustedSoul sez:

The trick with any investment is not so much the amount you put in, but how early you invest the money. (This is very easy to show with a spreadsheet). A small amount of money invested early on will easily outperform 2x/3x the amount which is invested 10 years later. Your income will increase over time which will enable you to put more dollars into the plan. But the initial dollars are the ones which will reap the highest return.

Truer words were never written. Compounding, as friend Benjamin Franklin said, is the eighth wonder of the world. Would that more young folks would recognize and take advantage of that fact.

Regards….Pixy
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Well, I am glad you clarified that for me, but I still see that you are 5 years ahead of schedule. That's great and I agree it is better to be lucky then good in most cases. Unfortunately, you never know you were lucky until after the fact.

This is why I love this place. It shows us an unemotional approach to being good and hopefully a little luck too. I work for First Union National Bank, like you the company is doing well and I believe on the road to bigger and better things.

Hey, for the record it has been great discussing this stuff with you. Thanks and keep me updted to any good ideas you may have or even some good stories. I am a numbers guy and love statistics, so I leave you with one.

I saw on television a few weeks ago that if you purchased one-thousand dollars worth Microsoft stock when they first went public in 1986 you would have $256,000 today. That means a $4,000 investment would make you a millionaire in four years!!!!!!!!
NOW THAT'S WHAT I'M TALKING ABOUT!!!!!!!!!

I know I can do this too, by doing my homework and not listening to people who only gain from my commssions I pay.

Be foolish forever!!!
Dan
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Hi Jimmy,
If you are referring to me, the person who posted the original message read on. If not, please disregard.

I am now twenty-five years old. I am extremely comfortable with fluctuations in the market. I have 40 years to go before I plan on using this money.

I currently contribute $166.66 per month to a self-directed ROTH I.R.A. I currently have it invested in three Evergreen Mutual Funds. Since getting involved here I am planning on putting my entire portfolio into a S&P 500 index fund. When my account reaches at least $4,000 I plan on using the funds to purchase my first foolish portfolio. I have not decided which one I will use first. I do know I will probably use two-to-three approaches.
November 15, 1998 will be my first contribution to my company's 401k plan. For now, I am contributing the maximum, pre-tax of 10%. My company matches 6% dollar for dollar. I plan on using a large protion in my company's stock only because I believe First Union National Bank(FTU) is on the right road to success. I also plan on using the Evergreen Fund because even though it is not an index fund it has had the sam fund manager for over twenty years and he is one of the founders of the Evergreen Family. The fund has averaged close to 17% since 10/71. I also plan on putting some into the Mentor Growth Fund until I can do something better. Please keep in mind there is no index fund option. If they get one, I am there in a heartbeat!!!!!!!!!!!!!
Sorry, this is long, but I plan on doing this for as long as I am eligible to make contributions to my ROTH. I plan to be well above the income limits in the next few years. I am very ambitious!!!
I also plan on using the money I am using to pay off all of my debt (currently $450.00 per month) to start another account to do trades with. I love it and want a lot of exposure. I really enjoy this and plan on learning as much as I possibly can.
Thanks
Dan
Please let me know your plans as well!
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Thanks for the input.
I wish you the best of everything life has to offer.
I am prepared to forgo luxuries for now to know I will reap the rewards in the future.
I just posted my current plan to the last person so I will not repeat it but thanks just the same.
My company just purchased Corestates and I think they have an index fund that might be available for 401k.
Hope so anyway. I already contribute to the Roth.
Thanks
Dan
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