My employer offers a profit sharing plan which I can contribute up to 8% of my salary. They offer an index fund which I know would be the foolish way to go, but should I put all my eggs in one basket or divide up the percentage and put some in a growth fund? Maybe 70-30? Also, I have a choice of pre or after-tax contributions. This seems like a no brainer, the pre-tax contribution should be the way to go, but under what circumstainces would after-tax contributions be advantagious?Thanks
Pre-Tax is the way to go. No doubt about it. The index fund is a good start, you cover a good chunk of the market that way.I can't think of a way that after tax contributions would be advantageous, unless you have exhausted all other opportunities.
Pre-tax is the better way to go. What index fund do they offer? If it's an S&P500 index, with low fees, the Foolish thing is to use that for all your stock investements. After all, something like seven out of eight funds fail to outperfom the S&P500 index. Make sure the fees are low (the Vanguard annual fee on their 500 index is 0.18%!). A "Total Market" index could also be good.
Am I the only person dancing with Fools who believes all that glitters is not index funds? Over the past 12-months, ending 10/31/00, virtually all S&P 500 funds are in the bottom half of their Morningstar peer group--Large Cap Blend. This doesn't even take into account the butt whooping they've received on from the likes small and mid cap growth funds, and even some value funds. Many of these index funds are now sliding below the top 1/3 of their peer group for the 3-year time frame.Everything, and I stress everything, has cyclces. Perhaps leadership on behalf of the S&P has run it's course. Even the folks at McGraw-Hill, who own Standard & Poors, may have gotten too wrapped up with the "new economy" when they made additions to the list, and now are feeling the pain. For those somewhat new to this sport, the S&P 500 is not a static index, it gets massaged more often than Charlie Sheen. More than 130 stocks have turned over in that index over the past couple of years. If all of the other equity choices in your plan stink, than this may be your best choice. But take a close look at the actively managed funds. Remember, sometimes cash is king, and in down markets the S&P 500 stays fully invested.
Tanback wrote:Am I the only person dancing with Fools who believes all that glitters is not index funds? Over the past 12-months, ending 10/31/00, virtually all S&P 500 funds are in the bottom half of their Morningstar peer group...Being that this is a message board about 401k investing (Read: long-term, retirement investing), how much concern should a Foolish investor have for a fund's previous 12 month return, when your 10, 20 or even 30 years from retiring? How about, HooHumm. This doesn't even take into account the butt whooping they've received on from the likes small and mid cap growth funds, and even some value funds. Many of these index funds are now sliding below the top 1/3 of their peer group for the 3-year time frame.Most all equity asset classes historically have similar returns over several decades - in the neighborhood of 10%, they've just taken turns being the leader over shorter time frames like 3-5 year periods. They all seem to cycle around.Everything, and I stress everything, has cyclcesAs I said.More than 130 stocks have turned over in that index over the past couple of years.Huh? The S&P's portfolio turnover usually hovers around 6%, in comparison to the average actively managed fund's "short-term speculator" mentality turnover rate of 90%, to take a term from John Bogle. Remember, sometimes cash is king, and in down markets the S&P 500 stays fully invested.Are you advocating market-timing? Liquidating some of your 401k fund shares and placing them in a cash fund? In order for one to be successful with this strategy, it requires you to correctly guess 3 events: 1-when the market has hit it's peak and you get into cash on time, 2-when it's hit it's low point and 3-where to invest all this cash that's out of equities. My strategy requires me only to continue to DCA into my selection(s) and buy more shares when they're down, allowing my share total to increase considerably while you're wallowing in cash. I already know I'm not good at that timing game, that's why I've "relegated" myself to indexing my deferred compensation. Ridin' the ship of Fools,BmF
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