401k Investments

Frequently Asked Questions

1. QUESTION:
   401K Investments?
   I have been contributing to my 401K for about 6 months and when I originally went into it I really had no clue as to how to invest or what to do with my investments. I contribute 3% of my income, which my company matches 100%. Right not Im just contributing to a GIF (Guaranteed Income Fund). I dont even really know what that means! Should I change this and invest in large, mid, or small cap stock? Or just stick with what I got?

   • ANSWER:
     You should learn more. The LA Times has an excellent introductory site to money and investing called the Money Library (free registration required). Until then, you would probably best be served by buying into funds that have targeted retirement dates.

     These funds diversify your money for you based on how long until you retire. They will generally pick appropriate amounts to invest in domestic and foreign stocks, corporate and gov’t bonds, and also further diversity between each type of stock, like small cap, big cap and mid-cap. Same with bonds. They’ll diversity based on investment grades.

     Look for funds called Target Retirement or Lifecycle with a year like 2030 (or close to when you plan to retire) in the title. Those are the ones that do this diversification and rebalancing automatically.

     Also recommend you pick a very low cost fund, so your gains aren’t eaten up in expenses. The three mutual fund companies I’m listing below all have targeted retirement funds and very low costs. I’ve had or have funds with all 3 at one point or another.

2. QUESTION:
   401k Investments?
   I’m currently investing in a 401k & I was manually investing money into a number of asset classes. I switched to a blended fund & no longer invest money into the old accounts. Should I take the money from the accounts that I no longer put money in & add it to the blended fund that I’m currently investing?

   • ANSWER:
     A word about your investment choice…

     …the tax advantages of a 401k or an IRA are a gift from the government. Don’t listen to anyone who doubts them. Put as much money as you can into these tax deferred accounts, and never touch them until you are ready to retire. There is no downside to doing this.

     …Blended is good, but be very, very aware of the fees that the fund charges. I *strongly* recommend that you invest your money in a low-fee index fund or an index ETF, which usually charges much less than 1.0% in fees. For example, I have a Fidelity S&P 500 Index fund (ticker FSMKX) that charges an amazingly low 0.1%. Unfortunately, most 401k plans do not offer such attractive funds. (More on the poor investment choices in 401ks later…)

     Be wary of “actively managed” funds, because the majority of actively managed funds do not beat the market, and charge fees of over 2%.

     Unless you are over 40, you are probably safe with just one or two index funds; e.g., S&P 500 (large cap) and Russell 2000 (small cap). Total market ETFs are a nice choice too. If you want to be extremely diversified, you can invest into an International ETF. I have a BRIC (Brazil, Russia, India, China) ETF. The ETF charges very low fees. No need to get fancy with sector funds. If you want to keep it simple, just invest in a single S&P 500 Index fund from a reputable fund company like Vanguard or Fidelity.

     Stay away from sector funds, because they usually charge high fees, and suffer much more volatility than an index fund.

     Stay away from Insurance Annuities. Like 401k plans, they usually have poor investment choices and charge high fees. Bad choices, usually made by uninformed investors.

     Stick to the IRAs, and stick to the index funds.

     A word about consolidating your accounts…

     …A common mistake is to think that having multiple accounts (and multiple funds) gives diversification to your portfolio… it couldn’t be more misleading, because very different “looking” funds might overlap each other and hold the same underlying securities. You can’t trust the name or the profile.

     If you invest in more than one mutual fund, then the only way to ensure you are diversified across different accounts is to you a tool like Morningstar’s Instant X-ray . This requires a lot of work. A simpler way is to move all of your money into one account, which is what you are considering, and choose a single fund.

     If you have many old 401ks (from former employers), then I recommend that you execute a “direct rollover” all your old 401ks into a single IRA so you can get access to better investment choices. 401ks are notorious for having limited and expensive (high fee) fund choices. Make sure you do a “direct rollover” so you don’t pay a tax penalty.

     With your current 401k, you are stuck with whatever investments choices provided by your employers plan.

     I maintain one IRA and a 401k from my current employer. Every time I switch jobs, I immediately execute a direct rollover into my IRA.

     If you have less than 0,000, then you are probably better off selecting either a discount broker, or a fund company (like Vanguard or Fidelity) as the custodian. Full-service brokerages like Merrill Lynch or Morgan Stanley charge all sorts of fees to investors that have less than 0,000. If you have more than 0,000, then you could go for a full-service brokerage and avoid many fees.

3. QUESTION:
   Why do we allow the SEC to sit by after our 401k investments were stolen?
   Inspector General David Kotz wrote.
   “Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.”

   Nor have they investigated the numerous illegal short sellers who made billions driving our investments down.

   Why do we allow the SEC to sit by after our 401k investments were stolen?

   • ANSWER:
     I think it’s hard for the SEC to do much after the collapse of Madoff’s Ponzi scheme because the individual investors who trusted Madoff took that risk with their own judgment and they probably signed documents stating they know the kind of risk that is involved with the investment fund. Of course, I don’t condone anything that the crook Madoff did, but it just goes to show that you can’t trust anyone with your money but yourself.

     Madoff was a mastermind, he knew every little loophole in the system from what I understand, but in the end it had to collapse. The SEC does not insure funds, they just oversee them, obviously they overlooked Madoff. The SEC actually did suspect Madoff of some, I guess you can say, “suspicious acts,” but I guess they just couldn’t pin it on some concrete evidence for whatever reason. I don’t know why. I think I heard, the SEC is seizing his assets now and are trying to give it back to the investors.. but it’s not nearly enough. They are trying though.

     I don’t believe your 401k investments are stolen, unless your employing company is actually using that money without your knowledge. Then that would be a major problem, but I don’t think so. You are the one that assumes the risk in having your 401k put into an investment fund of some sort. You always have the choice of rolling to an IRA and having more control.

     We’re still in a recession (if not recovering already), investment accounts will go down. That’s the nature of the beast, and you have to have to the stomach to ride it out if you trust your investments. Short sellers are just a bunch of day traders, they are the ones that make the market go up and down everyday gambling in the markets. In the end, if you believe in it, everything will be fine. For example, if you believe coca cola is a bad company because some trader shorted it, that’s just insane. And if it actually does go down, that would be an investment opportunity!

     If you pulled out of the market when everyone panicked, that was a bad decision. You don’t realize a loss until you actually sell.

     Warren Buffet said it best, “It’s only when the tide goes out that you get to see who’s been swimming naked.”

4. QUESTION:
   How will the recession or dollar devaluation affect my 401K &Roth investments? Should I sell off, buy euros?
   Considering all I’m reading about this recession, I don’t want to lose gains or especially capital I’ve invested into SEP, IRA, and rollover 401K accounts. If the stock market crashes or if the dollar devalues , what will happen to those investments? Could I lose my capital ? Should I cash them now and put that money into a money market account? Or perhaps buy euros or yen?

   • ANSWER:
     You`re already on the low side of a bear market, unless, Heaven forbid, we end up in a full-scale depression. We are already in a recession, as reflected by the stock market and other financial gurus (Warren Buffet, for one). A lot of damage has already been done to your portfolio, and the dollar has already de-valued. How low it will go? You, I and everyone else would love to know. Yes, worse case scenario, you can always lose capital with ANY investment. I won`t tell you how to manage your finances, but I will tell you this….Don`t liquidate. You`re going to pay some stiff penalties and taxes right off the bat if you do, and that on top of your (already) losses. Don`t buy Euros, because the dollar is ALREADY de-valued and your buying power is LESS. My opinion, Your SEP, IRA, and 401K ?? Ride it out, and wait for the upturn.

5. QUESTION:
   Should I temporarily stop my 401K investments to save for a house?
   I am about ,000 short of my goal of buying a house in the next 18 months. It would really help if I stop saving my 401K over this time and put it into a money market account instead. I usually max out my 401K (,500/year with another ~00 match from my company). Should I do it? I do not want to borrow out of my existing 401k.

   • ANSWER:
     Yes, go for the house. This is one of the best investments you can make. And if you are careful, every penny you put into your house purchase will always be there like a piggy bank. That is when you decide to sell years down the road. The best goal you can have is entering retirement with your house completely paid off. You are probably years away, but it is a good goal. Once you are comfortable with the down payment, it is wise to at least meet the company’s match once again.

6. QUESTION:
   I’ve got a two 401k investments from different organisation’s. Now I work for an ES-OP. Can I combine them?
   For a follow up is there a time limit related to rolling over or reinvesting the 401k before tax contributions?.

   Bonus question: What is your opinion about employee owned companies and its overall investment opportunities.

   Thanks in advance for any contribution.couple of 401k

   • ANSWER:
     The fact that your company is employee owned doesn’t preclude them from offering a 401k that you can roll them into. They would also have an ESOP plan that only deals with the company stock. Two seperate plans…but part of your overall investment portfolio. Keep in mind that the plans might have different entry rules, vesting rules, and distribution rules.

     If you take a cash distribution then you have 60 days to roll it into a plan. That just means 60 days from the time that the cash (check) is paid to you not from your termination date. There is no time limit with that part. I’ve got 401k’s with one of my previous employers that I left 5 years ago. I’ve got it 100% invested in company stock so I didn’t want to liquidate it.

     As for ESOP’s? I think you have to be very careful that you don’t invest too much in them. Diversification of income from your investments is very important (Ask the folks at Enron). But, if management is sound then it’s not a bad thing. Generally ESOPS are a way for the owners of smaller companies to get out. Often times the value of the company is tied to them as individuals as well as the actual assets of the company. So to others it might be over-valued. But if they install an ESOP then the owner gets the cash up front but the actual ownership transitions to employees over the course of time.

7. QUESTION:
   Should I change my 401K investments to lower risk?
   I am 37 and only have 16K in my 401K, my employer does not match. I lost 2K last quarter, if it continues like this could I loose everything. PLEASE HELP!

   • ANSWER:
     The market is already recovering from a dismal Jan/Feb… you should be getting back to your Dec ’07 totals soon…don’t make any adjustments that will slow down your recovery…
     You still have 23 years to go with that 401…it will bounce around again no doubt… don’t get tooooo cautious for a few more years…
     …if one of your options is ” international”…get a small percentage of your money…10 or 15% ….into that. The rest of the world is doing at least a couple of points better than the U.S. …and will be for awhile… make something off it…pad that mattress…and get ” conservative” in 2018 or so…

8. QUESTION:
   What is the best way to handle your 401K investments in a bear market?
   Im getting killed… I’ve lost about 10% this year. What do I do to stop the bleeding? lol
   Actually make that losing 12.9% for the year… ouch. lol

   • ANSWER:
     stay where you are. if you sell at the bottom, all you do is lock in a loss.

     if you’re more risk-averse than you initially thought, then maybe consider buying some preferred stock or corporate bonds.

9. QUESTION:
   How could i deversify my 401K investments?
   I only have one share on my portfolio and i would like some help so i can diversify it .

   • ANSWER:
     You need to develop an asset allocation. Then you need to choose your funds. I would take some time to review which options are right for you.

10. QUESTION:
    Is it good to go from 6 to 10% in 401k investments at age 50?
    My mom has little in money. She has a good job and we were discussing her retirement. She is thinking about going to 10% from current 6%. They stop matching at 6%. Her investments are moderate, not conservative, not risky. Good idea to go to 10%. She has 10k in savings and house not yet paid, 50% left on mortgage and will be paid in 8-10 years.

    • ANSWER:
      At age 50% she needs to have much, much more in retirement if she wants to retire above the poverty level.
      I would put the max which is about ,500 a year.
      And after age 50 this amount is increased to about ,000.

      Google Retirement Calculator.
      Your mom needs to start getting worried. Especially with that mortgage she should have paid off by now…

11. QUESTION:
    What is a suggested balance for a young person’s 401k investments?
    I’m 22, and I’m just starting my 401k. How should I divide my 401k money? By that I mean what percentage should go in Growth, Bonds, Stable value, etc.?

    • ANSWER:
      Depending on your tolerance for risk, put as high a percentage into growth stocks as you can stomach and leave them alone.

      You can put 10% in bonds and 10% in a balanced fund, but you have time on your side and the extra yield you will earn on growth stocks will over the long run, well make up for short term losses you might experience over the years.

      As you get older you can start moving more money into stable value or balanced funds, but the stock market and gold funds are the only things likely to outpace inflation.

12. QUESTION:
    Where to put 401k investments, invest or money market?
    My 401K got hit pretty hard last year. I changed my deposits to go to the money market acct for the time being. Should I be investing it thinking that I’m buying low now?
    Hi, I’m 28. I expect to retire around 68. I have a decent risk tolerance, but it is rough to check in on it and see significant drops.

    • ANSWER:
      Typically the younger you are the more risk you can take. The reason for this is because you have many years for the market to return. If you are close to retirement a more conservative investment may be appropriate especially if you will need to use all of the money in a short time frame.

      If you have 15+ years until retirement I definitely wouldn’t make changes to your investments so long as your asset mix is comfortable. Many experts (John Bogle) say to take your age and use that number as the percent you should be invested in Bonds (age 30 should have 30% invested in bonds 70% stock). This is more on the conservative side but will allow you to see if your current asset mix is somewhere in the ballpark.

      But to change everything based solely on what the market has done isn’t necessarily what you want to do. Keep in mind that stock prices are very low right now. You are able to purchase more shares for less money than you could one year ago.

13. QUESTION:
    What bear market funds are best for my 401K – I use fidelity investments.?
    I have a small amount of money in a 401K but I don’t want to lose what is there. Can anyone give me ideas on the best bear market 401K funds. It is helps we use fidelity investments.

    • ANSWER:
      Don’t give up all of what you’ve got…things will turn around…it’s hard to ” trade” your way out of losses in a 401k…the funds offered are just not designed to ” short” the market ( what you could do if you were just ” trading” on your own)
      …but if your plan offers some international funds, put a little percentage in them…they are just going to do a little better than our U.S. stocks for 6 months or so…and every little bit helps.
      In the last three or four years there have been about five periods that looked ” bleak”, but things have come back…this time it might take a little longer…that’s really hard to look forward to, but hopefully your retirement isn’t right around the corner…if you’ve got more than 7 or 10 years to go, just try not to think so much about it… are you ” ahead” overall? If so, just keep THAT in mind.
      Good luck.

14. QUESTION:
    I have 401k investments and plan to withdraw. How much taxes does IRS and state of CA will collect from me?

    • ANSWER:
      You will pay:
      Federal income tax
      State income tax (could be as high as 9.2% in CA)
      And, if you are under 59.5 years old and don’t have one of the “exceptions,”
      Early withdrawal penalty.

      To figure how much, you need numbers.

      If you need the money, consider borrowing from the plan instead. Also not a good idea, (replacing pre-tax money with after tax money to be taxed again, risk of losing job), but better than withdrawing it.

      If you don’t need the money, do a direct rollover to an IRA. Many companies (even banks) would do it for you for the chance of being your IRA custodian.

15. QUESTION:
    Besides having a Roth IRA and a 401K what other investments should one get into to make money?
    I watch Suzie Orman show and I often see callers call in who have 200k-300k in investments and they are very young. How are they earning this money? What type of things are they investing in?

    • ANSWER:
      Maybe they are lying. Don’t believe everything you hear. Again maybe they are doctors. Maybe they have started up an internet company. Maybe they are drug dealers. It took me a good number of years to accumulate the first 100k. The 2nd 100k about 1/2 as long. The 3rd 100k 1/2 as long again. From that point on the money just started flowing in. Sort of what they call compounding.

16. QUESTION:
    Switch to less risky investments before 401k rollover?
    I’m changing jobs in a few months and will rollover a sizable 401k into an IRA. I’m thinking about gradually changing to less risky investments (from stocks to money market) beforehand just in case the stock market tanks before I leave and I will be forced to sell the investments at lower prices. Does this make sense or am I being overly paranoid?

    • ANSWER:
      Not being parnoid at all. The market has every indication that it might have formed a double top. Little early to tell just yet, but could be. If so that is not real good news. The fundamentals look somewhat less than promising also especially with the unsettled real estate markets. Since 401k accounts are not subject to tax when switching investments, there is no reason not to play it a little safe if you are so inclined especially if it makes you sleep more soundly at night not worrying whether tomarrow is going to bring another 200 to 400 point drop in the Dow. You can of course also play it a little less risky by switching to a more balanced fund or funds. Sort of half and half so to speak.

17. QUESTION:
    Can I claim loss on 401K investments?
    My wife and I participate in the company 401k plan and the plan allows us to invest company contributions as well as employee contributions; some of them lost money last year. Deductible under loss?

    • ANSWER:
      There is no tax or tax loss while the assets are in the 401(k) account.

      The only way you could ever take a loss is if total distributions paid out of the account until it is zero balance, exceed the total contributions. So you cannot even think about 401(k) losses until the money is ALL gone. And that would be a sad day indeed.

18. QUESTION:
    401k Traditional vs Roth : Does your investments grow tax free in both or just the Roth?
    My job is offering both 401k traditional and roth. I’ve been debating doing a IRA or a 401k . But that was before I knew there was a 401k Roth. I remember reading that the Roth IRA lets your investments grow tax free , vs the Traditional where at the end of the year your growth gets taxed. Is the same true with a 401k Roth? Also, my job only offers to pay for the funding fees, they dont offer any matching.

    • ANSWER:
      Roth (both 401k and IRA) are funded with post-tax dollars and grow tax-free. When you withdraw, you don’t pay any tax on it. There are some differences between a Roth 401k and Roth IRA in when you can withdraw money that you put in. And I think the Roth 401k has required distribution.

      401k and traditional IRA can possibly give you tax benefits now(401k gives you a tax deduction and depending upon your situation most likely you also get a tax deduction with IRA). The money grows tax-DEFERRED. When you withdraw it, it is taxed as regular income.

      I split my money between the traditional and Roth. The reason being, that way I have flexibility in dealing with taxes. Example…In a high tax year you will draw little from the traditional and draw from the Roth and in a year with low income you withdraw from the traditional and leave the Roth.

19. QUESTION:
    After I max out my 401k matching, what should I do with additional investments?
    My company does not offer a Roth 401k.

    After I max out the matching on my 401k, and max out my Roth IRA, what should I do with any additional investments? Should I contribute more to my 401k (pre-tax), or more to my IRA accounts, but as a regular investment?

    • ANSWER:
      I need to make sure you have done a few things.

      1. do you have a 00 savings account set up for emergencies?
      2. do you have any debt outside of a house?
      3. do you have 3-6 months of your monthly expenses saved up in a liquid account?

      if you have done all of these things then you need to interview 3 financial advisors. I would suggest 1 being from your bank then the other two who represent major companies like edward jones, or fidelity etc. The key in selection of the person is that you mesh well with them and you believe that their plan is a good one along with flexibility. I know many people who have also put money into IRA’s to invest in real estate as well. You will need an equity IRA person for that.

20. QUESTION:
    Should Americans outsource their Pensions and 401k and investments to China and India ?
    Wallstreet outsourced American jobs , should we put our money to work where the jobs are ?

    • ANSWER:
      They do have the most potential for economic growth.. that’s why American industry have abandoned America and gone searching for workers / customers over there.. until they can get a robot that can do task x that is.

21. QUESTION:
    Having a Tax Deferring mutual fund as a core component of my 401k / IRA investments. Is this unwise?
    Or merely un-necessary? I own a mutual fund that’s all about being invested in dividend-paying stocks that are well-rated companies. The strategy statement also mentions “taking advantage of tax regulations” as being a central principle and objective. Since this is in my tax deferred retirement accounts, that part doesn’t matter to me. Is it foolish? Or irrelevant?

    • ANSWER:
      Relevant. There are two important topics here directly related to returns, one is tax advantage and the other one is related to asset allocation.

      Related to the “taking advantage of tax regulations”, I’m guessing that this fund tries to be tax efficient, meaning that tries to hold onto its holdings longer to lower your tax burden. Also, it might be investing in tax exempt assets like municipal bonds. Anyways, related to tax efficiency, you don’t need to invest in a fund that lowers your tax burden because you’re shielded anyway.

      However, with respect to asset allocation, you might be in the right place. By investing in high dividend paying companies (which are actually not tax efficient, by the way), and possibly municipal bonds, this fund is sticking to more stable, more established companies.

      Safe is a good thing in this market. My suggestion is to check online with the fund, see what the asset allocation is and see what the fund’s top holdings are. If you like what you see (e.g., safe companies and a lot of bonds), it’s probably a good one to keep in 2009 regardless of what the tax considerations are.

22. QUESTION:
    What should I do with my 401K funds and other investments?
    I am 25 years old and have been working for about a year. I have about 12K in my 401K and some other money in savings.

    I have been told to just keep contributing and to not pull out now because of the recession and possible depression.

    Any other advice?

    • ANSWER:
      You should continue putting the same percentage of your income into your 401k plan. Even if the stock market keeps going down for the next couple of years, you will likely come out ahead in the long run. The technique of putting the same amount of money into an investment in regular intervals is called dollar cost averaging. If you want to know more about this technique, follow the links listed below. In any case, there is a very good chance that the market will rebound before you retire.

23. QUESTION:
    ???Do upwardly mobile intellectuals ie Obamaphiles, support the Bailout & protection of their 401K investments?
    We have all seen the demographic numbers Obama supporters are richer, smarter, have more advanced degrees, and a strong Portfolio.

    So who is more likely to want a Government Bailout. Obama elitists or poor McCain supporters clinging to their guns and religion in rural America.

    • ANSWER:
      The “bailout” will NOT protect our 401k’s. That’s the ploy, but it isn’t the truth. The bailout will drive up prices by inflating the money supply, and our retirement accounts will suffer in the long run. All of these politicians who voted FOR the bailout are looking for a quick fix to hold up Wall Street prices at least until they can be reelected in Nov.

      The proposed “bailout”, is more of the same; exactly what caused our economy to tank in the first place.

      Both political parties are to blame and neither, save for a few real patriots like R. Ron Paul, and D. Marcy Kaptur, has any desire to fix it.

24. QUESTION:
    what are good investments to roll over my dads 401K?
    He is leaving is job and deciding to start over again, ( unhappy with current job) so he and his ,000 401K are leaving. What are some options for roll over to make his investment grow within the next 5-10 years? Thanks for the help, I appreciate it.

    • ANSWER:
      You’d want to invest in the same mutual fund company in order to take advantage of breakpoints. Most fund companies have a 50K breakpoint, so don’t let anyone at a bank or elsewhere talk you into diversifying into more than one fund family.

      If you’re going to use the funds within the next 5-10 years, then you don’t want to get too aggressive, even if you’re an aggressive investor. Have your father take a risk tolerance questionaire online to find out where he falls, and then invest accordingly.

      Find a fund family that’s strong in bond funds, because that’s where a lot of the money is going to be going as your time horizon is approached. In the past, I’ve used Oppenheimer, American Funds, Franklin Templeton, MFS, and Fidelity.

      Good luck.

25. QUESTION:
    Would you retire if you had Million in 401k and investments, a paid off house and car, and no debt?

    This is based on a husband and wife’s combined assets and expenses

    • ANSWER:
      You are in good shape. If your expected annual expenses are ,000, you should have enough money. Your goal should be get healthy as possible. Most retirees will spend most of their later years and most of their money with health care expenses.

      Go to this web site for advice on finanical planning in the retirement years: http://www.analyzenow.com/.

26. QUESTION:
    What kinds of hidden fees are involved in switching IRA’s and 401K from Fidelity Investments to UBS?
    I want to switch but I don’t know enough about whether all the funds would have to be sold, and I’d incur taxes. Also wondering if Fidelity’s funds are proprietary, which would mean they’d definitely have to be sold. I feel asking either Fidelity or UBS will give me answers that benefit them, not me.

    • ANSWER:

27. QUESTION:
    I’m scared to adjust my investments in my 401k. Who can I hire to help?
    Totally new to this 401k. I’m fairly young (22) so I got 43 years until I retire. Are there people I can hire for a reasonable fee to give me advice and walk me through my investments or should I talk to the bank who manages my 401k?

    • ANSWER:
      Certainly there are people you can hire to give you advice, but there is a substantial amount of advice available for free.

      It is certain that you should invest at least enough to take advantage of your company’s matching program, assuming they have one. Any more than that depends on what you can afford.

      The company that manages your 401K fund probably has a web site. Go there and look for information on Asset Allocation. If hey don’t have a web site, go to the bank and ask, they will be impressed. Asset Allocation is a strategy of spreading your investment into different investment classes, so that underperformance in any one class does not ruin your whole day.

      Grandpa

28. QUESTION:
    why should I have 5% “cash investments” in my 401k?
    I’m rebalancing my 401k and i’m going with the suggestions for moderately aggresive from Charles Schwab. My question is, they are suggesting 5% in “cash investments”. They say that means money market fund or a short term CD.

    If I already have my emergency fund of 9 months of living expenses saved in another savings account, why would I need 5% in my 401K? Can I ignore this suggestion since I have the other money for emergencies?

    • ANSWER:
      This money isn’t intended for emergency expenditure. It’s there for two reasons: risk diversification and investment opportunity. Let’s look at each:

      Risk diversification: A smart investor doesn’t keep all their eggs in one basket, and sometimes cash simply does better than other investments. During the meltdown of 2008, the dollar gained value and almost all other investments lost value. Anybody who was holding dollars lost less money. It’s all about diversifying risk. Really, even the average 401(k) isn’t diversified enough. The U.S. dollar itself faces serious risks over the next 10-25 years, and unless you have a decent exposure to foreign stocks, all of your 401(k) investments are exposed to this risk. Diversification is the watchword of the careful investor.

      Opportunity money: It’s called “keeping your powder dry.” Sometimes market imbalances will create great buying opportunities; opportunities that you’ll miss out on if you’re already fully invested. No investor goes all in without keeping 5-10% of their investment capital in cash or other highly liquid investments. If a great bargain comes along, this is the dry powder that you will use to take advantage of that opportunity. You wouldn’t use your 9-month emergency fund to invest in stocks.

      P.S. – Hate dry powder? Would rather “put your money to work?” In 2008, I lost a lot more than I would have if I had some money in cash. Then, in March of ’08 I actually called the bottom of the Dow at 6,500, but I didn’t have any cash to put in! If I had had 10% of my investments in cash, I could have doubled my money by now. I’m poorer now, and wiser.

29. QUESTION:
    I have rolled my 401k over to Fidelity investments and have appointment with a planner, what do you suggest?
    I would like to have the fewest fees and charges but the highest yield, of course. Does anyone have some solid investment advice at this shaky time of our economy and market? I have about 12 years before retirement. Thanks in advance for any suggestions.

    • ANSWER:
      A good advisor should be suggesting allocating between 40 and 60% in stock funds and the balance in short term bond funds. Based on your “shaky” comment I assume you are conservative so your allocation to stock funds should be closer to 40% than 60%.

      The advisor might suggest a Target Date Fund.(Fidelity calls them Freedom Funds) The concept is that the Freedom Fund 2020 would be suitable to those planning to retire in 2020. These funds have a mix of stock bond and money market funds that will gradually reduce the stock allocation as time goes by. Don’t focus on the date e.g. 2020 focus on the amount of stock e.g. their 2010 fund has almost 50% in stock funds.while the 2020 fund has 60%+ These funds are pretty good for “set it and forget it” investors. I believe the 2010 fund has a yearly expense ratio (charge) of 0.67. Not bad. A similar fund at Vanguard is about 0.17 or 1/2 of 1% cheaper. You won’t see these charges on a statement they affect the fund’s performance.

      The advisor might also suggest their index funds. The have some of the lowest cost index funds in the business. You can get away with three funds: A total us stock market fund, a total international index fund, and a short term bond fund. Don’t expand to too many funds are you will get confused.

      Good Luck

30. QUESTION:
    What type of investments are similar to a 401k plan?
    I have a 401k plan at w/ run by John Hancock (JHPensions). The funds that I have chosen have some pretty decent returns. I am wondering what is similar to this that I can invest in? I’m not talking about a different 401k or no taxes on may wages. I am talking about a similar program or plan where I can invest some money. Is a mutual fund similar?

    • ANSWER:
      A 401(k) is not an investment. It is an employer-sponsored, tax-qualified retirement plan. It CONTAINS investments, usually mutual funds and/or company stock. If you are referring to options for retirement savings, take advantage of all your tax-qualified options first (401k, IRAs, etc.).

      Contribute to your 401(k) to the extent that your employer’s match is maxed, then look to IRAs. You can put virtually any type investment into an IRA (stocks, bonds, mutual funds, annuities, for example). Most qualified plans are pre-tax tax-deferred; meaning you put money in before you pay taxes on it, then it grows without taxation until you withdraw it in retirement. A Roth IRA works opposite, but is usually preferable. You contribute to it post-tax, but you withdraw the funds completely tax-free in retirement.

      Speak with a properly qualified financial advisor or planner. Many are available at little or no cost. A referral from a friend or relative is usually best.

31. QUESTION:
    I have a 401K at work through Fidelity Investments, should I invest elsewhere?
    I deposit 6% of my check every paycheck to my 401k and the company I work for matches it dollar for dollar. The trouble is, I don’t have a lot of options to choose from in terms of where I want the money invested. I can choose an agressive, moderate, or conservative risk and they go to the places that Fidelity sees fit. My question is, should I invest in stocks elsewhere on top of my 401k? I’m 25 years old by the way.

    • ANSWER:
      Yes, and it is a great thing to do.

      You can open an IRA or a regular brokerage account at Fidelity and you will find that you have tons of choices.

      (The options in a 401K are generally much fewer, depending on your company’s deal with Fidelity. When you opn an account directly with Fidelity, it’s a completely different experience)

      If you are starting out, you should start with Fidelity’s S&P500 index fund and then do some studying before branching out to other funds or individual stocks. And if you never get around to branching out, you will still do well.

      Fidelity is a great place to put your money for funds or stocks. This does not mean that all Fidelity funds are good (though many are), but it is a good, low-cost brokerage.

32. QUESTION:
    What Are The Best Investments I Can Make For My 401k?
    I noticed I have a few options,like I can spread out my percentage amoung 10 different investors,they are
    THE CASH MANAGEMENT TRUST OF AMERICA(I have 100% on this one because it lowest risk),
    AMCAP FUND,
    THE INVESTMENT COMPANY OF AMERICA,
    THE GROWTH FUND OF AMERICA,
    NEW PERSPECTIVE FUND,
    THE BOND FUND OF AMERICA ,
    AMERICAN BALANCED FUND,
    CAPITAL INCOME BUILDER,
    U.S. GOVERNMENT SECURITIES FUND,
    SMALLCAP WORLD FUND…I know some of these are high and low risk…How do I find out(website),or does anyone know what the best system would be .
    I want basically want to know how to:”make -The Best Possible-money on my 401k,without screwing my self?”

    Thank you everyone,I am new to 401k & any tips would be great

    • ANSWER:
      Contact your 401K place
      they have financial advisers to help make the decisions best for your age, retirement age goal, etc

      I have my 401k diversified – spread throughout my plan

      having 100% in 1 fund is playing it too safe unless you are retiring within 4 years

33. QUESTION:
    Changing 401k distribution, international investments or domestic?
    With the DOW Jones falling another 300 points and China thinking about backing the euro instead of the dollar should I invest a larger portion of my money in international investments or keep them in domestic investments?

    • ANSWER:
      International funds have worked for me also…in some cases more than doubling in the last 4 years…
      Think about it..the companies in the U.S. that are still doing well are the ones that do a large percentage of their business overseas..( UTX, DELL, HPQ, FLR, JEC even the Procters, Colgates, etc ) why shouldn’t you?
      Don’t go 90% or anything and check your funds on-line every so often, that’s all.

34. QUESTION:
    Is it wiser to max out a 401k or just do the minimum and invest the rest in after tax investments?
    I have read and heard *alot* about the possibility of *higher* , not lower, taxes at retirement, making me think hard as to whether I should keep maxing my 401k or not. I wonder about this new idea that everyone should put the minimum 401k to get the max employer match, max out a RothIRA, then put all the rest in aftertax low cost investments (ie, Vanguard total market funds,etc). How likely is it that most people will pay *more* taxes after retirement than they are now (while working)
    I bring in about 0-120k a year, age 43, and have been maxing out my 401k for a number of years, and just last year made the decision to also fund 2xRothIRA’s fully each year as well (one for myself and one for my wife). Should I keep maxing my 401k or use this alternate plan so many books are pushing aound ?
    Tnx! Confused!

    • ANSWER:
      Some of your answers so far are pretty good. Some not so good. The earnings on the Roth IRA are never taxed. That is a very very big advantage.

      Supposing that with your 401k, you wind up with ,000,000 in the account at retirement. That is not an outlandish idea. The account will be earning 0,000 annually. You will have to be pulling out about 0,000 each year at age 70 1/2. That is the law. Think of the tax bracket that will put you in. Depending on the state you live in you could be giving 40% back to the government. And getting your social security check taxed to the hilt also. And remember none of that money will be subject to preferred tax rates. Not capital gains rates and not advantaged dividend rates. The full friggen tax rate will apply.

      Of course there is also the possibility that by the time you retire 0,000 annually will not be worth the paper it is printed on. Also a distint possibility.

      Now think about this for a moment. Roth IRA–never taxed.

      Plain Jane investments in good sound equities–capital gains and dividends taxed at very favorable tax rates. Investment returns not taxed at all until realized. But sound companies with increasing dividends where the money is invested and left will provide a steadily increasing stream of income at currently favorable tax rates with not requirement that you ever have to sell those investments unlike a 401k.

35. QUESTION:
    If the company managing your 401K files for bankruptcy, are your investments protected?
    I don’t mean, obviously, the companies you are invested with, I mean just the one that manages the portfolio. For example: let’s say I have ,000 in Microsoft stock in my 401K and it is managed by Vanguard and Vanguard goes kaput! Am I out of luck?
    The PBGC website says it protects defined beneift pensions. 401Ks are definded contribution plans.
    It also specifically excludes 401Ks and profit sharing plans.

    • ANSWER:
      401(k)s are protected under the Pension Benefit Guaranty Corporation (PBGC). – a US Gov agency.

      http://www.pbgc.gov/

      You are only out of luck if the stock goes BK and goes to zero.

36. QUESTION:
    Have 401k investments moved out of stocks since the recession starting in 2000?
    I trying to determine if the average person has reduced their percentage of growth-oriented investments since 2000? If so, by how much?

    • ANSWER:
      No, 401k managers have definitely not moved out of the stock markets since 2000. Wake up, there has been a bull market for 4 years now. ***Average people moved out of growth stock after the bubble burst*** and the savvy investor will make a killing off their mistakes… US large cap growth is still at a deep discount, and the big guys are already accumulating.

      There are no stats like that, and my point is yes they did, I would guess if they were managing it on their own, the majority moved the majority of their money out of growth. The point is they shouldn’t have… why run for the door when stuff goes on sale?? only industry in the world where that happens.

      401k invests in stocks and bonds, thats about it. Bonds have not been very attractive in the rising interest rate environment (HYs in 2001-2002 did well) So if you are in a 401k, you are probably still in the stock market, maybe just not agressive growth/tech stock.

37. QUESTION:
    When you have maxed out your 401K and Roth IRA, what other long term investments should you consider?
    My fiance and I are both 25, have dependable high paying jobs, and are already home owners. Neither of us have school loans, credit card debt or other outstanding debt with the exception of one car payment. I’m wondering where we should look to invest our money in the coming years as I’d like more return on investment than my current money market account is offering. What other long term, moderate risk investments should we consider?

    • ANSWER:
      Give mutual funds a good look but concentrate on no-load funds from a low-fee company like Vanguard or Fidelity. Index stock funds are a good idea because they tend to not throw off much taxable income–they just rise in value over the years. Be sure to reinvest any dividends and capital gains distributions so your holdings will grow faster.

      You will hear about lots of more exciting ways to invest but you sound like very mature, responsible people who will benefit from this conservative approach. Because this money won’t be in a tax-deferred account you will be able to access it if you decide to buy a rental property, a vacation home or something else you’d like to have.

38. QUESTION:
    What is the importance of coordinating investments within and outside your 401k retirement plan?
    Can you describe a situation where this would be important. Thank you for your help with understanding this kind of retirement plan.

    • ANSWER:
      I don’t know your age, but eventually you may want to include bonds in your asset allocation. The type of bonds you buy (or bond mutual funds) depends on the tax status of the investment vehicle. Treasury strips (zero coupon bonds) and inflation-protected bonds are easier to handle (tax wise) in a tax deferred account – it makes your tax situation easier; and junk bonds so you defer tax on the high yield. Municipal bonds should be in a taxable account (since they are not taxable). If you put a muni in an IRA you convert tax free income into taxable income – bad move.

      Stocks held long term should be in a taxable account so that you control the capital gains timing and get a lower tax rate for the capital gain. A k capital gain in a 401k is taxed as ordinary income when distributed, which is OK if you’re in a much lower tax bracket after retirement (that was true in the past, but may not be in the future). In a taxable account pick mutual funds that are tax efficient, like index funds; put the fast trading mutual funds in an IRA to shelter the short term gains that trading generates.

39. QUESTION:
    do i have any 401k, investments, or unclaimed money?
    did i have any investment in ntn driveshaft company while i worked there?

    • ANSWER:
      You don’t remember whether or not you signed up for your company’s 401k?? Money doesn’t appear in your account by magic. You have to put it in there. Call the HR dept at ntn driveshaft co, and ask.

40. QUESTION:
    If your 38 and just starting a 401K do you go with passive strategy investments or active strategy investments?
    I have material to read but I’d rather get some opinions in addition to reading the material about the 401K.

    • ANSWER:
      I would go active strategy if i was you.I would put in as much as you can afford. I am 43 and I put in 15% of my pay into my 401k.

41. QUESTION:
    how should i set my investments in a 401k account?
    i want to change to a better growth, but i don’t have much knowledge of what works best
    i have a fidelity account if that helps

    • ANSWER:
      basically you can be more aggressive the younger you are (within reason) still keep your money mostly in mutual funds. If you are older than you need more of a secure investments so go with a higher bond diversification. Don’t put your eggs in one basket, diversify, look at past returns as a guide but not a guarantee. Be thorough read through some mutual funds and look for ‘a’ shares for long term investing.

42. QUESTION:
    401k investments plz help?
    ok, so the 401k is dropping alot each month. im planning on investing in something that will increase in value soon. im thinking silver but im asking you guys if theres a better idea. thanks

    • ANSWER:

43. QUESTION:
    Advice on Fidelity 401k investments?
    Advice on Fidelity 401k investments?

    I’m 22 y/o and have only ~0 in my new Fidelity 401k (which I’m not familiar with it at all).I am going to start putting 6% from my paycheck. I will be talking to my manager on Monday. Is there any specific questions that I should ask? Any advice is appreciated.

    FYI, this is my current approx investment %:
    68.71% FID FREEDOM 2040
    31.29% FID FREEDOM 2050

    • ANSWER:
      You are currently invested in “life cycle” funds. These are actually a good choice for people who do not understand investing enough to feel comfortable with setting up a balanced portfolio by themselves. Most people pick one target level, such as 2040, but having money in more than one doesn’t hurt either.

44. QUESTION:
    How should I restructure my 401k investments given the stock market today? Bonds? T-Bills? Precious metal?
    I’m going to get a big commission check and want to pay as little in taxes as possible so I am going to max out my 401k to drop the gross amount of commission that I’ll be taxed on. That said, I’ve seen most of my investments (value and equity) shrink as of late and I’m hoping to get some advice on how to restructure the “pie” that is my 401k so as to best weather the brutal economy. Any thoughts? By the way… I’m 34 and single, hoping to retire by 55 if that’s helpful.

    • ANSWER:
      I’d stay heavy in equities. You’ll get a big return when the market comes back.

45. QUESTION:
    What would you choose for your 401k investments? Please Help..?
    I just started a new 401K with my job. I currently contribute 3% and my employer matches 2%. I am going to increase this amount soon. I am 30 years old. I know absolutly nothing about investing. Below are the options I have. What do you think would be a good portfolio based on what you see here??

    Investments
    Bond
    American Century Diversified Bond R
    Pimco Real Return R
    Pimco Total Return R

    Equity
    American Funds 2010 Target Date Retirement R1
    American Funds 2015 Target Date Retirement R1
    American Funds 2020 Target Date Retirement R1
    American Funds 2030 Target Date Retirement R1
    American Funds 2040 Target Date Retirement R1
    American Funds 2050 Target Date Retirement R1
    American Funds Balanced R1 7.89 100.00% %
    American Funds Capital World Growth & Income R1
    American Funds Europacific Growth R1
    American Funds Fundamental Investors R1
    American Funds New World R1
    American Funds The Growth Fund Of America R1
    Goldman Sachs Growth Opportunities A
    Goldman Sachs Small/Mid Cap Growth A
    Ivy Asset Strategy C
    Keeley Small Cap Value A
    Nuveen Tradewinds Value Opportunities A

    Money Market
    American Funds Money Market R1

    • ANSWER:
      I like Euro pacific Growth, Fundamental Investors, The Growth Fund of America.

46. QUESTION:
    Does it make sense to invest in an online broker for long term investments if I already an a 401K(no emp mtch)?
    For a long term investment should I just continue putting $ into 401k (no contributions form employer) or does it make any sense to open an on line accout with a discount broker?

    • ANSWER:
      I do both. 401K money can’t be touched until you’re 59 1/2 unless you get penalized and taxed. Use your online broker for money you can use before 59 1/2.

47. QUESTION:
    With Regard to Investments.. 401k’s… ira’s etc… What is the difference between a INDIRECT TRANSFER &
    a DIRECT TRANSFER….??

    • ANSWER:
      indirect transfer is a rollover that goes through you.

      Lets say you have 30k in your 401k. You elect a cash distibuiton and are paid 24k. (30 – (20% of 30)). At that point you decide ooops, big mistake and roll the 24k into an IRA. This would be a indirect transfer. Note, to make it a full rollover in this scenario you’d have to come up with that other 6k that was paid in taxes. Otherwise that portion is considered a taxable distribution and subject to early withdrawal penalties.

      A direct transfer is when you elect the rollover at the front and the check is made out directly to the rollover institution. Matters not where the check is being sent to only that the check is made out to the institution and not the participant (employee).

48. QUESTION:
    401k: how often do employers contribute 2:1 to employee 401K investments?

    • ANSWER:
      If you are receiving 2:1 matching, you are indeed VERY lucky!

49. QUESTION:
    Hey Republicans, hows your investments doing, 401k’s stocks?
    I bet that big government bail out makes you feel confident McCains more of the same plan will work out great. Oh wait i forgot McCain wants to flip flop now and regulate the big banks. Every person in America could have their health care premiums paid in full with the money us tax payers are paying to bail out the banks and insurance companies.

    • ANSWER:
      I didn’t know it was just republican’s who had 401k’s and investments?! What a very generalized statement.

50. QUESTION:
    What percentage for 4 of the Investments below would help my 401k grow quicker, must equal 100%?
    Stock Investments
    Company Stock
    * IMATION STOCK FUND

    Large Cap
    * FID DIVIDEND GROWTH

    * FID EQUITY INCOME

    FID GROWTH COMPANY

    FID US EQ INDEX POOL

    Mid-Cap
    UM BEHAVIORAL GRTH I

    Small Cap
    WFA SM CO VALUE ADM

    International
    * HARBOR INTERNATIONAL

    Blended Fund Investments*
    FID PURITAN

    Currently I have the following investments which isn’t making much:

    COMPANY STOCK
    IMATION STOCK FUND 25%
    LARGE CAP
    FID DIVIDEND GROWTH 25%
    FID EQUITY INCOME 25%
    INTERNATIONAL
    HARBOR INTERNATIONAL 25%
    These are also the only options my employer allows me to choose from.

    • ANSWER:
      I know it is not one of your options, but I would personally stay away from this market until it shows strength again – this week could be the start of a long bear market.

      my rec;
      50% cash, 25% FID Equity income, and 25% in solid value stocks like WMT PEP etc