Have you reviewed your retirement plans?

[lookout123]

Those who have read my posts for the last few years know that I am far from being a chicken little when it comes to the markets and economy. That being said, caution and vigilance are crucial. Have you all reviewed your finances? Have you made any changes, or are you still sitting the same way you were in 2004?

[BigV]

I have reviewed them since 2004. There have been some circumstances prompting changes in those plans. I am not a tinkerer or a daytrader when it comes to this money, but I am feeling the need to change again. Specifically, I want to review our budget and cash flow and increase our contributions. Right now, they're much too low.

But how low is too low? How much is enough? I've read numerous articles, and I still don't have much confidence that

A -- We've picked a suitable target number.

B -- We've picked a suitable target age(s).

C -- We've picked a suitable combination of deferral amounts and investment choices to hit our (hazy) choices in A and B above.

I am confident that we'll "have what we have, when we have it" or some other snooze-button platitude. I think we'll be working for a long time.

My biggest concern is that I don't know how to evaluate "the right amount". I can do the arithmetic, but I don't know what the right answer looks like. To be fair, I want to know a minimum, since, umpity bazillion bucks would be a problem I'd be willing to work through. I just don't see that happening. I'm not afraid of working, not afraid of saving, not afraid of interim losses.

...

After having said that, I guess I should just walk over to Payroll and ask for a status change form and crank up the rate to the maximum. At least then, the problem wouldn't be "I didn't do enough because I was cheap or near sighted".

[glatt]

Last week I printed out the list of the 98(!) funds offered in my 401K. This list is grouped by type of fund. It lists each fund name, and it also gives YTD, 1 year, and 5 year performance.

In your experience, do these listed returns include the cost of managing each fund? I can't find it in the fine print anywhere. When I look up the details for each fund, it will give me a little blurb on the strategy of the fund and details like the "expense ratio."

One fund I have (an emerging markets fund) claims to have returned 0.74% YTD, but on the details page for that fund, it says it has a 1.48% expense ratio. Does that mean the return is actually more like -0.74%? Or have they already done the math for me?

Finally, if someone wanted to be more conservative now, what type of funds would you suggest they look at?

[TheMercenary]

I chose more agressive than usual because this year I dumped an extra $$k into my SEP IRA. All of mine have expense ratios of 0.8% or less. It was more of an opportunistic investment and we gained a huge tax break from the movement. That showed that we have not been being agressive enough over the years and we need to get more agressive in the future to gain the advantage.

[headsplice]

I'm just starting my 401k, so I'm going fairly aggressive. Mostly emerging markets, health sciences, and midcaps.

[smoothmoniker]

I'm counter-market right now, holding a ton of ETFs that short the market indexes. I guess you'd call that aggressive.

[TheMercenary]

Mine are in mid caps and have been performing VERY well for the last 10 years.

T.Rowe Price
Mid Cap Value (edit: the er is 0.96% for this one)
Equity Income

Fidelity Destiny2

[glatt]

My 401k offers an energy fund and a precious metals fund. Both are doing pretty damn well right now and have been for 5 years. I'm not in either of them. But there is a 1% penalty if you get out in less than a year.

[lookout123]

OK, remember I can't give any specific ideas because I don't know you, your risk tolerance, time lines, etc. I'm not wimping out, that's just the requirement of what I do. That being said the answers are as follows: yes, yes, NO!, possibly, only on Tuesdays, and yes your wifes knows.


Glatt, yours is the easiest - all fund performance numbers are net of all fees. That is where the "pick the fund with the lowest fees" crowd sometimes is wrong. Pick the fund that most closely fits your risk tolerance with the most consistent performance over the long haul. Be aware, but not obsessed with the fees. BTW, my guess is that many of the 98 funds available are target date funds and index funds. That is due to the recent thought put into suing companies who offer 401K's without professional advisors in place.

More conservative? That's a moving target. What is your expectation of the economy/world over the next 5 years? What I believe is irrelevant (unless you were my client and I convinced you of my opinions). I still strongly support high dividends, long track records, consistent solid performance over stellar short term performance, transparent management with a team approach over the excellent single manager method.

Diversify. Do you have small, mid, and large cap? Foreign and domestic? Developed and emerging? Growth and value? Everyone should have some of each of these, the ratios will vary based on your timeline and your risk tolerance.

Me personally? I have a really long time horizon and high risk tolerance, but I'm still pretty conservative by nature so I'm loaded up on high dividend and deep value companies right now. I've bought some global real estate and resource companies too. There are some interesting metal exploration ideas out there too, but read A LOT before going down that road.

BigV, yours is an answer that has no answer from outside yourself. You absolutely have to pick a target date. You can change it later, but you have to pick one now. You have to pick a target dollar goal as well. Do you want to leave $$ for the next generation or bounce your last check? Only you can decide those things. The how much is enough question is easy. If you quit working tomorrow, how much $$ would you need to live the life you want to live? No, really. $60,000, $160,000? The amount you need is a function of the amount you want to spend. If you think you only need $60,000 per year but you want to pass $$ onto the kids, then I'd suggest you plan on having $1,500,000 in the bank when you retire. That amount would sustain a $60,000 annual income at a 4% withdrawal rate indefinitely with the principle likely growing with time. $160,000? plan on about $4,000,000. Or $2.2MM if you don't feel obligated to leave money for the kids.

The point is that how much you have is pretty irrelevent until you figure out how much you want to spend.

The longer your time horizon the more aggressive you can afford to be, but the key is to figure out your tolerance to volatility. Cuz its all about you baby.

[lookout123]

Originally Posted by smoothmoniker

I'm counter-market right now, holding a ton of ETFs that short the market indexes. I guess you'd call that aggressive.

I'd call that very aggressive, but not surprising for your location, age, and industry. Seriously. If you are aware enough and proactive enough you can make good money with a strategy like that, just don't look away for too long. Long term betting against the market is a loser's bet.

[lookout123]

Originally Posted by glatt

My 401k offers an energy fund and a precious metals fund. Both are doing pretty damn well right now and have been for 5 years. I'm not in either of them. But there is a 1% penalty if you get out in less than a year.

If your holdings were down in six months would you panic? Don't buy. If you'd be disappointed but ok to stay, then take a look. You aren't retiring next year anyway.

[lookout123]

Anyway, I don't mind answering questions but I was more interested in hearing the reasoning behind the decisions you're all making in regards to your nesteggs at this point. It seems like I've only been meeting chicken littles or real gamblers lately.

[glatt]

I'm a sleeper here. Every few years I take a look at things and re-adjust. I was going to do it again last week, but got side tracked. Didn't get beyond printing out my choices.

Here's how I spread out my investments last time, and how they are doing so far in 2008.

Bonds:
8.58% PIMCO Total Return Instl [YTD 2.87%]

Domestic Stocks:
28.63% American Beacon Small Cap Val Inst [YTD 3.86%]
26.75% Janus Mid Cap Value Investor [YTD 3.79%]
6.76% Vanguard Windsor II Fund Investor Shares (I don't even know what this is, but it sucks) [YTD -8.86%]

International Stocks:
5.37% DFA Intl Small Company I [YTD -0.56%]
8.31% Lazard Emerging Markets Equity Open [YTD 0.74%]

Misc:
15.60% Allianz RCM Technology Instl (another big loser) [YTD -7.17%]

[lookout123]

Vanguard Windsor II Fund Investor Shares (I don't even know what this is, but it sucks) [YTD -8.86%]

But the fees are low.

it is generally an income oriented large cap fund. Think of all the company names you know and you'll find most of them in there. You've got the right idea on diversification so good job. It is almost text book. Only a couple questions to think about.

How long before you retire?
Over the long term do stocks or bonds outperform?
Is there a fund in your portfolio that might drag you down over longer periods of time?
What percentage of the most profitable companies are domestic?
What effect does a falling dollar have on domestic/foreign investments?
What percentage of your holdings are domestic?

There is no right or wrong answer, just something to think about.

BTW, that bond fund is a good one that I have used with many of my clients.

[Clodfobble]

I've taken to heart the adage about putting it in automatically and forgetting about it. For my husband's 401K, I did a whole ton of research at the time, then we made the choices and haven't touched or even more than glanced at the statements since then. I know it's a little down at the moment, but it's only been a year in this current employer/configuration, and meanwhile we're putting in 10% of his salary so I'm not worried in the long run. My Roth IRA is a whole lot less diversified (couple different industries, but all international) because there isn't enough money in it to spread across very many funds. That's the one change I really need to make, is to start putting money automatically into that account as well, but there is just no way we can afford it this year, unless my contract work remains steady (never a guarantee, and the big project that's been keeping me busy for several months now is officially over, so I actually think I'm about to hit a big dry spell.)