Any 401K investment ideas?

qwerty_IHB

qwerty_IHB

New member
Just curious what if anything, some of you are doing with your 401K?s? Ive lost about 15% in the last three days. I was wondering what i should do, if anything. Im 31, and ill end up contributing the max of 15.5K for 2008, my company matches 100% of the first 6% of my salary. I was thinking of possibly suspending my 401K contribution all together for the next six months to a year since my company?s 401K plan does not offer any type of money market funds where i can park my contributions for now. All the funds offered by the plan have lost anywhere between 10%-20% through 9/30/08. I guess i should just run the numbers to see what makes the most sense. I know i have a ways to go before i can touch the money and there will be plenty of ups and downs.



Just curious to see what the smart folks here at IHB are doing to minimize their losses - if anything.



Thanks in advance for any ideas/suggestions.



(sorry for posting this question twice, i inadvertently posted this in the politics forum as well)
 
If you believe the market is headed down further, just rebalance your 401k to a more stable and conservative investment option, e.g. money market or bond fund.



I rebalanced my entire 401k into Fidelity's Prime Fund in the Summer of 2007 (a little early) and changed my investment direction such that all new contributions went to this option as well... If your plan has no such options, I would be quite surprised. Any plan fiduciary that cares about their net worth will make sure a range of investment options for different risk tolerances is available to plan participants. If there isn't one, they open themselves up to some nasty lawsuits...
 
[quote author="qwerty" date=1223556364]Just curious what if anything, some of you are doing with your 401K?s? Ive lost about 15% in the last three days. I was wondering what i should do, if anything. Im 31, and ill end up contributing the max of 15.5K for 2008, my company matches 100% of the first 6% of my salary. I was thinking of possibly suspending my 401K contribution all together for the next six months to a year since my company?s 401K plan does not offer any type of money market funds where i can park my contributions for now. All the funds offered by the plan have lost anywhere between 10%-20% through 9/30/08. I guess i should just run the numbers to see what makes the most sense. I know i have a ways to go before i can touch the money and there will be plenty of ups and downs.



Just curious to see what the smart folks here at IHB are doing to minimize their losses - if anything.



Thanks in advance for any ideas/suggestions.



(sorry for posting this question twice, i inadvertently posted this in the politics forum as well)</blockquote>


At your age, I would probably leave things were they are and just weather the storm. If you start trying to time the market without experience in financial markets, your emotions will lead you to do the opposite of what will benefit you. Deep market corrections are buying opportunities for those with a long time horizon. Stocks may drop further, and they may stay there for a time, but they will most likely be much, much higher by the time you retire. Besides, how will you know when to get back in? Markets always bottom when things look their worst. You don't see the light at the end of the tunnel when markets bottom. By the time you do, the market is already up 20% off the bottom and probably trading above the point where you would have sold.



I don't like offering investment advice, particularly on the stock market. Anything can happen. It could cut in half from here. Today could be the bottom. I don't know, and neither does anyone else.
 
bv and IR provide sound advice. One trick I have used at times is to increase my contributions during down times in the market. This helps improve the cost averaging as you are contributing more and buying more at lower prices... For example, instead of going $1300 per month for all of 2009, you could pump $2K per month for the first six months, then just $650 per month for the balance of the year. Or, you could elect to increase your contributions now, since the market has backtracked so quickly of late, so if it did start moving up before the end of the year, you'd have a lower basis and more gains.



These strategies could of course backfire on you if you read the market wrong. For the Joe SixPack investor, steady consistent contributions to an investment with the appropriate risk tolerance is best. Market cycles will come and go but time and the power of compounding will keep doing their thing...
 
Thank you all for your suggestions. I thought more about this last night and had come to the conclusion that im just going to keep contributing the way i am to pick up things up on the cheap, reduce my average cost and wait for the rebound (hopefully). If i start moving stuff around, ill forget to keep monitoring it closely and miss out on the upside because by the time i realize the upside is happening i would have missed out on some gains.



Thanks again.
 
all good advice here. you may want to look into what ipo said about the plan options. no money mkt option just sounds fishy. depends on the plan administrator but your contributions should sit in money mkt until they're allocated to your chosen funds. its not unusual for allocations to occur just once a month so in the meantime you have two paychecks worth of contributions sitting around. it should be in a money mkt and you should check if you have the option to let it stay there instead of being allocated elsewhere.



secondly, dont stop contributing. the tax hit might just be worse than the stock mkt.
 
I have the same problem with no money market option available. They offer a "stable value" fund as the safest option. This is what's in the prospectus:

Fund holdings as of 6/30/08 are as follows:

% of Assets

Wrap Contracts:

AIG Financial Products 19.4% :bug:

Bank of America 19.4

ING Life Insurance & Annuity 9.7

Natixis Financial Products 9.7 :bug:

Pacific Life Insurance Co. 19.5

Royal Bank of Canada 19.5

Cash Account:

Cash Account ? State Street 2.8 :bug:

The underlying collateral of the wrap contracts is comprised of four fixed income accounts

owned by the Plan and held in custody by State Street Bank. Each account is managed by a

different investment manager based on the following allocations.

Investment manager allocations:

Strategy Manager 6/30/08

Short-Term ING Investment Management (ING) 33.1%

Intermediate BlackRock Financial Management (BlackRock) 22.9

Core Pacific Investment Management Co. (PIMCO) 25.1

Core Western Asset Management Co.(WAMCO) 16.1

Cash State Street Cash Account 2.8

The approximate sector allocation of the Fund is as follows:

6/30/08

Corporate Bonds & Notes 25.8% :bug:

Mortgage-Backed Securities & Loans 37.1 :bug: :bug: :bug:

US Governments & Agencies 23.3

Asset Backed Securities 1.1

Other 2.4

Cash/Cash Equivalents 10.3
 
[quote author="qwerty" date=1223556364]Just curious what if anything, some of you are doing with your 401K?s? Ive lost about 15% in the last three days. I was wondering what i should do, if anything. Im 31, and ill end up contributing the max of 15.5K for 2008, my company matches 100% of the first 6% of my salary. I was thinking of possibly suspending my 401K contribution all together for the next six months to a year since my company?s 401K plan does not offer any type of money market funds where i can park my contributions for now. All the funds offered by the plan have lost anywhere between 10%-20% through 9/30/08. I guess i should just run the numbers to see what makes the most sense. I know i have a ways to go before i can touch the money and there will be plenty of ups and downs.



Just curious to see what the smart folks here at IHB are doing to minimize their losses - if anything.



Thanks in advance for any ideas/suggestions.



(sorry for posting this question twice, i inadvertently posted this in the politics forum as well)</blockquote>






You are young and have a great match. Keep contributing. I wouldn't go conservative like money market are your age. You'll be buying more shares at these levels. Sure market may go down further, but it's a losers game trying to time market.
 
I am about to change jobs. Should I keep my funds in the current 401k through my former employer or roll it over, considering how the market is now?
 
[quote author="blue" date=1223616739]I am about to change jobs. Should I keep my funds in the current 401k through my former employer or roll it over, considering how the market is now?</blockquote>


Good question. Once again depends on how comfortable you are investing. Personally I would roll it over as you can invest in whatever your heart desires. I hate 401K as you are restricted in what you can invest in.
 
Also, do you know who your future holder of the 401k would be (Fidelity, American Funds, etc) Different places may have different rollover rules. Also, maybe the old holder may be a better place than the new holder. But I agree with BV, usually rolling it over gives you more options.
 
[quote author="blackvault" date=1223617177][quote author="blue" date=1223616739]I am about to change jobs. Should I keep my funds in the current 401k through my former employer or roll it over, considering how the market is now?</blockquote>


Good question. Once again depends on how comfortable you are investing. Personally I would roll it over as you can invest in whatever your heart desires. I hate 401K as you are restricted in what you can invest in.</blockquote>


Ah bv, my CFA-studying friend, I believe one can roll a 401k from a former employer to either a roll-over IRA OR the new employer's 401k assuming plan eligibility criteria are met at the new job. Your response relates to rolling to an IRA only... I do agree with you though, I prefer to roll to an IRA vs. another 401k.
 
[quote author="ipoplaya" date=1223617759][quote author="blackvault" date=1223617177][quote author="blue" date=1223616739]I am about to change jobs. Should I keep my funds in the current 401k through my former employer or roll it over, considering how the market is now?</blockquote>


Good question. Once again depends on how comfortable you are investing. Personally I would roll it over as you can invest in whatever your heart desires. I hate 401K as you are restricted in what you can invest in.</blockquote>


Ah bv, my CFA-studying friend, I believe one can roll a 401k from a former employer to either a roll-over IRA OR the new employer's 401k assuming plan eligibility criteria are met at the new job. Your response relates to rolling to an IRA only... I do agree with you though, I prefer to roll to an IRA vs. another 401k.</blockquote>


gotcha.
 
Hey Ipo, BV, anyone else what do you think of him rolling it into a Roth IRA (if possible). I figure since his tax basis is the lowest its gonna be (outside of the near-future drops) why not take the tax hit now and let it grow tax free until retirment? whats your thoughts? is that possible?
 
[quote author="24inIrvine" date=1223619500]Hey Ipo, BV, anyone else what do you think of him rolling it into a Roth IRA (if possible). I figure since his tax basis is the lowest its gonna be (outside of the near-future drops) why not take the tax hit now and let it grow tax free until retirment? whats your thoughts? is that possible?</blockquote>


You cannot roll directly to a Roth. You must first roll to a traditional/rollover IRA and THEN convert to a Roth... Conversion is tricky. In a basic sense, if you expect to be in a high tax bracket when you retire, conversion to Roth may be a good idea. There are some advantages I believe to waiting until 2010 to do this as you can spread the tax hit over multiple years I believe. For someone in their peak earnings years now, with expectation of being in a lower bracket at retirement, it might not be smart to convert.



I'm not trying to be not helpful, but the conversion decision between reg IRA to Roth is inherently personal as it relates to current and expected future tax situation. It's not easy to provide a good concrete on that topic. <a href="https://personal.vanguard.com/us/RothConversion">Here is a tool on topic.</a> I considered IRA to Roth conversion when my wife was taking time off to stay at home with our newborn, and the numbers didn't pencil out compellingly for me.
 
Roth is relevant if you think you'll need the income when you've retired.



Days like today obviously can change the math on that one!



It's too late to get into moneymarket/cash positions, at least 2/3 of the damage is done. if anything, free cash should try to move into this market, especially in tax-sheltered retirement vehicles. in my non-professional and not-recommended opinion, buy something like VEU, DODWX (global value), or even SSO to take some of the sting off.
 
[quote author="ipoplaya" date=1223620264][quote author="24inIrvine" date=1223619500]Hey Ipo, BV, anyone else what do you think of him rolling it into a Roth IRA (if possible). I figure since his tax basis is the lowest its gonna be (outside of the near-future drops) why not take the tax hit now and let it grow tax free until retirment? whats your thoughts? is that possible?</blockquote>


You cannot roll directly to a Roth. You must first roll to a traditional/rollover IRA and THEN convert to a Roth... Conversion is tricky. In a basic sense, if you expect to be in a high tax bracket when you retire, conversion to Roth may be a good idea. There are some advantages I believe to waiting until 2010 to do this as you can spread the tax hit over multiple years I believe. For someone in their peak earnings years now, with expectation of being in a lower bracket at retirement, it might not be smart to convert.



I'm not trying to be not helpful, but the conversion decision between reg IRA to Roth is inherently personal as it relates to current and expected future tax situation. It's not easy to provide a good concrete on that topic. <a href="https://personal.vanguard.com/us/RothConversion">Here is a tool on topic.</a> I considered IRA to Roth conversion when my wife was taking time off to stay at home with our newborn, and the numbers didn't pencil out compellingly for me.</blockquote>


I agree, each persons situation is different. Depending on the guys job switch situation/age/income etc on whether it will work. But I guess my idea was this:



He would convert to an IRA, then to a Roth and basically pay taxes (using the money in the Roth). So you would lose some money initially out of your Roth to pay taxes. But that way at least you wouldnt have to pay taxes when you take it out. I think if you arent taking it out for 20+ years, you would probably come out ahead.



and all new contributions at the new job would go on the new 401k. anything additional you want to do (if eligible) you could add to this roth if you wanted.



Another question ipo, since I know you are above the Roth IRA income eligibility rules. Does that mean the eligibility rules do not apply for converting? Or were you eligible at the time you were looking?
 
[quote author="24inIrvine" date=1223621843][quote author="ipoplaya" date=1223620264][quote author="24inIrvine" date=1223619500]Hey Ipo, BV, anyone else what do you think of him rolling it into a Roth IRA (if possible). I figure since his tax basis is the lowest its gonna be (outside of the near-future drops) why not take the tax hit now and let it grow tax free until retirment? whats your thoughts? is that possible?</blockquote>


You cannot roll directly to a Roth. You must first roll to a traditional/rollover IRA and THEN convert to a Roth... Conversion is tricky. In a basic sense, if you expect to be in a high tax bracket when you retire, conversion to Roth may be a good idea. There are some advantages I believe to waiting until 2010 to do this as you can spread the tax hit over multiple years I believe. For someone in their peak earnings years now, with expectation of being in a lower bracket at retirement, it might not be smart to convert.



I'm not trying to be not helpful, but the conversion decision between reg IRA to Roth is inherently personal as it relates to current and expected future tax situation. It's not easy to provide a good concrete on that topic. <a href="https://personal.vanguard.com/us/RothConversion">Here is a tool on topic.</a> I considered IRA to Roth conversion when my wife was taking time off to stay at home with our newborn, and the numbers didn't pencil out compellingly for me.</blockquote>


I agree, each persons situation is different. Depending on the guys job switch situation/age/income etc on whether it will work. But I guess my idea was this:



He would convert to an IRA, then to a Roth and basically pay taxes (using the money in the Roth). So you would lose some money initially out of your Roth to pay taxes. But that way at least you wouldnt have to pay taxes when you take it out. I think if you arent taking it out for 20+ years, you would probably come out ahead.



and all new contributions at the new job would go on the new 401k. anything additional you want to do (if eligible) you could add to this roth if you wanted.



Another question ipo, since I know you are above the Roth IRA income eligibility rules. Does that mean the eligibility rules do not apply for converting? Or were you eligible at the time you were looking?</blockquote>


There are separate income eligibility rules for contribution to Roth and conversion to Roth. I believe the income limitation is a MAGI in the year of conversion of $100K or no conversion is allowed.



That is why I considered conversion when my wife was off work for 15 months. Our income dipped artificially during that time allowing the possibility of conversion...
 
I left my job for a new job about 3 or 4 months ago. I rolled over my old 401K into a rollover IRA. The lucky part is that I was just too lazy or forgetful to specify where I wanted the money invested in the IRA, so it has been sitting in cash as the Dow went from 12,000 to 8,600. I am putting it back in mutual funds tomorrow (25% now, and then 25% each month for the next 3). Better to be lucky than good in this case.
 
You must log in or register to reply here.
Back
Top