401k investments - what to do?

9 Replies

Hey everybody,

I wanted to get peoples thoughts on how to best handle my 401k investment portfolio.

First the background info: I’m 30 years old and unfortunately have only been contributing for the last 3.5 years. I’m at a place where my budget comfortably allows me to contribute 8k a year and my company matches half of that (the max match). We use Principal for our 401k. Now that I’m paying more attention to growing my personal wealth more though, I’m super confused on where to move the majority of my investments and where to invest my weekly contributions. For instance, I use the app Personal Capital and first it tells me that I’m going to be losing a large chunk of my money to fees, so I tried to find some funds that had low fees, and was contributing a majority of my money to my 2050 goal fund (low fees to my knowledge). But then personal capital was saying that my portfolio wasn’t diversified enough to really be protected. So I’m sure it depends on my comfort and investment strategy, but if I’m generally comfortable with market swings and want long term growth, what should I prioritize? Diversity (I️ currently have small cap, medium cap, large cap, foreign research, black rock but most funds available to me seem to have 1.15% fees or more) or do I emphasize the target date?

Or if you’re not comfortable giving out advice - any idea where I might find someone? Personal Capital offers it, but I️ don’t have a large enough portfolio.

Thanks for your help!

I️ never worry about fees. My thought process has always been if the fund can make me money then they are deserving of their fee. I️ generally look at long term performance and the overall goal of the fund. I️ look for funds where the goal of the fund aligns with the hot market trends. These are typically your best options. I️ look at my 401k on a weekly or biweekly basis but make it a point to reallocate money, if necessary, to the different funds about once per quarter.

Another great option is a financial advisor. My guy helps me with my 401k even though he isn’t making money on it. His thought process is that he will someday take over the fund if I️ leave my current job or into retire. He is right.

I'm going to politely disagree with Ryan. Fees can literally be the death of you in a 401k. A 1% difference can seem insignificant but is detrimental when compounded over time. 

Ultimately, you have to look at your net returns. Compare the performance versus the fees and see what is most profitable. Index Funds are likely your best friend. Statistically, almost nothing beats them and when you factor in the fees for something that may beat them you end up at zero because of the fees. I've gotten a 16% return over the last 12 months paying 2 and a half basis points in fees. 0.025. I'll take that all day long. 

Study your options, ser what's available. Use calculators to compare returns between funds and factor in fees. 

www.jlcollinsnh.com has an entire tab dedicated to calculators. 

https://www.reddit.com/r/personalfinance/comments/...

Watch the first 2 videos. Mandatory for anyone with a 401k.

Good luck.

First realize that personal capital is a bit biased as they will tell you these things in order to get you to invest money with them. Diversification isn’t overly complicated. Have 75-85 percent equities (many different types) and the rest bonds.

If your employer only has one 401k provider and most of their funds have high fees you’re kind of stuck there. Simply, contribute the max to get the match and leave it there.

I use betterment for my personal investing outside of work 401k and real estate. Their fees are about .25 percent but that’s on top of the fees for the funds you invest in.

To avoid that, you can invest in vanguard index funds. Just my two cents

@Emeric Harney   take a deep breath, my friend. If you are 30 and you have been investing for 3.5 years you are ahead of 95+% of your peers. That doesn't mean you shouldn't want to get better at taking care of your future, but your situation is the opposite of dire.

You have time, so educate yourself. There are a ton of free resources at Bogleheads - this is a group of people who follow the investment philosophy of John Bogle - Patriarch of Vanguard Investments and inventor of the passive index fund. 

I'm not very popular at investment adviser meetings because I frequently tell people they don't need an investment adviser. You might want one, but you don't need one. If you want the service so you can go golfing (or focus on your next real estate deal, or whatever), go for it. I know how to change the oil in my car, but I pay someone to do it because I want the service. Likewise, I have some clients who simply want the investment management service I provide. It works out for both of us. 

Best of Luck on Your Journey!

Tony Robbins discusses this topic in detail in his book Unshakable. Warren Buffet also offers very similar advice. 

Invest in a low cost S&P 500 Index (if possible in your 401k) on a regular basis and since your 30, you have ~35 years until retirement, and whenever the market pulls back you can contribute more, because you know the market will go through several cycles before you need the money.

Hope this helps @Emeric Harney  

Hey @Emeric Harney ,

Without looking at the holdings I would argue that you are diversifying your portfolio incorrectly. When I look to diversify a portfolio I believe there is a lot more to it than selecting different "style orientation"(growth/value) and"size orientation"(large cap/sm cap). It is imperative that you look at the correlation of these funds/ETF's. If each fund tends to move in the same direction, you are under-diversified. Another thing to consider is the amount of overlap your portfolio has. What percentage of the holdings in your portfolio(all funds combined) are in one particular sector/country? In other words without looking at the specific funds in question, how many of the positions move in the same direction in a highly correlated manner? Have you considered investing in ETF's vs funds? An ETF trades on an exchange in the same manner a stock does, this allows you to quickly enter and exit. What does this mean? This means that you can set an automatic stop on your ETF to sell to cash at a level you are comfortable with the fluctuations.  I am not a huge fan of target date funds because they typically don't take some external factors into account. For example, interest rates are historically low which would expose the entire bond section of your portfolio to interest rate risk (as interest rates increase issued bonds are worth less as higher yielding bonds are issued). Most target date funds will simply increase the allocation of fixed income and other lower risk investments over time. I believe there are other ways to achieve solid yield without exposing yourself to so much interest rate risk for the current environments low yield securities. 

I would be happy to answer any questions and help you out if you PM me!

Hope that helps,

Justin

Updated 4 months ago

.

Justin Yeager interesting stuff. Not sure how to PM you though - don’t see any contact info for you!

Google type 2017 best mutual funds.  Then shop for lower fees  many funds are over deliver % in 2017

I am not a financial advisor but here is what I would do based upon my own risk tolerance.

85% stocks
10% fixed income
5% real estate and commodities

More specifically:
30% large cap etf
15% mid cap etf
15% small cap etf
15% developed market ex-us mutual fund
10% emerging market mutual fund
5% us fixed income mutual fund
5% developed and emerging markets mutual fund
4% REIT
1% commodities etf

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here