DaFunkyUnit

Props to the GAM's and admins for the new forum!

Now, on to our little discussion.... How does all the ppl here save up for retirement? Most likely everyone pumps money into their 401(k), but how much do you contribute? And how do you distribute (amongst bonds, stocks, money market funds, etc...)?

I have plenty of time to save up (I'm only 22, so... retirement wont be for awhile... ) So invest agressively (high risk, higher potential return) at first and then tone it down and be more conservative as you get older? Also, do you contribute after taxes? My company matches 75 cents to the dollar up to 8%, so its not that shabby.

Oh, and isnt there a law on how much you can contribute per year?

Love to hear your thoughts on this.

-daUnit

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Cubsfan

In your case, contribute at least 8% if possible. That's basically free money (my plan only matches up to 6%).

As far as contibution limits, looks like this year it's $12,000 and will grow by $1,000 every year until it hits $15,000 in 2006. The only thing I never really know is if that includes your employer's match, or independent of it.

ray

My employer has a matching contribution up to 6%, so I currently put in 6% to my 401K. However, I do also try to max out my Roth IRA account. With my 401K, I do not have the liberty of investing in individual stocks (which I would really like), so I have chosen to put all 100% into a high growth, high risk mutual fund. In my Roth IRA account I have about 70% stocks and 30% mutual funds.

I have been contributing to an IRA since I was 19 years old and have contributed to some kind of 401K plan since I was 21.

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gear02

My company doesn't match at all. Instead after working for 3 years, they automatically contribute money into your 401k account, which they claim is better since you don't even have to contribute.

It's still crap though, and I've stopped contributing since I need the extra cash while I move.

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LegendKiller

I completely agree here. Most "experts" will tell you to put a mix of stocks and bonds into your 401k or other retirement funds. They say this is to reduce risk, but for somebody that is 5 years or more away from retirement all it does is reduce your returns.

Risk is a factor in everything but since you're young you will be able to ride out any cycles in the market and follow the average of 7-10% appreciation. If you were older (less than 5 years to retirement) then bonds would be appropriate.

Considering a cyclical cycle down turn usually lasts less than 3 years and if you hit one just as your going into retirement, you will see an appreciation back up rather quickly.

Go "risky" for a vast majority of your portfolio and remember that the long term outlook on "risk" is in your favor.


LK

yo

I don't max out my 401k because the company doesn't match. I just max out the Roth IRA and put other cash into various mutual funds

Merlin

The best way to save is of course the 401(k). Due to its tax advantaged status, everyone should contribute as much as they can up to the annual maximum. Somewhere over $10,000, I forget the exact number. Pre Tax money that grows on a tax deferred basis is the most efficient.

After that, IRAs can offer many of the same benefits. If you don't make too much, Somewhere south of $50,000 you can get a standard IRA. Again pre tax money that grows tax deferred. Good. Roths are also nice and help out if your income is over the $50k threshold. But if you are in that income bracket you might want to consult a financial planner.

As for what to invest in...Since this money is long term you generally can afford to be more risk seeking with it and have a heavy allocation to equities. Hell, I'm all equities. I know that it is not good but I'm swinging for the fences. As for allocation it will depend on your risk appetite. I've gone with 33% in an S&P index fund because it is efective and cheap, 33% in a small cap fund for additional return potential, and 33% in an international fund to both expand my opportunity set and offset risk.

The last one, the International fund, is onw area I think most poeple neglect to their own peril. 60% of the world's economy exists outside of US borders and contains some damn fine companies. Couple this with the fact that international investing will also help hedge your portfolio against the impact of a falling dollar. Given all of this I really think that everyone who has a stock portfolio should have a sizeable international allocation.

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ray

Some of us already do

That's good advice, however, sometimes it is more difficult to verify the financials of such given corporation(s) that are traded on foreign exchanges, since the SEC does not, and cannot, regulate other foreign exchanges.

Merlin

Good point. That is why I like foreign developed markets like Japan, Germany, UK, Italy etc. Emerging markets like South America etc are much more difficult.

ray

I like the Chinese and Indian markets right now because they are both growing exponentially, especially in the tech sector. However, it is absolutely impossible to verify the accuracy of their financial reports.

attgig

all giving the same advice that I follow.

invest the max into your retirement funds.

seems like every company matches up to 6%. I only get 50 cents to the dollar up to 6%, but still, it's free money .


anyways, I have still neglected to open up a ROTH IRA account. And actually, I only know the concepts of the RothIRA...don't even know how I would go about getting that started...

help?

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ray

That is very very true about Roth IRAs. However, i'm in a relatively low tax bracket now I don't care getting taxed up front. Hopefully by the time i'm withdrawing I will be in the highest tax bracket and thinking back to this thread saying to myself "you my boy blue! you made the right choice 35 years ago"

Kevster

My financial planning includes a company pension plan, 401k that matches 5%, Roth IRAs for Mrs. Kevster and I, and individual stock investments. I have my 401k and Roth IRAs broken down into 10% Bonds, 40% S&P, 20% large cap and 30% International (Major companies like Nokia, Mitsubishi, etc). I have spent a lot of time reading and continue to change my %'s about every 3-6 months depending on the markets and the current economic outlook.

I like to think I have done ok with the groundwork for my family's financial future, but I'm sure there's always something I'm missing (oh, thanks to my pension and total income, I don't get any benefit from a regular IRA).

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I think over again
My small adventures, my fears.
The small ones that seemed so big,
For all the vital things I had to get and to reach.

And yet there is only one great thing, the only thing:

To live to see the great day that dawns,
And the light that fills the world.

-old Inuit song

VTGreg

You can invest up to 13% of salary this year with the maximum dollar value being $12,000. Next year it goes up to 14% and $13,000, then 15% and $14,000 in 2005 and unlimited percentage and $15,000 in 2006.

I too am a government employee and contribute the full 13% to my TSP (401k) account. One of the drawbacks is the lack of options for investing the money, but it is difficult to pass up the pretax investing right now.

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Courage is not the absence of fear but rather the judgment that something else is more important than fear.



http://www.hammockbag.com

LegendKiller

All you are doing by having 10% bonds is reducing your annual returns. That is 10% more stocks that you can have returning a much better rate.


LK

ray

Assuming he chooses stocks that perform well. Bonds at least guarantee a certain return, whereas stocks could provide a return of 75% or a loss of 75%

Kevster

I have only recently chosen to put bonds in my portfolio as a guarantee of some return. My portfolio has taken some heavy hits in the last few years thanks to the market and I am not going to make that mistake again in this tumultuous market.

So what I'm really doing by having some of my money in bonds is covering some of my risk.

ray

Many will tell you that bonds are a waste of time, especially at a younger age. However, I know plenty of people who have lost faith in their judgment and luck after the dot-bomb phase when many lost pretty much everything in their investments.

There is nothing wrong with being more conservative. It's good that you have a diverse portfolio with a medium risk level. Nothing wrong with it and it's a shame more people don't follow suit.

LegendKiller

I understand his basis for a balanced portfolio liquid, I have studied it in finance courses and also during my CFA. However, having money in bonds for anybody outside of 5 years of retirement is only locking out return.

No offense Kevster, but you are being pretty near sighted. Your looking at a "sure return". ALL stocks ARE sure returns over time, it is a proven fact.

As far as your "stocks could provide a profit or loss of 75%" that is BS, even the thought of it is BS. Over the past 90 years the DJIA has appreciated between 7-10% (depending who you ask) annually. That isn't some BS figure, thats proven.

So, your giving up 7-10% PROVEN because you dont want to risk losing 10-15% SHORT TERM. It doesn't make any sense at all, again, no offense, just a debate.

If you need that security blanket, thats fine. However, if you invest in a good, diversified mutual fund, you are going to be OK.

As far as picking individual stocks, I have seen many studies, both in academia and outside that show most people who try and pick stocks lose a big chunk of return in the long run. There are very few people who do make good picks for a long period of time. However, 90% of all people who make individual picks and make money are more lucky than skilled, even with the best research. You have to remember that the market is a random walk and you cannot judge human reaction.


LK

ray

Enron, Worldcom, Nortel, Lucent, CMGI, JDS Uniphase

Over time I think most people would lose money on these investments.

Kevster

Pretty nearsighted with 10% of my current portfolio in bonds? That's a pretty rash statement don't you think? It seems pretty obvious that you are focusing on only 10% of my portfolio and not the other 90%. What level CFA are you? When you get to 3rd level then maybe you can say that to me. Considering where the market has been and where it's pointing in the near future, having some of my money in bonds isn't a bad choice in my book. Also consider my bond fund did better than more than 50% of my mutual funds in the last 9 months - I think I made a good choice.

Will I rethink my direction again in 3-6 months? You bet I will, but for right now this is my plan and it's doing better than when I had someone doing it for me (gee thanks Merrill Lynch!).

LegendKiller

Yeah IF they were investing in INDIVIDUAL stocks. I have stated MANY times that investing in a broad based mutual fund instead of individual stocks is the way to go. If you actually read my previous post I said that.


LK

ray