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So my company was suppose to give us info on the new 401K plan but nothing arrived on the 1st of the year. I am sure it is in progress. The letter only said 401k plan nothing more so I assume it is a traditional 401k.
I do not want to gamble and read that investing in low cost index funds is the way to go.
My question is, what kind of index funds are they referring to? Low cost mutual index funds?
Also to diversify. We qualify for the 10% savers credit per my neighbor who works for H&R Block. My boss said she was told the company was matching first 3% saved but it could be 4%. So I'll have about 22% of my paycheck going towards the 401K
.
Last edited by NancyDrew1; 01-07-2017 at 01:12 PM..
So my company was suppose to give us info on the new 401K plan but nothing arrived on the 1st of the year. I am sure it is in progress. The letter only said 401k plan nothing more so I assume it is a traditional 401k.
I do not want to gamble and read that investing in low cost index funds is the way to go.
My question is, what kind of index funds are they referring to? Low cost mutual index funds?
Also to diversify. We qualify for the 10% savers credit per my neighbor who works for H&R Block. My boss said she was told the company was matching first 3% saved but it could be 4%. So I'll have about 22% of my paycheck going towards the 401K
.
The 22% seems like a very good start.
I will agree index funds is a good start for you. The problem is that you will have limited choices in the 401k and their might not be any. If none look for target date funds.
The indexes you want would be similar to the S&P (large companies), small cap companies, medium size companies etc. Look at a large mutual fund site like Vanguard or Fidelity and read what they say about asset allocations. This might help.
You mentioned the savers credit. I assume you income taxes are low. Thus a ROTH IRA may also be very good for you. Look it up. If it is I would think of putting part of your 22% into a ROTH at a discount broker. Look at Vanguard to learn about them.
The 22% seems like a very good start.
I will agree index funds is a good start for you. The problem is that you will have limited choices in the 401k and their might not be any. If none look for target date funds.
The indexes you want would be similar to the S&P (large companies), small cap companies, medium size companies etc. Look at a large mutual fund site like Vanguard or Fidelity and read what they say about asset allocations. This might help.
You mentioned the savers credit. I assume you income taxes are low. Thus a ROTH IRA may also be very good for you. Look it up. If it is I would think of putting part of your 22% into a ROTH at a discount broker. Look at Vanguard to learn about them.
Thank you rjm. Yes we were seriously considering a ROTH IRA. My husband is self employed so our taxes are low compared to others.
As soon as i have some numbers to crunch, and with that a set long term plan, I'll see about that. By 2019 (1-2 yrs) we'll be able to put 100% of my 17K paycheck into 401k then keep my other paycheck to live on + his income because we will not have a house payment by then
So my company was suppose to give us info on the new 401K plan but nothing arrived on the 1st of the year. I am sure it is in progress. The letter only said 401k plan nothing more so I assume it is a traditional 401k.
I do not want to gamble and read that investing in low cost index funds is the way to go.
My question is, what kind of index funds are they referring to? Low cost mutual index funds?
Also to diversify. We qualify for the 10% savers credit per my neighbor who works for H&R Block. My boss said she was told the company was matching first 3% saved but it could be 4%. So I'll have about 22% of my paycheck going towards the 401K
.
The 22% savings rate is good.
An index fund is a type of mutual fund that doesn't try to beat the market of whatever index it's trying to copy. It just matches the performance of an index and typically its fees are low (.17% or less). However, there are all kinds of indexes out there. There are stock market indexes that mimic the whole stock market. And there are bond market indexes as well. Some stock indexes only cover smaller companies. Some, such as the S&P 500 index, cover the 500 largest companies in the U.S. So, just understand that saying you're invested in "index funds" doesn't mean much. There are a bunch of different indexes out there.
Also, I don't like the use of that word "gamble". You need to understand you will lose money at some point in any given year, index funds or not. Stocks and bonds can and do lose money over short time periods. Sometimes stocks will have a really bad decade like they did from 2000 to the end of 2009, when they barely made money, and lost money if you take inflation into account. However, over long periods of time, stocks and bonds do tend to make money. Stocks tend to do better over long periods of time (10+ years). Bonds don't do as well, but tend to have fewer ups and downs. I recommend having at least 20% in bonds to smooth out returns.
Thank you rjm. Yes we were seriously considering a ROTH IRA. My husband is self employed
Once his business gets going he can find other retirement plans which may let you save more.
By the way you can take your contributions to a ROTH out without a penalty in most cases. Thus you can use this as an emergency fund (as long as you invest in cash like investments and not stock). When you no longer need the ROTH for an emergency fund move the money to equities.
If you can find a free ROTH I would consider opening it now with a little money as opposed to waiting.
Remember you can both have IRA'/ROTH's based on your total income if you file joint.
An index fund is a type of mutual fund that doesn't try to beat the market of whatever index it's trying to copy. It just matches the performance of an index and typically its fees are low (.17% or less). However, there are all kinds of indexes out there. There are stock market indexes that mimic the whole stock market. And there are bond market indexes as well. Some stock indexes only cover smaller companies. Some, such as the S&P 500 index, cover the 500 largest companies in the U.S. So, just understand that saying you're invested in "index funds" doesn't mean much. There are a bunch of different indexes out there.
Also, I don't like the use of that word "gamble". You need to understand you will lose money at some point in any given year, index funds or not. Stocks and bonds can and do lose money over short time periods. Sometimes stocks will have a really bad decade like they did from 2000 to the end of 2009, when they barely made money, and lost money if you take inflation into account. However, over long periods of time, stocks and bonds do tend to make money. Stocks tend to do better over long periods of time (10+ years). Bonds don't do as well, but tend to have fewer ups and downs. I recommend having at least 20% in bonds to smooth out returns.
Thank you for this investing 101 course, and how simply you wrote it. I am especially appreciative of the bolded. Maybe CD's are better for me since they do not fluctuate and are guaranteed so to speak
Once his business gets going he can find other retirement plans which may let you save more.
By the way you can take your contributions to a ROTH out without a penalty in most cases. Thus you can use this as an emergency fund (as long as you invest in cash like investments and not stock). When you no longer need the ROTH for an emergency fund move the money to equities.
If you can find a free ROTH I would consider opening it now with a little money as opposed to waiting.
Remember you can both have IRA'/ROTH's based on your total income if you file joint.
Lately he's done more jobs for cash. It's getting so common nowadays. His body is beginning to give out so he won't ever be that busy. His hand has started cramping up. He is a painter.
Thanks, opening a Roth IRA seems like a great idea if we can just put a hundred or so into it. Otherwise we need to wait until some inheritance comes in, which is within a year, two at the most. His father passed away recently
Thank you for this investing 101 course, and how simply you wrote it. I am especially appreciative of the bolded. Maybe CD's are better for me since they do not fluctuate and are guaranteed so to speak
You're welcome.
The problem with CDs is they barely keep up with inflation, so you lose purchasing power over time. It doesn't feel that bad, but don't kid yourself--unless you're saving 2/3 or more of your household take home pay, you can't afford to be that conservative. Almost all of us need our money to work hard for us. That's just not going to happen with CDs at this point in time. In short, taking no risk is also risky...just a different kind of risky. When you invest in stocks, the good years generally make up for the bad years over time. And adding some bonds or stable value funds (see paragraph below) into the mix will keep you a little calmer when stocks get hit (which they will, at some point).
Most 401ks don't have CDs available, but most do have what's known as "stable value" funds. These funds aren't FDIC insured, but I haven't heard of any that lost money in the last financial crisis (2008-2009). They typically invest in bonds but buy private insurance to protect themselves in case a bond issuer goes bust. Right now my stable value fund pays about ~2.33% interest. Not a lot, but better than CDs.
So, what I would recommend for a conservative investor is maybe 50% in stable value and another 50% in something like an S&P 500 Stock index fund. An even better option for the stock portion if you have it would be a dividend oriented stock fund with a low fee (examples would be funds such as Vanguard Dividend Growth or Vanguard Equity Income). Dividend oriented funds tend to lose less money when stocks take a hit. A good option if it's offered in your 401k plan would also be a conservative fund like Vanguard Wellesley Income. It's 60% investment grade bonds and 40% dividend paying stocks. But I'm not sure how many 401ks offer this fund or similar conservative allocation funds.
I am saying this with the understanding that you have some other money put away in cash (CDs, money market accounts, savings/checking accounts, etc.) that's easily accessible. If you don't, then that's job #1. I would still put something in the 401k, but at a reduced rate, until I had built up at least a month's living expenses in cash, then bump up the 401k a little more while still saving cash, etc, until you have at least 3 months' worth of living expenses saved in cash (maybe more depending on your comfort level).
The problem with CDs is they barely keep up with inflation, so you lose purchasing power over time. It doesn't feel that bad, but don't kid yourself--unless you're saving 2/3 or more of your household take home pay, you can't afford to be that conservative. Almost all of us need our money to work hard for us. That's just not going to happen with CDs at this point in time. In short, taking no risk is also risky...just a different kind of risky. When you invest in stocks, the good years generally make up for the bad years over time. And adding some bonds or stable value funds (see paragraph below) into the mix will keep you a little calmer when stocks get hit (which they will, at some point).
Most 401ks don't have CDs available, but most do have what's known as "stable value" funds. These funds aren't FDIC insured, but I haven't heard of any that lost money in the last financial crisis (2008-2009). They typically invest in bonds but buy private insurance to protect themselves in case a bond issuer goes bust. Right now my stable value fund pays about ~2.33% interest. Not a lot, but better than CDs.
So, what I would recommend for a conservative investor is maybe 50% in stable value and another 50% in something like an S&P 500 Stock index fund. An even better option for the stock portion if you have it would be a dividend oriented stock fund with a low fee (examples would be funds such as Vanguard Dividend Growth or Vanguard Equity Income). Dividend oriented funds tend to lose less money when stocks take a hit. A good option if it's offered in your 401k plan would also be a conservative fund like Vanguard Wellesley Income. It's 60% investment grade bonds and 40% dividend paying stocks. But I'm not sure how many 401ks offer this fund or similar conservative allocation funds.
I am saying this with the understanding that you have some other money put away in cash (CDs, money market accounts, savings/checking accounts, etc.) that's easily accessible. If you don't, then that's job #1. I would still put something in the 401k, but at a reduced rate, until I had built up at least a month's living expenses in cash, then bump up the 401k a little more while still saving cash, etc, until you have at least 3 months' worth of living expenses saved in cash (maybe more depending on your comfort level).
I have screen shotted your post above for when they introduce the new 401K. I might make that leap to take some chances. I saw that the highest CD rate, by the length of time it would be in there, appeared to average out to 1%.
What happens if I work beyond age 55 is I do not qualify for the QMB medicare program. But it adds on $$ to my monthly SS check but not nearly enough for even a healthy person who has an occassional health issue. We will barely qualify for QMB if I stop work by age 54.5
Honestly if they cut SS benefits, it would be very beneficial for us. It would allow me to work longer and still qualify for QMB yet add to the 401k. After age 55, all we are doing is flipping a house or property every few years and living very frugally.We've only done one so far but did very well. He's a good handyman and I've been watching the new real estate listings for a few years, seems a great deal comes along about every year.
If my son ends up schizophrenic, I need to have some $$ saved in a special needs trust for him to live on. He currently has a good job for someone who is 25 and it is a lifelong job. He's moved up in the last 6 months but is enduring hearing voices and has entertained these conversations a few times in the last 5 years. Something my BIL also endured for 1 year but the voices departed. He is the richest man I've ever met so it doesn't appear to have affected him. He is a kind man who employs around 300 people. Sadly my other BIL is one of the most dangerous schiziphrenics I've ever met. So my goal is not to be a burden, and if I can get by, just ensure he is doing well and his children (my grand children). It's easy for us since we actually enjoy living simply, I grew up very wealthy and have no desire for it.
I think it's likely I will take some low chances with what you've said. A few of the funds you listed I have down as good already. I am really hoping they let us know asap about the 401k and the options available. Thanks again for the time you took to educate me! I appreciate it. Bless you
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I appreciate it. Bless you
