Last week, we introduced 401(k) retirement plans and focused on their main two benefits:
- Tax Benefits.
- Employer Match
This week we’ll close out the discussion with a little talk on Roth 401(k)s and some tips for choosing Funds inside your 401(k).
For most people, the 401(k) savings plan offered by their employer is the first investment worth making. This article is meant to introduce you to the 401(k), why it’s often a good deal, and how to get started.
I’ve spent a lot of time in the past week working with the Morningstar Premium Fund Screener, a tool used to search for mutual funds based on filtering criteria. Think of a screener as both a search engine and a pair of blinders. Not only will it help you discover new funds but it will also keep you away from funds that may post high short-term results but have a lot of inherent risks.
This screener is the best I’ve seen for mutual funds and in addition to access to Morningstar analyst reports, makes the Morningstar Premium subscription worth every penny of the $135/yr fee. If you can get a friend or two to split it with you, all the better! Think of it this way, if you have $15,000 invested in mutual funds and this subscription lets you pick up an extra 1% annually, it has more than paid for itself.
In my last article, I discussed starting my portfolio, and a strategy for allocating assets efficiently while keeping the number of accounts and fees manageable. As I stated in that article I think it’s very important for those of us who want to eventually become more involved with individual stock investing to have only a small portion of our funds in a brokerage account. Because we’re very inexperienced, risking too much of our portfolio with individual stocks can leave us open to a lot of unnecessary risk. That’s why I advocate starting simply by learning the basics then building a foundation of a few stock and bond mutual funds, before allocating more to individual stocks.
This strategy may not be exciting, but to paraphrase Ben Graham, author of The Intelligent Investor, true investing should be boring. By learning the basics we can understand the full range of investments available and how to maximize their returns. We can then invest in relatively safe but consistently well-performing mutual funds. Not only do mutual funds provide instant diversification, but they also give us focus as we continue to learn about more advanced investing topics. As I will mention again, we have a lot to worry about when we’re just starting out. There’s no need to add risky investments to that list before we’re ready.
As part of my forthcoming portfolio strategy, I was trying to find information on the best S&P 500 Index funds. As you may or may not be aware, Vanguard created the first S&P 500 index fund in the 1970’s. An S&P 500 index fund aims at tracking the performance of the S&P 500, regarded as one of the best (if not the best) total market indexes out there.
If you have less than $50,000 to invest in securities you kinda get screwed. All of us here at InvestorGeeks are just starting out, in our Mid-20s and have less than $50k in investments. Now I love to learn about investing, but I’m nobody’s fool, and so I want to build a foundation of safe diversified funds until I master selecting value stocks. However, because of my low account balances, I get whacked with maintenance fees that can be pretty stiff. This is a problem because I’d like to diversify my portfolio, but lose more and more of my returns because of these fees. So I’ve come up with an action plan, and I’m hoping you’ll provide feedback before I go ahead an implement it in the next couple weeks.
Relatively new investors may have heard about ETFs but are still unsure what they are. Well, ETFs, or Exchange Traded Funds, are a type of investment fund that is traded like a stock on the open markets, but typically track an index such as the Nasdaq-100 or S&P 500. First introduced in 1989, ETFs have grown in popularity over the last decade because of their ease to buy and sell, and low expense ratios. However, like any investment, there are pros and cons that the prospective owner should be aware of.
Over the long-term, the S&P 500 beats 80% of actively managed mutual funds (before tax benefits). Because of this fact, prominent investors such as Warren Buffett and Benjamin Graham recommend index funds for defensive investors and those looking to diversify their portfolio. Not only do they provide instant diversification, they also offer the benefit of being simple to own, as it represents owning an already established group of securities selected by finance companies such as Standard & Poor’s, Dow Jones and Nasdaq.
The Real Returns posted an interesting list of the 20 largest mutual funds, and I thought it was interesting, so let me just mention some things about mutual funds.
A larger mutual fund is typically an indication that the fund is perceived as more desirable, and as a result investors put more and more money into the fund. However, this trend can produce some undesirable side effects.
What follows is a question posed to us after Jason’s article last week. As well as my response to that question. I hope to have answered the reader’s questions completely, and I hope that my response proves valuable as well. I’ve left the response as is, and I’ll be covering different sorts of investments and other strategies in weeks to come, as I build my own confidence and knowledge. I’ll close with a few comments that cover some areas that I feel my original response did not adequately address.
I read your Savings Speech article today, and it was not unlike many time-value-of-money articles I have read in the past. I am curious, though, what type of investment you would expect to see an average 9% return from?
Below is an excerpt from a conversation that Chris and I had last night. It concerns emerging markets, and some thoughts on how best to enter them. I’ve just posted the conversation as is, not even bothering to modify for typos and mispellings. In a few weeks, I’ll post more thoroughly on this topic, as it interests me, and deserves my full measure of attention. Also, this is just an aside, and not a substitute/cop-out for my weekly article, that will follow sometime tomorrow.