Went over my first 401(k) statement
 

Hopefully I can retire by 50!

I need to learn more though. I am not an an econ major and need to buy some books to help me. I made a 10.79% return last year using Merrill Lynch and hope to do better next year.

This is addicting.SmileWavy

Edit: I am 23 and hope to work just shy of 30 years. I put in 6% and my company matches up to 4%. So I assume if I add 10% every year and I am able to have a 10-15% return I shouldn't do that bad. It's shocking to realize how few people have even started a retirement fund.

if your retirement objective requires that you average a 10-15% return over the next 30 years . . . good luck with that.

I was being hopeful. As I said I am pretty new to this game. Only put into my account from oct. 1 to dec 31st so it was a small statement. What type of return percentage wise should I expect over 30 years?

tom..well done!

you are young right? i am having a difficult time convincing two of my younger engineers to start. just start!..apparently them losing a weekend's beer money from the paycheck once a month is clearly not acceptable.

Tom, from your other posts I perceive that you've got a HUGE jump on most regarding living within your means, debt management and investing, regardless of age. You already indicated your familiarity with compounding interest and "time is on your side", so congratulations!!! Now go enjoy the next 25 years living your life, and keep doing what you're doing...the rest will take care of itself with just one caveat....don't get DIVORCED :)! There's a "rule of 72"....take any projected return, divide it into 72, and that's how many years it will take to double your investment. Let's take 8% for example (and a more realistic rate too), you'd double your investment every 9 years, and so on. I was having too much fun "way back when" to worry about money (still don't), but you're already on the right track.

ps: If you're happy w/ ML, might I suggest leaving your current 401K in place when you eventually change jobs. Some folks like to rollover/consolidate their 401K/IRAs, etc. but I like the flexibility (IRS rules) that comes with not doing so. (One can still have "everything" under the same borkerage house, etc. just keep the individual accounts "distinct".) In a nutshell, the x you contribute now (along with co matches) can easily be 10x in 25-30 years. Good luck...but you're not gonna need it :)

On my "when I get to retire" spreadsheet I use 7% a year for my 401K and I think that's actually a little below what the annual average is for the last 30 years.

Now bump the saving rate up to the max as soon as you can!

I may be familiar with it, but do not fully grasp it. Can anybody recommend some books?

Good for you to start at your age. I retired at 50 so it is doable. I can't tell you my rate of return over the past 30 years, but I was close to 15% last year in my 401k. One thing that I did that helped me was keeping track of my net worth and spending over the years. Also increasing my amount of savings every time I got a raise or a bonus.

Son, let me give the best piece of advice on investing I can give. Years ago, I looked at all my options, Stocks, Bonds, Real Estate, etc, and I made the wisest investment a man can make: I married an anesthesiologist. :)

Ya know how long I have been keeping that in for? I knew what she did and let me tell ya, SCORE! Pediatric anesthesiologist right? Man talk about serious money.

That was one hell of an investment. :eek:

Best investing advice for the layman "Richest Man in Babylon"

HD's been a "kept man" for years :) ..."it's good work, if you can get it"! Bet even he must fear the big "D" though...I keed!

Good start, Tom! Ignorance and stupidity has some of the younger kids passing up the FREE MONEY of company match. Even some that are not so young think putting enough pre-tax money into a 401K to maximize the company match is too much to sacrifice. (shaking my head)


My current employer uses Mercer, which I don't like so much. I still have a Vanguard account which I'll keep active, because I like them. I had a JP Morgan account that I just rolled over into my Mercer account because there wasn't that much money in it anyhow and I got lazy and never tended to it. JP Morgan was good too, but I like the funds at Vanguard.

Good luck! Remember, as a single person making good money....you'll want to reduce your tax liability by putting it into the 401K....better to do that then spend it on booze...or at least not the excess boooze.

Tom - you're wise to put in as much as possible because your company is matching with that 4%. It pretty much means that for every $100 you put in you're making an instant $66 profit, so really your return is already +66%, not many can make those sort of returns.

If I could put 10, 12, 15%, or more into 401k, I would. As it is, I, at least, put enough to get my company's match. At my last co, they would match 100% up to 5%, and you were 100% vested immediately. I made something like 115% on my money last year if you lump the company matching in with the stock market gains. (the 15% is a fluke and a result of the wild recession ride). If you can get anywhere near 100% for no money and no risk....

When I was in my 20's, I put money in a 401k. When I left that job, I took the money. It wasn't much, a few grand, but I wish it was still in my portfolio. I paid out one other time, when I was laid off in 2001. I needed the money, but really regret that one too.

Keep putting money in, put in as much as you can manage, leaving some money for normal savings if you won't touch that for stupid stuff. Try to manage the two so you don't have much "extra" money. It may suck now, but it'll pay off later in spades.

All sage advise here. It took a few years for my 401 to get to 100k...a few less to 200...18 mos to 300...and probably another 7-8 mos to 400. There were setbacks...and I've moved money from stock to bonds...and I've missed some appreciation, but all in all it's been generally trending upwards for 20 yrs. Couple that w/ investments, pension, inheritance and a business...I'm just happy I'll be there to support others.:(

Good luck young fellow ;)

I remember having that fun delusional dream about 12 years ago when I started regularly and heavily putting money in the S&P.... Gee, at a 15% return I was dreaming of having millions when I retired...

Lo and behold, the returns are closer to 1-2% or less. Is this a lousy time for the market historically? Yes. Just goes to show that "Prior returns are not a guarantee of future performance :) ."

Matching certainly is good, but don't go linearly extrapolating your 401K funds. First, you don't know what the value of the dollar will be. Second, you don't know what the tax rate, on that deferred income, will be. Third, you don't know if those investments will have much future value.

fourth...

http://forums.pelicanparts.com/uploa...1295471565.jpg

Man, Glenn, are you doom and gloom :)



...I agree. If the SHTF it all vaporizes...that's why I have land and lots of spoons. Come get it...:D

Put in $1,000 (600 you 400 boss). At 10% you $1,100 first year. 2nd year you have $1,000!put in plus $1,220.. 3rd year $2,220 x 10%= $2,440 plus $1,000, repeat each year . Also you didn't"t pay tax on it, until you retire.

Yea I am not hoping for doom and gloom. Thirty years sure is a long time.

Looks like I am stopping at half priced books this weekend for some reading material.

Edit: One thing is certain: Time. I have lot's of it and hopefully I can use it in my favor.

You can marry more money in 5 minutes than you can make in a lifetime...

I'm far from an expert, but I've done a little reading. My take is...

401k is great, especially if you have matching and the fact that it reduces your tax liability now. I'd almost say put in as much as you can until you can't afford to put more in, but you (we) need regular savings (cash that you can put your hands on), savings in the form of something that makes you more than the small interest that you'll get in checking/savings/money market accounts (some sort of investments), and retirement savings (money that you can't (without penalties) or won't access no matter what (401k, etc...).

The earlier you start building retirement savings the better because of the compounding. You build interest on your interest and over time, that means considerable benefit. THere are those examples out there like Matt puts 1000 a year in starting when he's 20 and has 1,000,000 when he retires. Sadly, Bob waited until he was 35, and even though he was putting in 5000 a year, he retires with only 600,000. (purely imaginery numbers) Make sure it's set in your mind that that money is gone and inaccessible.

There are the two different types of IRA, I can never remember which is which. Basically, one is like a 401k, you put in money and get to deduct that money from your income which helps on taxes. The theory behind this type and 401k being that when you are retired, you'll have very limited income and therefore be taxed at a lower tax bracket than you'd be taxed now when you're young and making the money. The other type is not tax deductable now, but when you're old and using that money, you won't pay taxes on it because you already have today (I think you'd pay taxes on any interest earned if you take that much out).

I think the market (S&P500) averages 8% over the long term. In the last several years, you'll see all sorts of weirdness because of the recession crap that's going on. You can make the numbers look good or bad depending upon what period you look at. If you choose a period from right before the market crashed, then your account could show a negative gain, or if you look at the last 2 quarters of last year, it could look absurdly good.

To assume an annual return of 10% is not realistic:

From 1950 thru 2009 the S&P 500 real return was 7%. HOWEVER, if you weren't in the S&P 500 from 1980-2000, you missed the boat. From 2000-2010 the S&P 500 was down over 3%.
For a reality check:
S&P 500: Total and Inflation-Adjusted Historical Returns


The brokers and investment advisors tend to forget to tell you things like this...statistics don't lie but.....

Good for you to get started early.

As has been said max your 401 contribution and always live within your means.
When you have a bit of disposable cash open a regular investment account (non IRA/401K). Later on you will want to be able to get to some of your money without tax penalties.

Diversify your investments. Do research on asset classes and understand non-correlated assets. You need to understand the fees charged for funds as they can eat up your yield. Also know what is in your funds as many funds invest in the same underlying securities giving you the false impressing that you are diversified.

Only two things in life are certain and neither of them are time... :)

You are definitely on the right track and Boba's advice is right on the mark. Also, don't borrow against your 401K - a very bad idea and hazardous to your wealth.

Books? Here are a few. "Winning the Loser's Game" by Charles D.Ellis
"The Future for Investors" by Jeremy J. Siegel
"The Elements of Investing" By Burton G. Malkiel & Charles Ellis
" The Intelligent Asset Allocator"by William Bernstein
"Wall Street Words" by David L. Scott
just to name a few. websites: Bob Brinker.com Ric Edelman.com also his book "The Truth about Money" all good reads. :)

Cant say that enough. I started in funds when I was 18 and am glad I did. I'm still have a long way to go but the more you invest now (in reasonable vehicles) the less you have to later. Good work, it's a long haul, put yourself in position to be successful.

Starting early and maxing out your employers match are the best things that you can do for yourself. Congrats. . Long ago when my company started its 401k I jumped in at the then max of 12 %. It hurts for a while but you get used to it. The next raise felt good and you no longer will miss the money. Now every time you get a raise add 1 % to up your contribution and you can save even more. It is the compounding interest combined with your number of years that is going to be great. My company switched 401k admins 4 times. I regetted leaving T Rowe Price but now have Fidelity who I like a lot also. After 22 years or so in mine I am even maed out on the catch up for people over fifty ( 22500$ ). With another 12 or so years to retirement thats 270000$ without earning interest. The peace of mind you will gain is worth a lot. Keep up the fantastic job you started.

Tom, this was the first thing I came across with a search...it's a great place to start imo.

The Power of Compound Interest

Investing is fun but see if you feel the same way after seeing your portfolio drop 60% in a week like I and a lot of others did in 2008.

I applaud you for your interest (no pun) in the markets though. You're ahead of 95% of your peers.

If not in his 401k...where should he out his money?

Assuming none of your investments disappeared into the ether, and you didn't sell when it hits rock bottom... How is your portfolio now? How much has it recovered if at all?

I'm not saying don't... Just don't always expect rosy results and try to keep a really strong stomach.

If he really wants to make money I'd say become a fund manager, not a fund participant... Other Peoples' Money...

The big hits can happen and this is why I mentioned diversification. Do no think this is as simple as not having all your assets in just one stock (such as your companies stock) It is also not just having some small cap, some mid cap and some large cap, but still all equities.

This is why I mentioned non-correlated asset classes. They all do not rise and fall at the same cycle. You will not maximize your gain but you will protect your invested principal.

If you start to invest for yourself remember to take some of your profits and use them to help re-balance your portfolio on a regular basis.

Diversification will not protect you against a 2008-style crash. That's what made it so dramatic and horrific - EVERYTHING went down at once. A lot. Fortunately this rarely happens and as a general rule diversification is a good tactic.

Some stuff dropped faster/further than others but I think the only thing I held in 2008 that went up in value was my guns & ammo!

YMMV

I agree, diversification cannot stop the kind of meltdown that was 2008, but if you are well diversified you can limit the damage.

Thank you everyone for your thoughts. Clearly there are people that know much more about this then I do. Pelican is such a brain resource.

I am looking into diversifying into s&p500 and russell2000. Also maybe pick up an international index.

You may find the mindset preached here as something that you feel comfortable with...

Bogleheads :: Index

sp500, russell2000 and international index is essentially a 'total market'. Its possible to get that in one fund.

I 'started investing' in the early 90's right out of college. The 90's were a good ride. Monkeys, darts and I made good stock picks in the 90's, but I eventually migrated to very simple allocation in low fee index funds with an annual re-balance.

Don't forget that whatever excitement that you feel now in a gain, could go the other way in a heartbeat.

You can't draw on a 401k until you are 59 1/2 years old. Think very long term in your case. The years will smooth out even the 2008 style dips. The fact of the market is that the 2000 to 2010 is that it is considered a lost decade. Just do not change your investment strategy and think of buying depressed funds as a buying low equalizer. Look up dollar cost averaging. Over time you are buying high and buying low of the same fund lowering your overall price per share. Do not get into switching funds and chasing profits. Rarely works and makes you nuts. Rebalance once a year.