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401(k) and you (or in this case, me)

December 31st, 2007 at 10:19 am

It's been a while. I've been in California for the past week and I'm deathly afraid to look at my account on Mint.

Upon arriving home last night, I flipped through my mail and got a letter from Fidelity. It informed me that I was now qualified to participate in my company's 401(k) program. I was beginning to wonder what kind of retirement plans my company had, seeing now that I'm finally vaguely clear on what a 401(k) actually is. It appears that it took more than my boyish good looks and undeniable charm to meet the requirements - 6 months tenure in the company was what was initially holding me back. So, as if the heresy of financial gods were an actuality, they sent my answer via the United States postal service.

Now the tough part. This may be one of the most common questions among financial forums - what do I invest in? I'm 25, single (sniff), and still have about $15k of debt that I have to work through. I've been told because of my age, I should just put it all in stocks. Having that in mind, I hopped over to Fidelity, geared up to set up my 401(k), until I found out that there's like 25 different stocks (just stocks, not even counting funds) that I can put percentages for.

So, financial whizzes and greenhorns alike, masters of financial planning and retirement funds, and all those who have more experience in this than I (which, if you're reading this, that probably means you), any recommendations or experiences? I'm especially interested if you have a Fidelity 401(k). The highest return (by year and by average) is one called Fidelity Leveraged Company Stock Fund.

I guess I have a lot more studying to do.

7 Responses to “401(k) and you (or in this case, me)”

  1. fern Says:

    I would invest 85 to 100% in stocks, splitting it among small cap, mid cap and large cap mutual funds. For the large cap, go with an S&P 500 index fund, which will have lower annual expenses. Make sure that at least 15% of this money is in international funds.

    But if you think you might freak out when the next big market downturn comes, maybe stocks aren't for you. You can't yank your money out when the market tumbles or you'll be doing exactly what you're not supposed to do: buy low, sell high.

    Just have the maximum 15% deducted from your paycheck and then forget about that money once you've set up your accounts, until you reach your 50s, at which time i'd rejigger your asset allocation to be more conservative.

  2. luxliving Says:

    No, I don't have a Fidelity 401-K, but we do invest w/Fidelity.

    If they've got them available, for your age group and economic 'starter' investor status I'd say just go for a 'targeted retirement date' fund right now. I've got my two youngest boys invested at Fidelity in them. I think at Fidelity they are called Freedom Funds. My kiddos are in FFFFX & FFFGX.

    Then, begin reading and studying and then you can diversify your holdings as you increase your knowledge base.

    If no target funds are available I'd probably stick with some of their index funds until I was able to study more. Good luck. I'm with Fern, just set it and FORGET IT other than tweaking it as your investor knowledge increases.

  3. dardhel Says:

    Well since you are in debt still I would check to see what kind of match you company might make and just invest to take full advantage of it. I would put any extra money into an emergency fund and start paying down your debt.

    Following that, go for a ROTH IRA and then once that is being maxed start upping you 401K contributions. Alot to think about but for now just invest till you get the full company match...

  4. Broken Arrow Says:

    Hehehe, well-written post.

    What kind debt is the 15k and what's the interest rate(s)?

    In the beginning, I would shy away from individual stocks. They lack diversification, and unless you know what you're doing, is a good way to screw yourself up.

    That's where mutual funds come in. They are inherently diversified, taking some of the guess work out for you. I'm partial to the Spartan 500 index fund, if only because the costs are so low. Less cost means more money for you.

    According to Morningstar, Fidelity Leveraged Compnay Stock Fund (FLCVX) is a mid-cap blend. My mid-cap (growth) has also done extremely well last year, but I must reiterate that past performance is no guarantee of future performance.

    In fact, mid-cap alone isn't enough to be considered as well-diversified. I recommend the vast majority of your assets allocation go into large caps, small caps, and international funds.

    If all this still sounds like too much of a pain in the butt, I recommend a Fidelity Freedom Fund and call it a day. Let Fidelity worry about your asset allocation for you. Smile

    If all this sounds kind of confusing right now, don't worry. You're not the only one, and I'm still trying to figure out much of this myself. I would also take comfort in knowing that the most important step is to just actually contribute to your 401k. By the way, do you know what your percent employer contribution limit and cents to the dollar match will be yet?

    (Disclaimer: I don't have any investments with Fidelity.)

  5. merch Says:

    My 2 smartest financial decisions:

    1) bought a condo in my late 20's
    2) max my 401 (k) by 30

    I would say to start withg your goals first:

    1) you shuld contribute up to the match. If it is 3%, then you should contribute at a min 3%. (By the way, that's 100% return on your money)
    1a) As for investing, you can go one of 2 ways. The freedom funds (you just put it there and Fidelity will automatically allocate) or you manually allocate to the right funds then reallocate every 6 months to you target allocations. If you are lazy like me, freedom fund.
    2) Pay down that debt - All credit card and car payments.
    3) Save up for emergency fund and condo or multifamily down payment.
    3a) on of the smartest decisions is to stop renting and start owning. When you get a wife and kids, they need things like a house with a yard and not on a busy street. Two ways to do this: mortgage your life or have a big down payment. My downpayment on my house was about 45% because I sold the condo I lived in.

    Good Luck!!!

  6. george Says:

    Oh man, I must be really tired. I had to read the sentence in merch's post 3x on section 3a because I kept reading "mortgage your wife or have a big down payment". I need some sleep. =)

  7. terri77 Says:

    If they have a target retirement fund I would put it all in that one fund.

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