Friday, January 05, 2007

We Have 401(k) Liftoff!

Today I set myself on track to achieve one of my financial goals for 2007: earning the full employer match in my 401(k). I enrolled in the company plan to have 7% of my paycheck deducted, and my first deduction should come out of next Thursday's paycheck.

My fund purchases were, I'll admit, kind of random. The Fidelity Freedom 2045, which would be my preferred target fund, hasn't been added to my company's portfolio yet, and given that that was what I'd planned to select, I didn't really know what to do. I ended up putting 50% in Fidelity Freedom 2035 (the longest-range target fund available for the moment), 25% in a total market index fund, and 25% in an aggressive growth fund. The plan manager regaled me with a story of losing "lots of money" in an aggressive growth allocation--"but it's your choice." She also told me that Fidelity Freedom 2045 should be added within the month, so I can just redo the allocation as soon as it is. Perhaps I should consider learning about asset allocation? I'll add it to the list.


Anonymous said...

You might find that it makes more sense to go directly into funds rather than choose the target fund. I plan on writing about this in my blog soon. But after doing some research, all the target funds do is charge you a big fee (like 1%) for managing the allocation across multiple funds. Provided you have a strong sense of what to pick (which I think you can learn and develop) you could save yourself a pretty penny by investing in the actual mutual funds directly.

English Major said...

Thanks for your comment, easychange--I look forward to hearing what you have to say about asset allocation. I agree that ideally I'd do my own allocations, but until I have that "strong sense," I'll let someone else do it for me, I think. Better a fee than a loss, you know? Anyway, hopefully I can gain a sense of how I should be balancing my portfolio through some thorough reading, and I'll be sure to check out your blog and watch for that post.

Anonymous said...

congrats! I start work in July... and I have to admit I'm looking forward to setting up my 401(k).

I've read that a 40% S&P 500 index, 20% small cap index, 20% international index and 10% bonds is a good, aggressive mix for young people. Or I guess you can nix the bonds entirely if you're daring like that :)

If your 401(k) offers good index funds, that might be one allocation you can keep in mind.

JLP said...

Tell your plan manager that volatility is actually a good thing when you are dollar-cost averaging.

I agree with easy change in that you should dump the Target funds. They use bonds in those funds and I simply don't see an advantage for a younger person to be invested in bonds.

What are your plan's investment options?



English Major said...

JLP, I have to say, I'm kind of honored to get a comment from you. Excluding bonds and money market funds, my plan offers the following funds: Fidelity Equity-Income Fund (large value), Fidelity Value Fund (mid value), Spartan U.S. Equity Index Fund & Spartan Total Market Index Fund (both large blend), Fidelity Small Cap Stock Fund (small blend), Fidelity Aggressive Growth Fund (mid growth), and Fidelity Diversified International Fund.

I'd be happy (thrilled, even) to dump the target fund if I can get a solid handle on doing my own asset allocations. I'll be doing some research over the next couple of weeks, but, as is always the case with me, any help is appreciated!

Anonymous said...

Every journey begins with a single step. Congratulations on beginning your journey to a hopefully prosperous retirement.