401K set up advice

[Catatonic]

If I were going to put all my money in one fund and leave it there for 20+ years it would be the S&P 500 because it has the lowest expense ratio of all the funds available at .01%.
The Bright Horizon funds have the highest expense ratios at .1%, 10X more that S&P 500.
By the time you have 500k you would be paying $500 per year in fees on the BH fund vs $50 per year on the S&P 500. Just something to think about.

Agreed and that is why I have moved much of my funds into ETFs and in particular, the High Dividend ETFs.
The management fee on my Dividend ETF is around .1%, similar to the S&P

S&P 500 has been one of best investment choices for many years. It is possible to get better return but not easily and only with a lot more effort and risk.

For my 401k, the S&P 500 (500 large cap stocks) has been and continues to be at or above 50% of my investment structure for many years (other than the UPS Stock portion). Russell 2000 ETF (mid-caps) is good as well - usually around 20% for me. Wilshire 5000 ETF (small caps) goes up and down at a greater velocity (10%) and about 10% in a International ETF fund (more of a currency hedge than a strategy).

 

[TUT]

Thanks guys! I ended up getting a Roth 401K and I did the Bright Horizon fund for 2045 when I hope to retire. I really dont understand all of this but I wanted to get a somewhat early start so hopefully that pays off in the end.

If there is no company match you did right. However I'm not a fan of Retirement Year Funds, but you are young and have years to figure it out. You should be able to get reports of what different funds you can get into and how they are doing. Check the % return of the past year, 5, 10 and lifetime. This past year was downright monstrous in a good way. You'll most likely notice several other funds outpacing Retirement Year Funds. Right now you want to be in stocks over bonds imo (One's returning 30% the other -%'s). You want to get comfortable with the website that controls your Roth, you want to learn how you can change things up as times change. Most just take the Retirement Year Funds and never look at it again, imo that leaves good dollars off the table for you.

As said by a few others, in my 401K it is mostly S&P 500 at this time. But I look at it every 3 months when the reports get emailed to me. Typically another good practice if possible is add another 1% savings each year.

 

[TUT]

Another small beni to the S&P 500 is that it is reported on through the media daily. So when they give you the NYSE and Nasdaq, S&P is usually after that, it's a way to see how well the ole 401K is doing. Other funds you'd have to research more. Also this is one they keep a good eye on as well, they'll toss out a bad performer and replace it with a good one, as if they are doing all the work for you! Hoax has a good setup, again imo.

 

[Overpaid Union Thug]

Good choice on both the Roth and the BH. 2045? Wow---that just seems to be so very far away.

I will be retiring in 2019 but choose the BH 2025 rather than the 2020. Why? BH investments tend to be aggressive at first and then become more conservative the closer you get to the target date. I chose to go with the 2025 over the 2020 as I prefer my investments to be a bit more aggressive.

Here is how I contribute and how my well it did for the calendar year. I had the REITs for the first 8 months in addition to what I have listed below but dropped it. I'm thinking about changing to the BH 2040 because I plan on retiring in 2035 and maybe 2050 is too aggressive. But maybe that's what helped my pot grow 25%? I'm just not sure.
Personal PerformanceFrom 01/01/2013 to 12/31/2013
Increase 26.15%

S&P 500 EQUITY INDEX FUNDLarge Cap Stock - Blend20%
S&P 400 MIDCAP INDEX FUNDMid Cap Stock - Blend20%
RUSSELL 2000 INDEX FUNDSmall Cap Stock - Blend20%
INTERNATIONAL INDEX FUNDInternational Stock - Blend20%
BRIGHT HORIZON 2050 FUNDOther - Lifecycle20%

 

[3838373]

BOND MARKET INDEX FUND Fixed Income - Intermediate Bond 10%
S&P 500 EQUITY INDEX FUND Large Cap Stock - Blend 30%
S&P 400 MIDCAP INDEX FUND Mid Cap Stock - Blend 20%
RUSSELL 2000 INDEX FUND Small Cap Stock - Blend 20%
INTERNATIONAL INDEX FUND International Stock - Blend 20%

 

[UpstateNYUPSer(Ret)]

Keep in mind the OP is a 22 year old kid who probably doesn't want to spend a lot of time focusing on his 401k-----this is why I suggested the BH funds which allow you to "set it and forget it".

I applaud the OP for having the foresight to start his 401k.

 

[pretender]

Keep in mind the OP is a 22 year old kid who probably doesn't want to spend a lot of time focusing on his 401k-----this is why I suggested the BH funds which allow you to "set it and forget it".

I applaud the OP for having the foresight to start his 401k.

Agree--Starting to save at a young age will have a greater impact than where he chooses to put his money.

 

[ManInBrown]

What would be the advantage of doing the Roth 401K and the regular employee pre tax? Should I do both or just pick one. If I do one, will probably opt for the Roth 401K. Projected retirement 2040.

 

[oldngray]

Roth is much better if you are younger and have more years for the tax benefits to kick in. If you are close to retirement a Roth isn't worth it.

 

[UpstateNYUPSer(Ret)]

Roth 401k's are funded with after tax dollars, which will benefit you when you retire and start taking withdrawals. It can also be used as an emergency fund as you can withdraw any after tax contribution (not earnings) at any time.

 

[ManInBrown]

Went with the Roth. I have 24 and one half years to go. Seemed like the better option. Do you guys recommend purchasing the discounted stock options?

 

[Richard Harrow]

Keep in mind the OP is a 22 year old kid who probably doesn't want to spend a lot of time focusing on his 401k-----this is why I suggested the BH funds which allow you to "set it and forget it".

I applaud the OP for having the foresight to start his 401k.

I was shocked last night during turn-in. I was discussing investing and such with another driver who is very skilled in the field, and there were two drivers with us at the time who are both in their early 40's with many years on the job who admitted to not having any 401k.

 

[UpstateNYUPSer(Ret)]

I was shocked last night during turn-in. I was discussing investing and such with another driver who is very skilled in the field, and there were two drivers with us at the time who are both in their early 40's with many years on the job who admitted to not having any 401k.

You would be floored if you knew just how many FT drivers making $70-100K have little to nothing saved for retirement.

 

[brownmonster]

Fairly solid advice so far and congratulations on getting started so early. You didn't say what percent you decided to contribute, so let me suggest that you start with at least 5% and see how big of a hit your weekly check takes. Since you are doing the Roth you will feel every dollar but when you won't be taking the tax hit later. Then increase that percentage by 1% every six months until you get to at least 15%. If you feel a pinch just decrease it awhile then slowly build it back up. I would bump mine up every time we got a raise so I didn't feel it.

The Bright Horizon is great, but I would allocate at least 30% there and do the rest in the S&P 500 and 400 Midcap funds. Generally this would be too much exposure in stocks but you have 23 years before you retire and 37.5 years before you can withdraw money from your 401k. Plus, you have a nice solid pension to draw from which is guaranteed money so, in my opinion, you can take on more risk in your 401k.

Don't sweat market downturns or get overly excited about upturns. You'll do fine over time. And don't take any loans out from your 401k even for a house!

The bright Horizon Funds are designed to be diversified. It doesn't make much sense to put 30% into it.

 

[UpstateNYUPSer(Ret)]

Note to the OP----don't ask my advice on setting up your W-4.

 

[upschuck]

You would be floored if you knew just how many FT drivers making $70-100K have little to nothing saved for retirement.

They have a pension, why do they need a 401k? Mine hit a milestone last week. performance was 27% last year. Still got 10-15 years before retirement. I'm in about 6 different funds, may consolidate a little. With SS, I'll make more retired, then I make know.

 

[Richard Harrow]

Went with the Roth. I have 24 and one half years to go. Seemed like the better option. Do you guys recommend purchasing the discounted stock options?

It's your money, but I don't recommend it. 5% is not enough of a discount as far as I'm concerned. The stock pays a healthy dividend, but unless you're buying a lot of it, it will take awhile before you see any significant gains through DRIP (dividend re-investment program).

I have an individual account for purchasing stock on ScotTrade. With 19 years to go before I am eligible to retire, I prefer to get in on the ground floor with stocks that are inexpensive with room for growth. I see it like this: UPS gives me between $80 and $90k most years, I'm not down with giving any of it back at only a 5% discount lol.

 

[UpstateNYUPSer(Ret)]

They have a pension, why do they need a 401k? Mine hit a milestone last week. performance was 27% last year. Still got 10-15 years before retirement. I'm in about 6 different funds, may consolidate a little. With SS, I'll make more retired, then I make know.

I noticed you were smart enough not to include the word guaranteed when you mentioned the pension.

My projected pension will be just over $60K/yr. If by chance our pension fund were to ever go bankrupt the PBCG would take over and my pension would be slashed by nearly 75%.

I'm glad you mentioned SS----my financial adviser and I are planning on me having my SS, which we will delay until I turn 67, directly deposited in to my investment account so that it can earn even more money

 

[Richard Harrow]

You would be floored if you knew just how many FT drivers making $70-100K have little to nothing saved for retirement.

I was definitely floored. Our local recently voted to raise our pension by $400 to $4100 per month for anyone who retires post-2013, financed by the membership in the form of an hourly deduction. There's a 30-year guy in our center who quipped "maybe I can finally afford to retire now". I didn't know whether to laugh or take pity on him. There's just no excuse for it.

 

[UpstateNYUPSer(Ret)]

I was definitely floored. Our local recently voted to raise our pension by $400 to $4100 per month for anyone who retires post-2013, financed by the membership in the form of an hourly deduction. There's a 30-year guy in our center who quipped "maybe I can finally afford to retire now". I didn't know whether to laugh or take pity on him. There's just no excuse for it.

There is no excuse for that.