401K's a sinking ship? Options Anyone?

[Travelover]

My background is engineering and people come to me and expect precision...

I'm an engineer too, but you must realize that markets are driven by psychology, not rational thought

I find it interesting that the entire 401k industry seems to be built on faith and each presentation starts and ends by saying there are no guarantees... and then they bring out all the charts and graphs and proceed to tell us what we should be doing.

You need to determine your own asset allocation strategy - % Stock / % Bonds and follow it faithfully. You should have roughly your age in bonds as a percentage. There are some great books out there to help you. I like the Bogleheads Guide to Investment

I double checked my company 401k investment options...

The fund fees range from a low of 1.75% for the PIMCO Bond Fund to 2.16% Fidelity Mid Cap Fund...

These charges are excessive, but you may be stuck now

More questions...

Is there any reason to continue with the company plan now that my employer match is gone? They previously matched .25 for each dollar I put in up to 3% of my wages.

No. I'd max out my Roth options before I put another dime in the 401(k)

Wouldn't I be better with an IRA or something through Schwab? Plan fees would be significantly less and investment options greatly increased.

Yes, also look at Vanguard and Fidelity. The Target Retirement Funds are excellent for a novice investor as they automatically allocate stocks and bonds per your planned retirement date.

Turns out my plan has a secret Stable Value 3% Money Market Option that is NOT listed anywhere in print... it is only available if requested... seems Unethical at the least and Fraudulent at the worst to with hold this knowledge?

You may want to put money there in the future, but I wouldn't trade my stocks in for cash now. Remember inflation is the other edge of the sword and it is typically 3%, so a guaranteed 3% will put you behind other investments in the future.

 

[ultrarunner]

I try to read the Wall Street Journal during the week...

It was a surprise that some very large companies are curtailing 401K's... Sears, Motorola, AMD and Starbucks, among others, announced suspension of employer contributions. Other print stories question whether the day of company sponsored 401(k) is over.

It also concerns me that Treasury nominee Timothy Geithner evaded paying income tax for years on a portion of his salary and that no one seems to care? Hardly inspires confidence.

Less 401k money going into equities certainly has to have a downward effect.

I'm in uncharted waters... just trying to apply a little common sense to things I can do little about that effect me.

The account advisor compared the present market to Real Estate by saying everything is down... which I found interesting, since I own some income property that I built or renovated... I bought based on income and not speculation. A property's value is secondary to the income it produces... she didn't say anymore.

PS Scott, I remember what you went though with the plant closing... I learned a lot from reading your posts.

PPS... I guess one thing I did right was buy US Gold Coins to give to my young Nieces and Nephew... I just couldn't see myself buying more made in China Plastic for the kids birthdays and Christmas... and you know what... the kids really enjoy them and they remember they are from me.

 

[McCaskey]

I don't understand how the Bank CD I opened in November can yield 4.75% and my closest 401K money option yielded 1.2% at that time.

Be wary of banks with CD rates that are higher than average. Its a good indication they might be in trouble. They offer CD rates that are above average just to get new deposits to forestall bankruptcy. CD rates are a warning sign to the FDIC.

 

[kenmac]

In my case shrinking is an understatment ! I have been on the phone with my adviser several times & he tells me that there is a hugh sale going on now & to buy all I can afford to buy. I guess he is the expert in this field ( if there is 1) I'll have to admit, the loss is hard to take ! I'am still in

 

[IH3444]

Ultra, becareful, you may be entering what is called a "beartrap". Where panic and fear settle in, you sell low, the market recovers abit and you have missed out on that, and lose your investment. The strength you have now in in the number of shares you own. When the market begins to recover, the upward swings at first my be as steep as some of the drops we have already experienced. This is historical, and mostly all 401's are beatened down. If you have a 5-15, maybe 20 year to retirement, then you should do fine. I do know of two people who cashed out at the high, and they both now don't know when to jump back in. They now have the when do I reinvest scares... Tho both are better off than most now.

 

[jones6780]

I am a federal employee with a 401k style savings plan. We have the option to move money between different risk levels. Stocks are for long term growth. The longer you have to retirement the higher risk options are better. The closer you are to retirement the more you should move to safer, lower risk funds as you have less time to recoup and loss.

Russell

 

[ultrarunner]

Be wary of banks with CD rates that are higher than average. Its a good indication they might be in trouble. They offer CD rates that are above average just to get new deposits to forestall bankruptcy. CD rates are a warning sign to the FDIC.

I thought about that... but, isn't the playing field level when it comes to FDIC insurance? In fact they raised the coverage to 250k for 2009... not that I have that kind of money sitting around anyway.

I remember back in the 80's?? when Bank of America was about to go under and my Grandmother cashed in her CD (at maturity)

The smart money guys I know were opening up B of A high rate CD's left and right by using different combinations of family members... they all did very well and it was insured.

One of these same Smart Money Guys, a retired CPA/Controller now in his late 70's, sold all his equities and went to CD's last summer... I talked to him today and he said he hasn't had any trouble sleeping... his philosophy is investing for dividends and he said the market no longer made sense to him.

IH3444... Good Point about the Bear Trap... I also know folks that bought tech at the height of the market in the 90's and bailed when the funds tanked... loosing 40% in a short time.

 

[SnowRidge]

The smart money guys I know were opening up B of A high rate CD's left and right by using different combinations of family members... they all did very well and it was insured.

Your account, your wife's account, and your joint account are separate entities, and each gets the maximum insurance, which is currently $250K. However, last I heard, that is a temporary ceiling, which will drop back down to $100k shortly. Someone correct me if I am wrong.

 

[mjarrels]

Best place to put your money now is under the mattress... I opened a money market account about two years ago paying 3% ($40,000 deposit)... Feds cut interest rates, now I get 2.5%, Feds cut interest rates again, I get 2%, Feds cut interest rates again and I get 1.5%... Feds cut interest rates a few more times and I pay $10.00 a month to maintain this account! I still think that most bank baleout money is going to Swiss and other offshore bank accounts!

mark

 

[escavader]

Heck,i aint pulling out .Stocks are selling cheap right now .Even thoughthe ones i already got arent worth much,they will recover...might take a year or two.The people on wallstreet are too greedy for them not to go back up.And ill be sitting on all these i bought dirt cheap.Thinking of having MORE deducted from my pay
ALAN