401k for the first time --- have some questions?

401k for the first time --- have some questions?
I've never had a 401k before and I'm now eligible for it in my job. Tehy have a 5% match, so that's what I'm going to contribute. This job is something I'm not completly happy with and will very likely be leaving withing a year. In addition, I've never had mutual funds before either and I'm worried about the market going down the next couple years as I think this recession is no where near over. Would I be better off contributing to a bond fund? 1. This gives me peace of mind in a troubled time 2. Would this be the smart bet considering the job is likely to be short term??? The potential loss in a bond fund is much less than in a stock based fund. Finally, if I pick the bond fund and decide to stay with the company --- can I change my 401k to from the bond fund to a stock based fund??? and after how long? Is their typically a fee for that ? Thanks for your help It looks like too that I can diversify within my plan. I can contribute 100% of my contribution to a single fund, 50/50 to two different fund, 33/33/33 to 3 different funds. The choices are endless. Would it be wise to put 50% in a stock fund and 50% in a balanced fund?


Answers:

src50:  Bond funds are not immune from losses, though they are generally less volatile than stock funds. Consider a diversified balanced fund instead. You can generally shift around your funds within a 401(k) plan as you desire. You need to read the plans rules for your employer's specific plan as far as any restrictions or fees.
2008-06-19 10:42:09
DJ:  Learn some basics of mutual fund investing. There are many good independent guides for doing this. Find out if your 401k investment company has an online tool, likely they do, and learn to use it. Then, discipline yourself to NOT move you money around a lot!!!! I never do this more than once a year, as in the past I was moving it around too much. Remember this key piece of info: the mutual fund managers are paid experts at managing the proper mix of stocks and investments in the fund. They know the markets a lot better than you. Let them do their jobs....almost all short term downturns are corrected over time. Put as much into this fund as possible...I always contribute the max, even if it means doing without today. Your retirement is no one's responsibility but yours....do not count on anyone to take care of your future but you! At the very least, get the full company match. My company match right now is at 10% and I'm maxed out at 13. Also, do not be overly concerned with changing jobs. I work in technology, where company buyouts are almost an annual event, or I'm workinjg as a contractor or consultant (read: unemployed) in between jobs. I've had seven 401ks in the past decade. When I leave, I just roll it up into a 'master' investment account that you establish (mine's at ING), which is now at over $250k. While this economy has taken a beating, it's not a recession, not even close. Fund managers have adjusted and some are producing some nice benefits. Also, on bonds. If you get 4%....and inflation is at 6%...your money is LOSING 2%.....do you really want that? If you are younger than 50, get in the best return funds you can, do not be too conservative.
2008-06-19 11:23:12
Chosen Answer
MVD34:  If you expect to leave within 3 years, here is a simple option: Find the money market fund (sometimes called stable value or cash or income fund). They are NOT a bond fund. They frequently have a very low interest rate (2%-3% these days) and often have a stable price (like $1 per share). The first link below is the Vanguard Money Market Fund (called PRIME) which is one of the best in existence for you to compare the funds in your plan to. Put all of your contributions and match money in this option. (This assures you will not loose money while you wait to leave). When you leave, the plan will send you separation documents. Contact Vanguard.com with the information and arrange for a direct transfer of all funds to a Vanguard Rolloever IRA. Invest all of this money in the Vanguard Target Retirement fund for the year closest to the year you will turn 68. (second link)
2008-06-19 11:30:03