Quick! I need help opening my first 401k and I can pick my own funds!
July 1, 2014 7:47 AM   Subscribe

The small company I work for doesn’t offer a plan for 401k. Basically you go open a 401k plan wherever you like and fund it with whatever you like.

The small company I work for doesn’t offer a plan for 401k. Basically you go open a 401k plan wherever you like and fund it with whatever you like.
I would like to go with Vanguard if possible, but I am open to other suggestions. I have no idea what I am doing and I have to have the paperwork turned in very, very soon. I am currently 25 and I make about $28,000 a year. I am looking to put 6% in to my 401k. There is an employer match program if you put at least 4% in but it is unlikely I will be around long enough to be vested.

Advice please oh lovely mefites?
posted by Driven to Work & Money (7 answers total) 3 users marked this as a favorite
I think Vanguard is an excellent choice for you--they have what are called "Safe Harbors" where you can put your money until you (or an adviser you trust) makes a recommendation for a more active Vanguard fund. Vanguard (very low fees/charges if at all) will serve you well and there is hardly an investment fund they do not offer as you change your plans and grow older/more confident.. Good Luck and good for you thinking ahead
posted by rmhsinc at 8:02 AM on July 1, 2014 [3 favorites]

2nding Vanguard. You should confirm this with them, but once you have your money in the 401k account it's generally pretty easy to move it from one type of investment to another.

One place to start is with two funds: a broad stock market index and a broad bond index; Vanguard offers both. The rule of thumb is that the % of your money you put into stocks = 110 minus your age, so for you the split would be 85% stock, 15% bonds. You can get fancy later.
posted by mr vino at 8:25 AM on July 1, 2014

N-thing Vanguard funds. They have done quite well for me in the past.

If YOU are funding your retirement account (and it is not directly taken out via payroll deductions), then it is NOT a 401(k), but an IRA (Individual Retirement Account). Same idea, except that you can't take loans against an IRA whereas you can take loans from a 401(k).

If you can afford to put away 6%, do it.

Take advantage of the company match, even if you don't think you'll be there long enough to be vested. Otherwise, you're potentially throwing away free money. (The phrase "company match" leads me to believe this is, in fact, a bona fide 401(k) plan funded through payroll deductions.)

Consult a financial advisor, preferably a CFP (Certified Financial Planner). Ask family members and co-workers who they trust -- it's not unusual that financial planners work for their own best interests, not yours.

If you don't know what you're doing, look for a managed plan. For example, I have an IRA with Morgan Stanley where there is a team of people who research the market for me and make buy and sell decisions on my behalf. I forget what the name of the type of account is called... I THINK it is called FundSolution? When I set up the account, I picked a level of risk I was comfortable with, and gave them my age at the time and my target retirement age. So far I've been very happy with it -- even when the market was terrible, and my 401(k) went down in value, I still had gains in my IRA.

If your account is, in fact, a 401(k), and you leave the company for another employer, you can either "rollover" that money into your new employer's 401(k) plan (if they have one), or roll it over into an IRA.
posted by tckma at 8:28 AM on July 1, 2014

I have funds in Vanguard and Fidelity, both are excellent.

If you want a quick recommendation, that's steady, and easy, Vanguard Target Funds are a great first option, and you can always reallocate later on. Basically, you decide on the year closest to your retirement year 2045 for example. The fund starts off with more aggressive investments/equities, and re-callibrates to less aggressive investments as you edge closer to the target date.

I'm in Standard and Poors Index funds, but that's me. They're a bit aggressive, and don't automatically re-allocate as I get older. But I live on the edge.

Hope that helps.
posted by Ruthless Bunny at 8:50 AM on July 1, 2014 [2 favorites]

I 2nd that Vanguard and Fidelity are both good because they both offer very low fee index funds. Go for something with high diversity like total stock market index. Low fee and high diversity are the two most important things, and since you are young, you can be aggressive by taking a little risk of volatility by going heavy on stocks. That's why I suggest something like total stock market index fund.

But make sure your 401K plan really lets you invest in something like that without any extra fees such as sales commissions, loads, etc. Sometimes in a 401K plan the only way to avoid those things is to have a "self-directed brokerage account" (SDBA). If that's what your company is offering then that's great. Everyone should try to have an SDBA because typical 401K funds have excessive fees that cause participants to lose out on a ton of money over the course of their investing lifetime that they would otherwise keep.

Starting to invest while you are young has great benefits because you have lots of time for your investments to grow, and as long as you keep fees low (0.10% expense ratio or lower), investments aggressive, and diversity (among companies and industries) high, you should do well over the long term (don't worry about what happens in the market today, this week, this month, or this year...just invest it and don't try to outsmart the market or make predictions about the future).
posted by Dansaman at 10:22 AM on July 1, 2014

If you're new to this and worried about making the wrong choice due to being uninformed, I can't recommend Vanguard's Target Date funds enough. All you need to do is decide your decade of retirement and how much you want to invest; they see to it that your funds are allocated appropriately.

The Target Date funds are actually a pre-packaged group of lots of different investments. There are some that fluctuate wildly from day-to-day but have a higher average payback, and there are some that are more stable day-to-day but have a lower average payback. As you get older, the Vanguard Target Date funds automatically adjust appropriately for your estimated retirement date.

It's all based on the idea that your investment choices should be more conservative as you get older. Since you're not going to be withdrawing this money for 40+ years, right now you can put more of it in the volatile stocks while maintaining a smaller amount in the more stable funds.
posted by samthemander at 12:30 PM on July 1, 2014

Piling on for Vanguard. I've got my IRA there, spread across US stocks, World stocks, REIT, bonds, and short term accounts. I'm a little conservative for my age according to everybody, but I'm fine with that. I check my balances 3 or 4 times a year, and re-balance the percentages once a year. Retirement planning in 20 minutes a year.
posted by COD at 5:40 PM on July 1, 2014

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