This is just peachy

[Dinner]

In an oh so happy confluence of events I received both my yearly IRA statement and my Social Security benefits statement on the same day that I was tearing out my hair trying to figure out how my 401k worked. Ah, yes. The joys of retirement planning. Imagine my relief to learn that my IRA’s current year to date return was only –1.08%; why that means my average annual return is only –29% instead of the –32.5% average from last year. Not to be to worried, after all, I still have social security right? Why yes in deed; and according to our good friends at Social Security if I were to be disabled today then they would give me a whopping $514 per month. Looks like it will be dog food for my dinner.

[Jaguar]

Has anyone ever said "this is just peachy" in a non-sarcastic way?

[Arrian]

I didn't even open my last 401(k) statement.

-Arrian

[Cruddy]

You lucky sod. Dog food? I dream of beans on toast when I'm munching away on gravel.

[FrustratedPoet]

What does IRA mean?
Besides "Irish Republican Army", of course.

[Japher]

Individual Retirement Account

[Dinner]

Individual retirement account. It's a government scheme where you are able to place pre-tax income into a long term retirement account without having to pay any taxes on them as long as you agree not to touch the money until retirement.

I also have a 401k which is a similiar type of arrangement except your employer is responsible for putting some matching contributions in as well. Unfortunately, 401ks have become much more common then the old pension system.

[Japher]

Individual retirement account. It's a government scheme where you are able to place pre-tax income into a long term retirement account without having to pay any taxes on them as long as you agree not to touch the money until retirement

As long as you retire after your 59.5, also there is the Roth IRA that uses post-tax dollars, but you are not taxed on gains of that money, as long as you don't touch until your 59.5 y.o.

Also, IRA's have yearly contribution caps that are much lower than your 401k contributions...

I have a Roth and a 401k and a brokrage account, and a pension... I spend to much on investments

Sorry about your loss, what are you investing in on your IRA? Why don't you trade it? Really, the best thing to invest in with retirement accounts are indexes... Unfortunatly, my IRA has changed at all, but I guess that is better than going down...

Also, I wouldn't be counting the money in your Social Security account, it ain't going to amount to a hill of beans and you will never see a penny of it anyway..

[Dinner]

Three years ago I began investing in the Janus Mercury Fund which then was flying high and the managers were all getting written up as being the best thing since sliced bread. The problem is the tech bubble burst right after I invested and the much vaunted managers all jumped ship rather then have their perfect records tarnished by record losses. They read the tea leaves and left before the losses were made public. I retrospect I should have gotten out at the same time the management switched over but I told myself I was in it for the long haul and if I just wait it out everything will turn out fine. After all the fund was an aggressive growth fund which I wouldn’t be needing for 35-40 years so I just had to ignore the volitility and let the law of averages work over the next several decades. So far I’m still waiting.

At least with my 401k I’m much better diversified. With my Roth I followed the thinking of the longer the investment term then the higher the risk you should be willing to tolerate. Admitablely, my loss have been less then $10k but it still sucks to see money you’ve sweated get decimated. I should have just take $100 bills and rolled them into joints. I mean at least then I’d have a story to tell about how I lost my money.

[Arrian]

I have my 401(k) primarily in stocks (medium to high risk) and since I'm in this for the long haul (I'm 26), I'm not overly concerned by the current downturn.

My Roth IRA is medium - low risk stuff. Less risk, less return.

-Arrian

[Japher]

told myself I was in it for the long haul and if I just wait it out everything will turn out fine

One thing I see people write in books over and over is to not change your stratagey for investing. You told yourself that your in it for the long haul. Stay in it for the long haul, just start diversify your IRA and you should be fine. Who knows, after 10 years that same fund may be up 70% from when you bought it, and that wouldn't be bad, a 7% gain over 10 years... beats the S&P... Stick out.

[Dinner]

How do you decide when to cull an under performing fund? Also I'm trying to decide how much of my pay check to have auto deducted for my 401k. Any suggestions? My father says I should stuff in as much as I can possibly afford after my credit card is paid off.

[Harry Seldon]

Doesn't contributions to your 401k affect how much you can contribute to your Roth? I had thought about starting a small Roth account but I thought there were restrictions.

I'm 26, too. Fifty percent of my 401k is invested in the Vanguard 500 index. High risk is nice but I had a friend that lost everything by going high risk. He's mid-thirties now and starting over.

As for autodeducting, put in at least as much as you can get matched by your employer and ideally as much as you can and survive. It's cut before you actualy get ahold of it so it's like you never really had it in the first place. I deposit a large chunk of my check in my savings account, put my employer-matched 5% into 401k, and keep the rest for bills.

[Japher]

How do you decide when to cull an under performing fund?

That is something you have to decide before you make the investment... "I am going to hold this investment until it bottoms out/drops below value X/goes above value Y". That way you are in more control of your risk factors. You said that you would hold it for the long haul, what did you mean by that? How long is the long haul? I'd say hold it until it disappears, that way if does go up again you aren't kicking yourself for selling it.

Basically, make that decision before you invest. However, since you may not of known that, I will give you permission to, this one time, decide for yourself if you want to keep it or not... Maybe set a time limit on it, as well as a specified amount. You just have to have discipline... I would still keep it, or at least some of it, and invest in other things with my new money.

Also I'm trying to decide how much of my pay check to have auto deducted for my 401k. Any suggestions? My father says I should stuff in as much as I can possibly afford after my credit card is paid off.

The secret to life is compounded interest. The more you can put away now, the less you will have to later to reach your financial goals. Your dad gives good advice.

How much can you afford? Can you max it out at $11,000/year? Can you max out your IRA? How much longer will you be making less than 95k/year and still qualify for the IRA?

I try to max out my 401k to the level where my company still matches. I then max out my IRA. Once this happens I adjust my 401k contributions to as high as I possibly can while still maintaining the quality of life I enjoy.

This is because you only get rights to the IRA as long you earn less than 95k/year, and I plan on making more than that someday. Also, I like to invest in my brokrage account for things I will need before retirement, i.e. house, vacations, etc...

Every pay raise I get I adjust my 401k to match, and keep my life style the same. Any bonus I use to fund either my IRA or brokrage, and maybe buy something fun for myself (like a trip).

I have friends who have been maxing out their 401k from the beginning. Meaning they have been investing 11k/year in it. Yet, if they want it before they retire they will take a big hit on it. I want vacations, I want to buy a house, and I want to invest in what I want to invest in, not what my companies plan is telling me. So, I take the free money, and deal with the rest of it myself.

[Dinner]

I just turned 27 three weeks ago so it looks like we're all in the same age group. My employer will match 5% of gross income so I'm for sure going to grab the free money. The main question is how high to go after that. Both my father and my aunt have told me now is the time to push it as high as possible since I have no real bills and this money will be compounding for the longest possible time.

P.S. I believe your IRA contributions and your 401k contributions are totally unrelated. I believe for people our age IRA contributions are capped at $3k per year (but supposedly going up to $5k soon) while your 401k is capped only by how much your employer will let you put in it.