What exactly is the "rate of return" when it comes to 401k's ?

Question

I'm new to this whole 401k and investing "thing". Any info would be appreciated.

Answer 1

Determining how much you made relative to how much you put in. This is difficult to do for a 401k since you probably have bi-weekly contributions.

The best you could hope for would be to have a spreadsheet that tracks each month what your starting balance was, how much was added that month, and the ending balance. This wouldn't be exact, but it would let you approximate how much money your portfolio made over that month.

(ending balance -start balance) - new money invested = amount made

amount made/start balance = rate of return

You could do this for each year instead of each month, but the approximation would be worse. What you are not accounting for with this method is that a mid-month contribution will be invested for half a month - this is not accounted for.

Hope this helps!

Answer 2

It depends, since 401Ks is the "folder" and not the stocks and bonds it contains. Backtracking is also not a good way to judge a fund. What you are looking at forward looking projections. The guess right now is future growth on the large indexes will be 6-7% over the long haul. Historically, the market moves in short bursts over long periods where it doesn't do much. So you might wait a decade or two where it's flat and then, boom, the market increases two or three fold in two years.

Answer 3

Rate of return is simply profit relative to your original investment.

If you start with $100, and increase that to $110, you have experienced a 10% rate of return.