401k question?

Question

I am looking at opening a roth ira, but also investing in my future companies 401 k plan. What I was wondering is if it is wise to invest in corporate stocks. Should I invest in my companies stock? Also, if I choose to diversify my 401k portfolio, what do you believe is the best to invest in. Mutual funds and stocks? I am looking into mutual funds because they usually carry less risk. But I was wondering if I am able to change mutual funds. For instance invest in one mutual fund that may yield 20% and then switch at any time to another mutual fund. Is this possible?

Answer 1

Roth is good to invest in.

I would never put in more than 20% in company stock - look at what happend at Enron - only investment was company stock and people lost everything. Search your company stock history and decide if past performance seems good enough to put your money into it. What are analyists saying?

I don't know your age, but the younger you are, the better it is to invest in higher-risks such as stocks as you can recoup losses over time, but mutual funds are safer. You can invest in high-risk mutual funds for better potential gains that have and can beat the S&P 500. You have to look at past history and the companies within the mutual fund to see if the stocks held agree with your strategy. Shifting from one to another MF is allowed, but check how frequently. And changing frequently does not mean you will make more. I only changed MF's once in 12 years and have only had one quarter where I lost money. The only reason I had to change was due to changing 401K investment firms. It's better to do your research upfront and stick with it for the long term.

Answer 2

It's always difficult to answer investing questions without knowing a person's total financial picture.

However, 401k's are one of the best investment vehicles because your funds go into the account pre-tax, so more of your funds go to work for you and your funds grow tax deferred, meaning you don't pay tax on the growth until you take the funds out.

The choices in your 401k will vary GREATLY depending on who your company has selected as the administrator.

As far as company stock: the first thing to think about is; is this a stock that you would purchase if you didn't work for the company.
The second thing is: make sure that if you do acquire some stock, that you have the right amount of the stock based on it's asset class and your risk tolerance as it related to your overall portfolio of investments.

Answer 3

Your 401k options will be set by the company that manages the plan..( Fidelity, ING, Prudential,etc), but almost all plans allow you to change funds as you go....
Your proposed Roth IRA, on the other hand, can be invested as you wish....Go to E-Trade or Fidelity ( via the web) and fill out an application.. send them a check... they will send you an account number and instructions how to log in, PIN, etc.... then you can move the money as you want. In the meantime...study some funds on yahoo or msn.or cnbc has a new site...
Caution; some funds have "short- term trading " fees, you have to hold them for two or three months ....so don't go being a day-trader!! When you progress to stocks, you will have a fee whenever you buy or sell...
Almost all sites allow you to keep a watch list ( Fidelity has nice ones) that allow you to compare what you actually bought to a bunch of other funds or stocks...( and you'll be saying "woulda. shoulda,coulda" like all investors!!)
Good luck.

Answer 4

With regards to your 401k, you should always contribute a certain % to it. If your company matches, you should contribute at least up to the maximum % such that the company would match you. For example, if your company matches contributions up to 10%, I would contribute 10% of my paycheck to 401k. Here's a general rule of thumb, never invest more than 20-30% of your 401k contributions to your companies stock. Even though you might feel that your company is doing and has good prospects over the next year years, you can't afford to have an Enron and lose your money. The way your 401k contributions are made is by investing it in various mutual funds. You will be provided a list of a few mutual funds, for which you select and allocate the % of your contributions that you wish you invest. This depends on your risk tolerance, your financial goals, and how you are. If you are young, you would want to take an aggressive approach, otherwise a moderate or conservative approach would work for you. I'd pick an asset allocation fund that basically invests in underlying indexes. This should give you a broad asset mix without you needing to worry about which investments to make. This fund will invest in various stocks and bonds and will have international and domestic exposure. As you contribute more and more to your 401k, you have the option to move money from one fund to another fund. You can also change the way your contributions are made. If you are contributing 10% to a certain fund, you can decide to change future contributions to another fund. With regards to stocks, I generally play stocks outside my 401k and/or retirement portfolio. Unless you are an experienced investor, I wouldn't bet my retirement portofolio on stocks. A good taxable brokerage (Scottrade, Fidelity, Etrade, etc..) can help you get started if you are interested in stocks.

Hope this helps. Best of luck!!

Answer 5

First off,

Try and work your way up in investing with your 401 k. Set a goal, say 10% of your salary, and work up to investing that much. Then, I would open up a Roth IRA. As far as investing, I believe it depends on how old your are. If you are 50, I would choose less risky options to invest your 401 k in. For me, I'm 26, so I can take a bigger risk. I've had a 15% ROI on my stock this year from overseas investments. Hope this helps.

-Chris

Answer 6

i have no idea