I am not great with finances & I have a 401K account. Can anyone tell me if 5.0 is a good rate of return?

Question

The finance company won't advise where you should invest & I feel I should be more aggresive if I have a horrid rate of return. but 5.o might be great for all I know!?!) (I'm 35 so I thought maybe being a little more aggresive would be okay.

If anyone can make sense of what I said please help!!! THANKS!!!!!!!!!!!!!!!!!!!!

Answer 1

good ror should be greater that inflation rate or your savings rate. You should be heavily invested on stock (80% of your total portfolio). Since the market is quite volatile right now your 5.0 is acceptable.

REview your options or the funds (each fund should explain what type, industry,strategy) being offered on your 401k and try to readjust your asset allocation.

I would look into conservative stock funds that are invested in establsied company that would do well over recessionary period.

You can shift 1/2 of it to aggressive (international, midcap, s&p500) probably next year when the dust settles in main street.

For the meantime try reading your 401K brochure or try visiting their website to learn more about basic investing, it should be your best source of info...

note: will not be held liable from any loss incurred or caused by the above answer. consult your investment advisor or their website.

Answer 2

Not sure what this means. Are you talking about a Guaranteed Investment Contract or are you talking about the current returns on your funds?

Right now, everybody's funds are suffering a little because the market has taken a small downturn. However, nothing to worry about in the long-run. Don't change your plan based on what is currently happening. Also, don't judge the current return on your funds as something that will continue indefinitely.

Remember that mutual funds are designed to capture the market's overall return, depending on the sector of the market the fund invests in. There is no evidence that certain fund managers can select a superior basket of stocks that will significantly outdo that portion of the market over long periods of time. This is because there are two basic forms of market risk: isolated (non-systematic) risk which is restricted to one or a few stocks, verses systematic risk which affects all stocks. In a mutual fund you are only exposed to systematic risk, because the isolated risk of each stock has been diversified away. That is the whole point of a mutual fund. Hence, the specific stocks a fund manager picks will have little bearing on the outcome of the fund's return over the long run.

Instead of looking at past or current performance of a fund, a much better way to judge a fund is by its asset class and by its costs. Focus on asset allocation and costs, and learn to ignore current market conditions. For example, is your stock to bond ratio in allignment with your time horizon and personal risk tolerance? That is one of the most important questions each investor needs to answer.

Sounds like you could use a good beginner book on stocks, bonds, and mutual funds. The following books can help you:

1) Mutual Funds for Dummies, by Eric Tyson.
2) The Boglehead's Guide to Investing
3) My free downloadable book at http://www.invest-for-retirement.com . Chapters 19 and 23 are the most useful.

Answer 3

Hello,

Five percent is not bad, but at your age you might want to take a little more risk. Risk is something that you have to determine for your own situation. The market will always go up and always go down. The time you have to let it correct itself is called the time horizon. If you have a longer time horizon, you can "stick it out", but if you don't want to play the game of having the market go up and down, you could invest in a product that many people have turned to, an Equity Index Annuity. These EIA's are vehicles built for retirement savings. Some are paying a 15% Bonus for new account holders. Also, you must keep them until the age of 59 1/2 or will be penalized by the IRS by 10% and usually you will be penalized by the issuing insurance company for an early withdrawal.

Answer 4

for low risk and good return put 70% in large caps index fund resembling DOW, 10% in an international fund , 10% in bonds and the rest in mid size and small caps. It really depends on how long your money has been in the 401K as to is it getting a reasonable return. long term expect 7-10%

Answer 5

the Federal government is borrowing at 4.75%, so a 5% rate of return on your capital is horrid.

your target rate of return needs to be about 8 to 9 percent better than what the government is borrowing at or, unless you are very well paid indeed, you'll end up retired and broke.


Social Security is lending all its money to the Federal government at the same 4.75% -- and you already know that it is going broke.

Since you can't afford for that to happen in both your SS and your personal life, you'd better be making a fair bit more than that.

{See my post of last night on a related topic for further details including information sources.}


GL