# 401k Investment options?



## Artfuldodger (Apr 2, 2017)

My daughter is starting a 401k fund at Delta that is managed by Fidelity. The more I read the more confused I get. I was reading that a Life Cycle plan was not a good investment vs picking individual funds. One reason being they cost .06% to operate. That being said for someone who knows little about investing in individual funds it might be worth the high maintenance.

Then I thought to not have her put it all in the Life Cycle fund. Maybe some in an S&P 500 fund. Then I read that the S&P 500 fund was not good investment. 

Maybe she could put some in another index fund or maybe some other "managed" funds.

I'm not asking for a look into the Crystal Ball, just general guidelines on investing. 

She could always put it in the Life Cycle fund and diversify later when she learns more about it.


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## Milkman (Apr 2, 2017)

I assume Fidelity calls lifecycle what others call target date fund.  I wish they had this back when I was foolish and put money in individual funds. I was never good at it. 

I have my IRA and two employer funds in target date funds. To me it is just "set and forget". 

Like you said she can learn later.


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## Artfuldodger (Apr 2, 2017)

Milkman said:


> I assume Fidelity calls lifecycle what others call target date fund.  I wish they had this back when I was foolish and put money in individual funds. I was never good at it.
> 
> I have my IRA and two employer funds in target date funds. To me it is just "set and forget".
> 
> Like you said she can learn later.



Yeah, it's what they call target date funds, thanks.


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## shdw633 (Apr 2, 2017)

My Fidelity has that option that you can get professional assistance with your account and they will help set it up and monitor it for a percentage of the increases they obtain.  I would recommend something like that to get the account going, once she's comfortable with the process then she take the reins of her account or like Milkman said she can do the target date fund which is a set it and forget it fund; however, I feel your limiting your money's potential, especially in todays market and especially if she's young.  It can be worth the percentage to have someone taking charge of your account and getting the most out of it.  Remember, they're not making money if she's not making money.


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## centerpin fan (Apr 2, 2017)

Artfuldodger said:


> Yeah, it's what they call target date funds, thanks.



If your daughter is not that interested in investing, a target date fund is not a bad option, particularly in the short term.  (Most company 401k plans allow you to change your investment mix at least quarterly.)

I like index funds because they are cheap.  Deciding on an asset mix with them, however, requires a little more thought.  The target date fund does that for her.


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## Artfuldodger (Apr 2, 2017)

Good advice guys, thanks for the input.


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## KyDawg (Apr 2, 2017)

I like index funds and diversity. Fees are not necessarily a bad thing, if the fund is performing.


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## calibob1 (Apr 2, 2017)

.06% is nothing to pay .


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## Jack Ryan (Apr 3, 2017)

Fidelity managed our 401K while I was working as well. Best move I ever made.

http://www.kiplinger.com/slideshow/...fidelity-index-funds-for-the-money/index.html


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## jimbo4116 (Apr 3, 2017)

She can ladder the Targeted funds.  The longer the target date generally the more aggressive the fund.  She can put money in 10 year, 20 year, 30 year, etc.  Then re-allocate or not as the target date is reached on each.

Set and forget it is a good thing to a point.  Trying to pick funds is just like picking stocks.  You need to do a lot of research and understand the risk.


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## Canuck5 (Apr 3, 2017)

I wished somebody would've told me, 35 years ago, put your money in an S&P 500 Index Fund and forget about it.  A no brainer.

http://www.fool.com/mutualfunds/indexfunds/indexfunds01.htm 

40% of an S&P 500 funds money is made overseas, so you really don't have to invest Internationally.

When Warren Buffet passes, it is directed that his wife's estate gets put 90% in a low cost S&P 500 fund and the balance in cash for her to live off of.

Just my humble opinion after making a couple (well, more than a couple) investing mistakes.

At minimum, she needs to put enough money in, monthly, to get the Delta match.


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## Canuck5 (Apr 3, 2017)

When she turns 50, she may decide to change her exposure to some more fixed income.


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## Artfuldodger (Apr 3, 2017)

I didn't think about laddering the lifestyle funds.


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## steeleagle (Apr 3, 2017)

A few thoughts/Questions:

Copy and paste fund options here......and we can better comment
1. How much is the company match?
2. How much money will she be making (Depending on 401k and other pre-tax witholdings, may be able to back into saver's credit)
3. HDHP health plan with HSA contribution could be HUGE here (See above)
4. ROTH IRA?


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## Elkbane (Apr 3, 2017)

If you decide to "ladder" the funds, do some research. 

From my recollection, the Fidelity 20-35 year funds have the same allocation percentages - in other words, they all have the same risk/return characteristics.  Allocations start changing below the 15 year intended hold term.

If you laddered 20,25 and 30 year hold fund split equally, it would be exactly the same thing as having all 20, all 25 or all 30.  Just saying, need to check before you act.....

Personally, I don't think laddering target date funds is a sound concept.

The target date fund concept itself is sound, for someone who doesn't have the knowledge to set an allocation strategy commensurate with their risk tolerance and the ability get disciplined about rebalancing, but it comes at the cost of higher fees.

Elkbane


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## livetohunt (Apr 3, 2017)

The S&P fund or target fund would be a good choice, but the most important thing is that she put in the max amount possible every year. She can also open a brokerage account under the Delta plan and invest in almost anything she wants(especially helpful is someone manages it for her). In addition, she can also transfer her profit sharing check into 401k through Delta every year.


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## jimbo4116 (Apr 3, 2017)

Elkbane said:


> If you decide to "ladder" the funds, do some research.
> 
> From my recollection, the Fidelity 20-35 year funds have the same allocation percentages - in other words, they all have the same risk/return characteristics.  Allocations start changing below the 15 year intended hold term.
> 
> ...



You wouldn't ladder them in equal parts. You would parce them out as to risk.   No different than you would do in any group of investments. It would be no different that having  20% in individual equities, 40% in S&P index and 40% in bonds.  Just a risk management tool with professional management toward the end goal.

It would make it simple to recognize the risk with in each fund and the % each fund would represent in the 401K balance.

Something else to consider.  Many times we hear that risk should decrease as we age.  That you should move from equities to bonds/fixed return assets, etc.  Consider that people are living into their late 80s and even 90s.  Moving away from potential higher returns all together once a one turns 65 makes less and less sense also.  With Interest rates on saving likely to be quite low for awhile yet it is something to consider.

I would suggest that the OP's daughter have a sit down with a professional planner and discuss her future and options available to maximize her 401K and other retirement opportunities.


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## Artfuldodger (Apr 3, 2017)

Delta will contribute 3% of her pay into the 401k even if she doesn't contribute.

Here is the list of funds;


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## centerpin fan (Apr 3, 2017)

If it were me, I'd put together a portfolio of the index funds.  If she wants some further education, I suggest this:

https://www.amazon.com/Smartest-Boo...1491266925&sr=8-5&keywords=daniel+solin+books

Otherwise, just pick a life cycle fund.


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## steeleagle (Apr 4, 2017)

Artfuldodger said:


> Delta will contribute 3% of her pay into the 401k even if she doesn't contribute.
> 
> Here is the list of funds;



Without seeing all the fees and expense ratios, I'd do something like this (Index only AND ASSUMING she is just starting her career ~22-25 years of age):

500 Index - 45%
Bonds 10%
Small Cap/Midcap Index - 20%
Developed Markets Index - 18%
Emerging Markets Index - 7%


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## Elkbane (Apr 4, 2017)

Hey Jimbo, I hope you didn't think my comment was directed at you - it wasn't - it was intended to make sure the OP or his daughter did some research before they made a decision.

Re' Fidelity's target date funds, which they call Freedom Funds - they have a fund set up for every year at which an individual seeks to retire. For instance FF 2032 corresponds to 15 years to retirement while FF 3047 corresponds to 30 years to retirement.

My point was that in their fund structures FF 2033 through FF 2047, corresponding to 16-30 years to retirement, they have the EXACT SAME ASSET ALLOCATION, which is:
   63% Domestic Equities
   27% International Equities
   10% Bonds
     0% short term investments.

Laddering ANY of these funds would have nill effect on risk mitigation; you could take any  3 or 5 of them and ladder them in any percentage you want and you would have the EXACT same mathematical result as just owning ONE of them.

The asset allocation doesn't start changing unless you get inside FF 2032, which is the "retire in 15 years" fund.
https://www.fidelity.com/mutual-funds/fidelity-fund-portfolios/freedom-funds

Again, my point was to get informed before you act.
Elkbane


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## jimbo4116 (Apr 4, 2017)

Elkbane said:


> Hey Jimbo, I hope you didn't think my comment was directed at you - it wasn't - it was intended to make sure the OP or his daughter did some research before they made a decision.
> 
> Re' Fidelity's target date funds, which they call Freedom Funds - they have a fund set up for every year at which an individual seeks to retire. For instance FF 2032 corresponds to 15 years to retirement while FF 3047 corresponds to 30 years to retirement.
> 
> ...



I have owned Fidelity Freedom funds.  Not entirely satisfied with them.

Your are looking at the 30 year target.  You can buy the 2015 and 2020 products to limit risk or exposure to equities.  I assume you went to the website to see the allocations. Does not mean they have the same investments just same allocations. 

You are correct in that she should do her research.  I think a few dollars spent with a good financial planner would go a long ways toward understanding what she can do to maximize returns.

We could discuss it all day but this is the wrong forum.


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## BeerThirty (Apr 4, 2017)

Make it easy on yourself and just invest in the target date fund.  There's a reason these exist, and it takes most if not all of the guess work out of the equation.  My 401k is with Fidelity as well and I'm 100% invested in these target dates funds, and have been very satisfied with the results.

If you're not a seasoned investor, you'll go crazy trying to figure out the right options.  You will find that these target date funds are very similar to what a lot of the folks on here already suggested, in terms of fund allocation, and all you'll have to make is one choice instead of 5 or 6..


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## Artfuldodger (Apr 4, 2017)

I do understand that I'd be hit with a lot of variables and opinions.
This is the type of info. I was looking for. I do realize it will take some research and planning. We now have some good info. to start with in our quest. I can start looking at these variables although past performance is no guarantee of future results.

What about investing in Gold? Just kidding, I listen to Dave Ramsey.


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## Milkman (Apr 4, 2017)

jimbo4116 said:


> I think a few dollars spent with a good financial planner would go a long ways toward understanding what she can do to maximize returns.




My financial advisor approves of my having my IRA and both employer plans in target date funds.   

BUT I was in my late 50s when I moved it to those funds.

I have an aquaintance who is a retired CPA. He has his $$  in target date 2020 with American Funds.


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## Jack Ryan (Apr 4, 2017)

Artfuldodger said:


> Delta will contribute 3% of her pay into the 401k even if she doesn't contribute.
> 
> Here is the list of funds;


S&P 500 Index fund. 100%. From that list.

Direct each weeks contribution go directly in to the fund and she'll be averaged in over her working life.

The SP 500 is to mutual funds what Remington is to shotguns. The yard stick all others are measured by. The one they all CLAIM they can beat yet half or more NEVER do, let alone beat or MATCH EVERY SINGLE YEAR FOR A LIFE TIME.

100%


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## Artfuldodger (Apr 4, 2017)

The targeted funds are called Lifecycle funds. I think they used to be called Fidelity Freedom funds. I does look like the laddering idea wouldn't do much as they don't vary much between like the 2035 and 2040.
Perhaps if the laddering is more spread out like 2020, 2030, and 2050.

I'll post the makeup chart of these funds tomorrow if I get time.


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## Canuck5 (Apr 5, 2017)

Jack Ryan said:


> S&P 500 Index fund. 100%. From that list.
> 
> Direct each weeks contribution go directly in to the fund and she'll be averaged in over a her working life.
> 
> ...




^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Lifecycle/target date/freedom funds will incorporate a mix of fixed income in to her investments.  Fixed income (bonds, cd's, etc) give you a chance of getting a return "of" your investment.  An S&P 500 fund, or any stock fund (holding it long enough) will give you a return "on" your investment.

I'm 60 years old and I have about 50% of my investments making sure I get a return "of" my investments.  If your daughter is in her 30's, she should be trying to get a return "on" her investments.

I started investing in 1987 (big crash that year and I lost 50%) when the S&P 500 was in the low 200's.  Yesterday it closed at 2358.  A major increase.

Investing in bonds and cd's today, you'll be lucky to get 3%, but you will (and should) get your money back.  Not the right investment for a young person IMHO.

All the funds in that list have a 1, 3, 5, 10 year and Max performance chart.  Check them out and only really consider the numbers in the 5, 10 and max columns.

Here is a list of the companies in the S&P 500 https://en.wikipedia.org/wiki/List_of_S&P_500_companies , probably many of those you and your daughter use everyday.  Don't bet against them!

Just my humble opinion!  LOL  Again, I wished somebody would've slapped me 35 years ago.


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## Artfuldodger (Apr 5, 2017)

I think I'm seeing this as bonds, cd's etc is like investing on your own money and stocks is investing on businesses profits.

While it's true that one is safer than the other, there isn't nearly the profits to be made. If one is in their 30's they might want to gamble more in say an S&P 500 fund but stand a chance to lose more.

I guess the million dollar question is, "how much of one's investment should be placed in say the riskier S&P 500 fund vs the safer bonds funds?"


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## Canuck5 (Apr 5, 2017)

_*Bonds are NOT safer.*_  Over the next 3 years, we'll like see a little loss in a bond portfolio, as interest rates increase, the value of bonds go down.

Over the long term, where do you want to put your money?  The first chart is an Index Bond fund and the second chart is the S&P 500 Index fund.  "Category" compares how it did, against it's "rivals" in the market.  The picture is pretty clear, but it's history and doesn't necessarily mean the future.

Don't get me wrong, there will be years she will lose money in the S&P 500, but on average, she stands the chance of making greater money.  Remember, time is on her side!


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## Canuck5 (Apr 5, 2017)

Oh and make sure she reinvests her dividends.


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## Canuck5 (Apr 5, 2017)

"The 10 year" also includes 2008 - 2009, _*where the S&P 500 dove down to less than 700 *_(again, today it's at 2358).  It took a licking and kept on ticking!


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## Canuck5 (Apr 5, 2017)

Then before making a decision on where to put her money, check out the "expense ratio".  It's how much money "the fund" gets paid every year, whether the market goes up or down.

If the expense ratio is 1% and the stock fund makes 5% gross, that fund took 20% or her earnings!  If that fund doesn't beat the S&P 500, she's losing money where she doesn't need to.  

As stated in another post, if she can get an expense ratio of .06%, that is just "nothing"!


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## Canuck5 (Apr 5, 2017)

LOL, but alas it's just my opinion ..... the bottom line, for me, is that investing, at a young age, with at least a 20 year horizon, an S&P 500 fund is a no-brainer.  Simple, easy, invest and forget.  Check her performance a couple times a year until she's in her early 50's and then make some financial, lifestyle changes.

If she invested $10,000 in 2007, in an S&P 500 fund, she'd have lost money in 2008, but if she did not pull her money out, and did not add any more, she would have $20,000+ today.

If she had invested $10,000 in a Bond Fund, in 2007, not added any more money, she would have $15,000 today.  Again, history and not future, but she would've made 50% more in stocks vs bonds.

If she was "my age", I'd suggest something different.


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## Artfuldodger (Apr 5, 2017)

I'm going to have to compare those expense ratios again. The target funds might have been .6 instead of .06. They were more than the S&P 500 fund.


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## centerpin fan (Apr 5, 2017)

I think many people overestimate their risk tolerance.  Yes, stocks have greater returns over the long term.  That's because they're riskier.  See here:







The 100% stock portfolio has the highest return.  The caveat is that it is _much_ riskier.  For most people, I think a 50/50 portfolio is the starting point.  They can adjust their stock holdings up or down based on their risk preference.

Dan Solin discusses the returns of various portfolios in detail in his book, _The Smartest Portfolio You'll Ever Own_.

https://www.amazon.com/Smartest-Portfolio-Youll-Ever-Yourself/dp/0399537791

Another good one discussing the risks of various portfolios is _The Investor's Manifesto _by William Bernstein.

https://www.amazon.com/Investors-Ma...3&sr=1-1&keywords=william+bernstein+investing

Having said all that, I doubt your daughter is that interested at this point in her life.  So, she might prefer a simple life cycle fund until she gets interested.


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## centerpin fan (Apr 5, 2017)

Artfuldodger said:


> I'm going to have to compare those expense ratios again. The target funds might have been .6 instead of .06.



I looked at some of those life cycle funds, and they were just under .6.


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## Artfuldodger (Apr 5, 2017)

OK, .6, is that too much to invest in a target fund vs. the lower cost of the S&P 500 fund?


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## centerpin fan (Apr 5, 2017)

Artfuldodger said:


> OK, .6, is that too much to invest in a target fund vs. the lower cost of the S&P 500 fund?



If it were me and I had to pick one fund, I'd go with the dirt cheap S&P 500 fund.

This decision is not etched in stone.  As I noted before, your daughter can change her mind and pick another fund or funds later.


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## Canuck5 (Apr 5, 2017)

^^^^^^^^^^  she can change her mind monthly if she wants to ..... but that would be a bad idea.  If you think she's going to look at her performance twice a year, then the S&P 500 fund is the way to go.  She will be dollar cost averaging into that fund, with every paycheck.  Sometimes she will buy high and sometimes she will buy low, but as long as she sticks with it, she will be miles ahead, especially at a young age.

On "expense ratios":


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## centerpin fan (Apr 5, 2017)

Canuck5 said:


> ^^^^^^^^^^  she can change her mind monthly if she wants to ..... but that would be a bad idea.



I'm not suggesting that she should.  I'm just saying that, _as a young woman_, she might be inclined to change her mind.


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## Canuck5 (Apr 5, 2017)

centerpin fan said:


> I'm not suggesting that she should.  I'm just saying that, _as a young woman_, she might be inclined to change her mind.



  No, I knew what you meant and it was good advice


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## Jack Ryan (Apr 5, 2017)

Artfuldodger said:


> I think I'm seeing this as bonds, cd's etc is like investing on your own money and stocks is investing on businesses profits.
> 
> While it's true that one is safer than the other, there isn't nearly the profits to be made. If one is in their 30's they might want to gamble more in say an S&P 500 fund but stand a chance to lose more.
> 
> I guess the million dollar question is, "how much of one's investment should be placed in say the riskier S&P 500 fund vs the safer bonds funds?"



Bonds aren't safer and the s&p isn't riskier.

The "risk" is all in the timing on either one and YOU are in total control of that.

Start NOW while the risk is low, you have little to invest, so it won't drive you out of your mind like your life depends on it. You watch, you learn, natural progression you see it all get bigger.

The government, the fed reserve, and all of big business all are running the same scam. They all want the same thing. The controlled expansion/devaluation of the money supply. Inflation.

Controlled, so it's just enough you don't catch on to the con. But it has to expand or it all will collapse like a worn out Ponzi scheme. 

If that happens it won't matter what you did with your money. So get on board the money train or get left behind. It's that simple.


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## Artfuldodger (Apr 5, 2017)

Here is the Life Cycle comparison chart;


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## Artfuldodger (Apr 5, 2017)

centerpin fan said:


> I looked at some of those life cycle funds, and they were just under .6.



I looked again and they were in fact .06 and not .6. Maybe they have a different set up for Delta employees. 

The S&P Index Fund cost is 0.01% which is way better than the cost of the Targeted funds.


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## centerpin fan (Apr 5, 2017)

Artfuldodger said:


> I looked again and they were in fact .06 and not .6. Maybe they have a different set up for Delta employees.



That might be the case.  I just went to the Fidelity site and looked at expenses they charge the average investor.


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## centerpin fan (Apr 5, 2017)

Artfuldodger said:


> I looked again and they were in fact .06 and not .6. Maybe they have a different set up for Delta employees.
> 
> The S&P Index Fund cost is 0.01% which is way better than the cost of the Targeted funds.



OK, I just noticed my mistake.  The funds in post 44 are BlackRock funds, not Fidelity.  Fidelity is the custodian of Delta's 401k.

https://www.blackrock.com/investing...fined-contribution/lifepath-target-date-funds


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## bfriendly (Apr 8, 2017)

Canuck5 said:


> I wished somebody would've told me, 35 years ago, put your money in an S&P 500 Index Fund and forget about it.  A no brainer.
> 
> http://www.fool.com/mutualfunds/indexfunds/indexfunds01.htm
> 
> ...




I just started my 401k about 8 years ago and It just made sense to get the $ my company offered me if I saved it.........NO BRAINER IMHO. I only recently started increasing a %, but then went to 10% and I dont miss it, really.

At the time when I first started, I got push back from my wife who said we needed the money now........when I show her my dashboard these days, she is all smiles. 

I wish I had done this my whole life and I stress to my kids this same aspect.......Where do you want to be in 15, 20, 30 years etc..


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## Canuck5 (Apr 9, 2017)

bfriendly said:


> I just started my 401k about 8 years ago and It just made sense to get the $ my company offered me if I saved it.........NO BRAINER IMHO. I only recently started increasing a %, but then went to 10% and I dont miss it, really.
> 
> At the time when I first started, I got push back from my wife who said we needed the money now........when I show her my dashboard these days, she is all smiles.
> 
> I wish I had done this my whole life and I stress to my kids this same aspect.......Where do you want to be in 15, 20, 30 years etc..



You're doing what's called LBYM ....... Living Below Your Means!  Getting in good financial habits early, pays dividends down the road.


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## Canuck5 (Jan 3, 2018)

*Warren Buffet wins $1 million dollar bet*

Another vote for simple index funds, if you've got a several year time horizon.

http://fortune.com/2017/12/30/warren-buffett-million-dollar-bet/

http://www.businessinsider.com/warren-buffett-wins-million-dollar-bet-against-hedge-funds-2018-1


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## grouper throat (Jan 16, 2018)

I have 20% in a target fund and 80% in index funds. Some target funds are decent but a little too conservative for me. I don't pay attention much to the fees (mine aren't that high anyway) if the return is there. .06 is not much IMO.


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