Back to the mailbag, it’s been quite some time as I’ve been busy with kids and well, life. I will try and answer as many questions as possible, so keep them coming please.
A reader Jarit recently wrote me and asked the following:
“I made a change in companies about 8 months ago. I was then involved in my companies 401k through Fidelity with whom I’ve been dealing with for the past 10 years and have seen a considerable gain. The 401k options at my current company in better terms would leave me with no flexibility. I just turned 30, have a great family, wife and 2 girls. I am thinking of changing to another company for retirement planning and want to be a little aggressive. Problem is I know some about investing, but not near enough to venture blind. My question to you is; which companies would be worth me sitting and talking with about planning for my future? Should I keep the slightly aggressive approach or just play it safe with little to no risk? My success with gains was when i changed my portfolio to about 70% domestic stocks and saw a 60% overall growth in about 4 months time, this was however 3 years ago. I just want to get the perfect plan in place and watch the money collect for our future but don’t know where to start.”
First off, thanks for writing me Jarit, I want to quickly breakdown your questions into a few main points that you can take away to help you.
1. Do not trust anyone to help you plan for your retirement besides yourself. Financial Planners and Investment advisers alike, from my experience, are not trustworthy. This may not be what you’re wanting to hear, but it’s the sad truth. Fortunately, making a retirement plan by yourself is not challenging and you don’t need years of schooling to understand it. A while back I put together a basic guide to retirement planning, so check it out. Learn, learn, and learn more.
2. You switched companies, you don’t like current company investment options. First off, your 401k with Fidelity can be rolled over to an IRA which will allow you far more investment options for your existing retirement money. Telling me you made good gains with them doesn’t mean a thing to me until I can see what you could have made with other companies such as the low cost leader Vanguard. Remember, you don’t have to go through a company such as Fidelity or Vanguard with your existing money, by doing so – you’re limiting yourself to their investment options alone, check local banks and even brokerage firms such as Charles Schwabb, because they will allow you to invest in Fidelity, Vanguard, and everyone else. With regards to your new employer and their options, I don’t know if you are getting matching funds or not from your employer. If you are getting matching – and the plan is not loaded with funds that eat away the free money your company is giving you, then your still better off going with what your company offers. If they don’t offer matching, you don’t have to invest with them – you can open an Roth IRA and invest in that on your own. This will make more sense if you read my lessons linked above.
3. I hear so often that people want to be aggressive, but without a plan on when you want to retire, how much money you will need, and some other factors, saying you want to be aggressive means very little to me. Risk is all about reward, not about being stupid or gambling. Consider your past success lucky in regards to your good gains. As a general rule – you can use a formula of stocks versus bonds as 100-age = percentage of stocks you should have. So, seeing you’re 30 – you should at least have 70% of your money in stocks (100-30=70), and the rest in bonds. I would consider that conservative as I’m at 90% stock. The next step is to determine what risks you’re willing to take within your stock selection. A general rule would be to keep at least 30% in international stocks. At the end of the day, diversify your stock options as much as possible. If you have 10 funds to choose from, take 10% each. If you have 20, take 5% in each. Most importantly, being aggressive shouldn’t mean putting all your money into the most risky stock option available, that’s gambling.
There’s too much to discuss above in one sitting – it really comes down to taking what you already know a step further. You seem to care, but are misguided in wanting to trust someone else to help you plan for retirement, Educate yourself from as many different resources possible and then develop your own conclusions.
Hope this helps!