I'm sure a lot of you have 401Ks. What is the best long-term investment option for a 401K? I keep hearing that an index fund is the best. If this is true, does it matter who runs the index fund, as long as it is an index fund (I can list the investment options my company offers if it will help you give advice)? I've had just about all my contributions going into company stock for the last 5 years (and that's been the best option by far), but this Enron thing is scaring me. I want to shuffle my 401K around, but I want to be able to just change it, and leave it for a long time. Also, does anyone use fool.com? Is it reputable? Thanks!
Freak: I have no advice to give on 401K's, but I can tell you that fool.com is VERY reputible. The Motley Fool is a very successful and respected series of books, so they are really good. On a side note, my father-in-law, who has a masters in finance, actually did an online financial quiz that was in real time against one of the "fools" and WON! It was apparently REALLY complex and difficult stuff and had to be done really quickly. To the "fool's" credit, he emailed my father-in-law afterwards and said that he almost never got beat by someone and congradulated him on his effort. To add to that, my father-in-law, who may be the pickiest finace guy on the planet, really likes the Motley Fool guys as well.
I'm going to somewhat disagree with Jeff a bit. I've read a couple of the fool books and they are very popular, but they have as many detractors as they do advocates. Their various portfolios have been getting decimated like everyone else's during the downturn in the market. The ruling is still out on the Gardner boys, but it takes a string of about 15-20 years of returns to find out if what they preach holds true. Also, if you're looking to invest in funds, fool.com may not be the way to go since they don't really believe in mutual funds. They say if you have to invest in a fund, invest in the Vanguard Index 500 which follows the S&P 500 Index. As for what to invest in, you are better off asking a financial planner or advisor. The reason being, you invest based upon your situation in life, your risk/risk aversion, and your needs. Most managed funds don't beat index funds throughout any given year - that's fact. But, there are all kinds of index funds, so you need to find out what's available in your 401k first, then see what those funds' investment philosophies are. No one can tell how big a risk you're willing to take with your money, and sometimes you yourself don't even know until you're blasted by a massive downturn in your funds (like what happened recently with tech funds).
DOD: You are right that their funds have been criticized. I was really more talking about their advice in general as opposed to their funds specifically. As an aside, my father-in-law always says if you want excellent advice on finance, do exactly the OPPOSITE of what Louis Rukeyser says.
I just re-read your original post and noticed this... never, ever, never, ever put most of your eggs in one basket no matter how good that basket may appear. You could be on the brink of disaster like those poor folks at Enron. As always, contribute the maximum to your 401k before anything else (if you can do so).
Freak: I work with a guy who is really big into fool.com and the motley fool. He looks at stocks the way I look at this BBS. So, he is hard-core. I've been wanting to talk to you about Danzig and some other bands anyway, so email me at jfyoung@charter.net & I would be more than happy to get info about motley fool and anything else from this guy. I have a 401(k) plan with Vanguard and I use the Index fund as one of my options. I use to use the money market fund as another one of my options, but I may have gotten out of it. I need to check to see what I have, but I do have options that are riskier like the primecap fund and the Windsor fund. I also have some in the Janus fund. My personal preference would be to put maybe 25 to 30 % in something safe and the remainder in something more risky but gets you a better return. I take it that you are still young like me, so you have to look at it over the long run. You're doing this for 30 years....but obviously it would be different if you were buying and selling stock to make a profit.
Diversify, diversify, diversify. If you are young, you can stand to be a bit more aggressive with your money, but your whole portfolio should reflect a diverse range of options -- the best way to ensure that something like the Enron fiasco doesn't happen to you. Depending on what options are available in your plan, you should spread your money around. Put some money in international funds, aggressive funds, value funds and blue chips. If you're worried about the motley fool, go to an investment company web site like fidelity or aimfunds. There are investor education sections that help you understand how everything works. Of course, I should make the standard disclaimer that what I have said above is not to be considered investment advice and that you should contact a professional financial consultant.
Here are some sites if you want to learn about mutual funds, investing, and 401k's so you can make your own decisions : http://personal.vanguard.com/educ/pt_library.html http://money.cnn.com/pf/101/ http://www.thestreet.com/basics/ http://www.quicken.com/retirement/401k/basics/ http://www.moneycentral.com/
Index funds are definetly the way to go for large caps (e.g., Vanguard 500 or many similar ones are solid). But I would try to add an actively managed small cap fund, maybe a mid-cap fund and international funds as well. If you have 15+ or 20+ years before retirement, I would put in all in stocks, but diversified stocks--mix of large/mid/small cap some focused on value others growth some with US others abroad (Europe, Pac rim, maybe some in Emerging Markets/Lat Am). Looks like others have more specific and detailed advice, but the above is my general thoughts.
