Written by DD, June 24, 2010

I love this series! I've been trying to figure out what I should do with my money to get the best return, and I can completely understand the information you give because it's more in layman's terms than other explanations. Keep 'em coming! Thanks!

Written by Rachel, June 24, 2010

I just reached the one year mark at my current job, so I took a deep breath and enrolled in their 401k. They match 100% of the first 6% you contribute, so I figure even if the market stinks, I'm still getting a 100% return on my money! I just finished reading Chris Farrell's "The New Frugality" and one of his key themes was Keep It Simple. So I put it all in the S&P 500 index. It may not be sophiticated, but it's far better than doing nothing.

Written by Daisy A, June 24, 2010

Just now reading the past episodes. Now I understand more about how the stocks and bonds work from the first episode. I wanted to purchase some bonds before but didn't know anything about how it works. Thanks to your articles I now know.

Written by MP Dunleavey, June 24, 2010

Great! We love this series, too. Although Karl is more of an operator than we first thought. Sigh. But Julie's struggles are real. And this is how real life decisions get made.

Written by Petunia, June 24, 2010

I am a big fan of simple and low-cost. I strongly believe a simple, low-cost plan offers the small investor the very best chance of success.

Rachel, you made a wise decision to sign up for your 401k and double your money. An S & P 500 Index fund is a good choice for a large portion of your portfolio. It gives you broad exposure to large U.S. firms. However, you don't have exposure to small U.S. firms, any foreign firms, or any fixed income. That's OK for now, but you should be aware that your portfolio is missing those things.

Written by Kelly, June 24, 2010

@Rachel Take a look at a Roth IRA to complement your 401k at work. Vanguard and Fidelity are well known for having funds with super low expense ratios (a measure of the fees associated with a fund). A simple choice is one of their Target Retirement Funds (like this one: https://personal.vanguard.com/us/funds/snapshot?FundId=0306&FundIntExt=INT). It will automatically adjust over time from more risky (mostly stock) to more conservative (mostly bonds). That way you don't have to keep on eye on it! Just setup an automatic deposit and you're set. ;)

Written by Steph, June 24, 2010

I don't have a 401k at my job, since I work for municipal government. We do have a pension plan, and we're required to contribute at least 5% to that and can elect to contribute up to 15%. There's no matching, but it's a defined benefit plan, rather than defined contribution, so what I collect is based on my contribution and years of service, rather than contribution and performance of the investments. (Unfortunately, plans like this tend to create an awful lot of problems when the market is doing poorly, since the employer has to dig into its own pockets, or that of the taxpayers really, to make up the shortfall, but that's a whole other debate.) By October my contributions will be vested and I'll be eligibile to collect a pension after I retire, regardless of whether I stay with my current employer until that time.

I take another 5% (approximately, sometimes it's more or less) and put it in an IRA, but I would love to start contributing more to my retirement. My biggest issue is deciding where to put the extra percentage, into my pension plan (I can opt to change my contribution at the end of each year), into my IRA, or a combination of the two.

Plus, I am trying to decide whether to roll my traditional IRA into a Roth IRA or not this year (and if I do, whether I should pay the taxes on it in my 2010 return or split between my 2011 & 2012 returns), but really have no clue which would be more beneficial. I think that might be an issue to discuss with my financial advisor...

Written by Kathy, June 24, 2010

I agree that NOT contributing to a company-sponsored retirement plan is like not taking free money (CRAZY!!). I'm 43, salary $47K, I contribute 6% to my 401k (3% match). Unfortunately that's the max I can contribute, I wish I could do more as I feel the company is watching my money for me, at least trying to help me make good decisions. Periodically I receive literature 'bout asset allocation and my plan recommends quarterly rebalancing, which helped a lot as I didn't lose as much as other friends did in 2008!

I have some additional $$ to invest. So, I'd like to hear what investment alternatives ya'll recommend other than the low-cost index stuff ya'll talk about. What if another big drop in the stock market is approaching? (a lot of people say that and the stock market's been crashing!). Should I buy a low-cost stock index fund rather than a bond fund? or maybe wait for a better time to buy a stock fund? My company's investment fellow moved my money to 75% bonds in April, was that a bad move?. Deflation, inflation, Greece, interest rates, too many things that I wish I knew more ‘bout :(

Also, I found this article on lazy portfolios: Lazy Portfolios Beat the S&P – but Claims are Bogus and Deceiving
http://www.darwinsfinance.com/lazy-portfolio-2009/

Finally, I have to ask this and apologize if I offend anyone but that's not what I mean, why are ya'll pushing Vanguard and Fidelity so much? what's wrong with T.Rowe, Schwab, e-trade, or even a personal independent financial advisor? (I know some brokers work on commission, but not all). Thank you!

Written by Petunia, June 24, 2010

Steph - Do you know the exact formula your defined benefit plan uses to calculate your eventual payout? If not, find out. Then you will have an idea how much additional dollars benefit you, and you can compare to a realistic expected rate of return invested elsewhere (like your IRA).

Written by Steph, June 24, 2010

Petunia - Good call! I don't know, but I might be able to find out. The information isn't volunteered, each employee just gets a statement each year that tells us how much we'd get if we left immediately and how much we'd get if we worked til retirement age, calculated based on our current salary and contribution rate. My employer hires actuaries to do this calculation, so I'd probably have to see if I can contact them directly, since my employer probably doesn't have the formula.

Written by Kelly, June 24, 2010

@Kathy - Vanguard and Fidelity have good expense ratios. That is all I look for when I'm choosing funds. I want the lowest expense ratio possible. I can control the expense ratios of the funds I buy, the rest is just luck. So, I looked for the lowest expense ratios and my research landed me with Vanguard. The downside of Vanguard is they require 3k to invest in a fund, so if that busts your budget go for Fidelity.

Written by Amanda Steinberg (DailyWorth founder), June 24, 2010

Hi @Kathy, I checked the post on "DarwinsFinance.com" and many of the commenters poke holes in his criticism, namely that he claims MarketWatch.com cherry picked higher performing examples of the Lazy Portfolio, while commenters noted that MarketWatch has been tracking the same example for years.

Truthfully, as is the case on DailyWorth in general, we're here to give examples, provoke thought, share resources and inspire action. At the end of the day, you have to do what you think is best for you - if you think our research is faulty, by all means, choose another route and let us all know what you've chosen and why. We can all help each other.

DailyWorth has this unbelievable cross section of women from every socio-economic group and geographic area in the country (and even the world). We all have a lot we can learn from each other (I can teach earning, I really need help with discipline around spending), which is what we're doing.

Re Vanguard and Fidelity, I echo Kelly's points, but also note that I fall into patterns and need to encourage all of us to look outside of these 2. I consider it an assignment.

Written by Brenda, June 25, 2010

I went with a certified financial planner. He has been great in explaining things to me. I was constantly hearing that I should invest in one thing or the other and didn't know which was right for me. He sorted it all out and made it easy for me to understand.

I always thought it was expensive to have a financial planner but it only cost me an initial $50 to open an account. Now I am earning 7% - 10% on my long term investments when all my family is earning 2% - 4%.

It has really paid off for me.

Written by Kathy, June 25, 2010

@ Amanda - I'm sorry, I didn't mean to offend you. I simply had questions although I noticed you didn't answer the ones about the bonds vs. low-cost fund, or didn't comment on what the advisor recommended in April. I'm sorry also to say, but I heard we need to consider long-term records and not not only "cost" when we make an investment, or else we might be "getting what we pay for". I agree with Brenda, if a knowledgeable advisor will get 7%-10% on long term investments, isn't it worth paying for his periodic advice if it is reasonably priced? (like $50 to open an account)

Written by Amanda Steinberg (DailyWorth founder), June 25, 2010

Hey Kathy -- you didn't offend me in the slightest. If you could hear my tone, you'd note that I love nothing more than a thoughtful dialog, even with differing opinions. I'll ask MP to weigh in on the rest of your questions.

Written by MP Dunleavey, June 25, 2010

Phew! A lot of comments and threads and myths and ideas here. First, the investment industry mantra is: "Past performance is no guarantee of future returns." Investing is a gamble. Period. You don't know what you're getting. No one does. You can't predict returns. If an investor or financial advisor scores big time, that's great. Next week, they might not. They have done study after study after study on the randomness of the market. Are there some people with extraordinary investing instincts, like Warren Buffet? Why, yes. But even Buffet has lost his billions. Many people pay for investing advice, and for actively managed funds. It gives a sense of security. But what the research shows is that you can't beat the market. So you might as well go for the market return, which is substantial, usually, over time. But that's assuming you make some prudent, self-protective choices, by balancing you portfolio, and keeping an eye on massive economic changes. Again, ladies, it's a gamble. There are NO guarantees, no matter what anyone tells you.

Written by Kathy, June 25, 2010

@ Amanda - Thanks! :)
@ PM could you point to one of the studies or the research you mention? Agree, I don't think anyone should listen to salespeople pitching guarantees. But I disagree, investing is not just like gambling in Vegas; if a financial advisor recommends to toss a coin and hope for the best, that would be a red flag and I would run in the opposite direction (at least I would expect an educated recommendation according to my risk level). But we can agree to disagree :)

Thanks ya'll!

Written by MP Dunleavey, June 29, 2010

@Kathy--The stock market is a gamble, because you cannot predict, from day to day, what it will do. Are there folks in Vegas who can count cards and game the system? Yes. In a similar way, people who have studied the market for years can make highly educated choices. And they often come out on top! I'm just saying there is no guarantee. Ever. That's a risk we all take as investors, believe me, I dwell on it. What if we go through another global economic crisis in 2040, five minutes before I retire? What if this market stays down for 20 years, as Japan's did? We don't know. Here is an article from 2009 with more research: http://www.nytimes.com/2009/04...ctive.html