Portfolio 101

[OnyxCougar]

It occurred to me a few weeks ago, and again today, that my company offers 401(k) and I participate in it, but I really have no earthly idea about what the hell I am doing. I know money comes out of my check, but I don't know how what I picked during enrollment affects me long term.

I came to realize that I know very little about how the stock market works, and how that all fits into my mutual funds, or even what a mutual fund is and how it differs from, say, a commodity.

The reason I'm asking here is (1) there are people with degrees in economics here (2) there are people without degrees in economics that know how this stuff works (3) some of the aforementioned people can explain how all this works without getting condescending about it (4) Knows a website already in place with this information.

SO. Any help would be appreciated. Assume that I don't know anything about the stock market, 401(k), or bonds/stocks/mutual funds or how they are used. Visuals preferred.

[xoxoxoBruce]

Piss it away on sex, drugs and rock&roll, then be a burden to your kids.

[Undertoad]

Ok, so y'know, stocks have always been very big moneymakers in the long run. The Dow Jones is an index of stocks and you can see on the graph on this page that, anywhere on that line, if you put your money in and then take it out 30 years later, you've made a shitload of money, right?

http://finance.yahoo.com/q/bc?s=^DJI...off&z=m&q=l&c=

BUT, if you put all your money in ONE stock, that's VERY risky - because that one stock could turn out to be Enron. So, they invented mutual funds, specifically for people who don't know about the stock market.

In a mutual fund, they pool all the money from a bunch of people and buy many different stocks instead of just one or two. So you could spread your money around to 100 different stocks without having to be a millionaire, and somebody in an office in Paoli, PA* manages all this stuff for you without you knowing a bit about it... and every three months they send you a piece of paper to tell you how much money it is so far.

These days they offer scads of different funds that group stocks together differently - so you could have one fund that was all risky, and another that was very conservative, different kinds of funds for different people's needs. This makes sense, because if you're 25 you can afford to risk more of your money, while if you're 65 you want to make sure it isn't going to disappear in a short time.

"401k" plans often, but not always, say you can spread your money around in different ways, so you can make the choices that are best for you. The problem is that sometimes they also give you the option of putting that money into the company stock. This is what blew out a lot of the Enron people - they were stupid, they chose to put 100% of their 401k into Enron. For a short while it looked like a great deal as their money skyrocketed, and then they found out it was the worst deal ever.

So if you have the option you should put 0% of your 401k into the company stock, and just pick a fund that works for what level of risk you like, and don't get too tricky about it. And when they send you the pieces of paper just put them away in a box somewhere and forget about them.

*if the funds are Vanguard, which is in Paoli.

[OnyxCougar]

It *is* Vanguard. And I have elected to put some in mutual funds and some in the company, and I also am in the Employee Stock Purchase Plan. I think I'll switch the 401(k) to all mutual funds and leave the EPP for the stock in the company.

[Undertoad]

It's the best thing, believe me... they just want to sell their own stock and make the employees personally invested in the company, but you're already invested in the company... you have a JOB there.

[elSicomoro]

My $0.02...

--Decide what kind of risk you're willing to take. You're still young; you might to want to put more in stocks. I'd recommend 10-20% in stable assets: savings and treasury bonds.
--You can't really argue with the awesomeness of the S&P 500. If there's a fund based on the S&P, go with it.
--If there is a fund based on NASDAQ stocks, put a little in there. You never know when tech might come roaring back.
--Buy some company stock...just not a lot.

[lumberjim]

I had 75% of my $$ in high tech, high risk stocks when the shit fellout in '01. I lost half of the $$ I had in there. A few guys i work with had the same thing happen. They pulled their $$ out and moved it into bonds, which were the only safe bet at that point. I was going to, but in talking to a customer that does that stuff for a living, he said: you're young. You're in it for the long term. leave your money right where it is. All of the stock that you are buying today is "on sale" while you may lose dollars, the units you buy don't dissapear unless the fund bankrupts, which just doesnt happen. So, i left it alone. I am now back above where i was before it fell apart, and i have much more stock(units) if and when the high tech stuff starts moving well again, my increases will be proportionately larger. I keep 25% in a small business growth fund that is considered medium risk. as i get older, and have more riding on it, i will lower my risk levels.

but, then again, i know about ()that much more than you do,OC. relative to what the pros know, anyway.

[lookout123]

i happen to be a stock broker with one of the top 6 in the nation. Van guard is not my preferred vendor but they do have some very nice funds. i don't know your specifics so i couldn't make any solid recommendations, but if you are in your younger years with quite a while til retirement then you can invest more heaviliy in growth funds and growth and income funds. as you get closer to retirement you will need more security so you will move towards income, and growth and income funds. also - don't stop at your 401k, start a Roth IRA, it doesn't take much to start and you will be so happy that you did as you get closer to retirement. where in the country are you located? i may be able to recommend you to someone who can help you locally.

[OnyxCougar]

NC

[lookout123]

Originally posted by Undertoad
It's the best thing, believe me... they just want to sell their own stock and make the employees personally invested in the company, but you're already invested in the company... you have a JOB there.

some EPP are really good. i know of a few companies that hold your money all year (you determine the amount) while it earns 5%. on a given day they knock 15% of the lowest trading price in the last 2 weeks and you make your buy. you can sell it at any point in time for at least the 15% profit. assuming your company didn't go to shit the day you made your buy/sell orders.

[lookout123]

Originally posted by OnyxCougar
NC

sorry, i'm not sure what NC is.

[OnyxCougar]

North Carolina

[lookout123]

Originally posted by OnyxCougar
North Carolina

wow - i'm feeling pretty stupid right now. i'll have to do some digging but i do know one of the guys from my company in NC.

oh, i just dropped him a wire and he is unavailable until mid-june. you probably can't wait that long so go to edwardjones.com

you can find the broker closest to you. just give them a call and they would be happy to help - i'm sure of that.

[OnyxCougar]

*giggles* Ya know, I was thinking... "this guy doesn't know what NC stands for ... and he handles millions of dollars.... mhm...."


hehe thanks for the tip. I'll see what I can locate nearby. Is there a fee for basic info like this, or is this type of thing considered "Broker on retainer?"

[lookout123]

when i saw NC - i forgot that i had asked your location. i was running through the list of "cellar acronyms" that i had seen and was drawing a blank. i need a nap.

fees are earned when transactions are made. (such as purchases in your future IRA - don't miss the boat on that) if you spend 5 minutes on the phone with the broker explaining what info you are in need of he/she should just tell you their thoughts on the hope that when you really need a broker for a purchase outside of your 401k, you will come back to them.
if you run into someone who isn't willing to help, let me know.