If the economy is booming, then explain this

[Horse with no Name]

I have a 401k. So I get this statement from them today with these snazzy pie charts and stuff.
Then in small print it says:
Your rate of return for the period 01/01/2006 to 9/30/06 was 0.78%, and for the period 10/01/2005 to 9/30/2006 was 0.78%.
For the 50-year period 1954-2003, the historical AVERAGE annual rate of return for an investment mix similar to yours was 5.50%.

So, now someone needs to explain to me EXACTLY how that is good?

And if we have an investment guru out there, I have another account that I can't move any more money into, but it's effective yield is 4.340%.
I got a letter from this one last year that says I can't add anything to it. Should I just leave it or roll it into a different account? It says that this is a QPA Series III. For some reason I thought it was a 401B.

[ComerPerro]

1. interesting question, indeed

[lcordero2]

2. there is no boom in economies

which use "Piss on You" economics.

[Avalux]

3. Those of us with 401K's are getting a raw deal.

It's those with money, those with major investments that are having a grand ol' time right now. This country is fast becoming a two class system - the poor and the rich.

[OllieLotte]

4. So what was the mix? Stock vs. Bond vs. Cash

If I had to guess, I'd say you were light on stocks, heavy in bonds/money market?

[Horse with no Name]

6. Short term bonds.

That is 100% of the investment.
Who decides this?

[rkc3]

7. You decide - it's your money.

[OllieLotte]

8. You do. When you sign up for the program they ask you?

You should probably change the mix, based upon your age, amount of money that you have, risk tolerance etc.

[Horse with no Name]

9. They didn't ask me.

What would you recommend? At present I think I can get more in a passbook savings account.

[OllieLotte]

13. If I can be so bold.

Many financial institutions offer tools like this: I've been with Vanguard for many years, and rolled over 401k so I'm familiar with their tools. Below is a link that you could check into, to find out the type of investment link that is right for you. It will ask you a lot of questions, in an attempt to figure out what makes you tick to some extent and to manage the amount of risk.

https://flagship.vanguard.com/VGApp/hnw/content/PlanEdu/General/PEdGPCreateCompInvQuestContent.jsp

I'm new to DU, so I hope something like this is allowed. Once you figure out what the mix should be, go back to the 401k managing company and select investments that would provide you with a balance/mix based upon what you get from the Vanguard (or other financial institution guideline). Years ago I was told that a person should take their age - I'm 52 - my wife is 48 so we average 50. Subtract that number from 110 to get the amount of stock in your portfolio. In this case it would be (110 - 50 = 60% stock).
I can tell you that I have averaged more than that in stock-but you understand the point.

[Horse with no Name]

15. Thank you.

Links are always welcome and appreciated here.
Welcome to DU!:hi:

[OllieLotte]

19. You are certainly welcome. This should be a priority for you!

401k are a key portion of our retirement with pensions and SS being phased out or in jeopardy. Stocks will give you the most return over the long term. They also have the greatest risk to go down, so if you are close to retirement, you can't afford to take as much risk as a young person. Almost every 401k that I have seen will offer something similar to the S&P500 Index Fund. It has the 500 largest companies in the US in it. It's an index fund, so usually the fees are lower too-which is good. Whenever, I don't know what to do with some money, I always choose the 500Index until I make up my mind.

[niyad]

10. welcome to DU

[newyawker99]

21. Hi OllieLotte!!

Welcome to DU!! :toast:

[havocmom]

5. And what was the paltry 'jobs created number' for last month?

Someone posted it here last week and even I was astounded at how low it was.

But, the ultra rich are doing fine, Warren Buffett says so, and wonders why most of us are sitting still for the crap that is going down.

[niyad]

11. any time we hear how many jobs were "created" we must be sure

to ask just how many were lost or outsourced as well. I believe the number was in the millions, so, even if jobs are being created, they are doing nothing more than replacing what were good paying jobs.

[havocmom]

14. EXACTLY! Same month Ford had their going out of business in US

party, few other (low pay? part time? no benefits?) busy work but you'll never keep a roof over your head type jobs showed up.

Hey, what about all those rich people, the top 1% who got all the good tax cuts? Weren't they gonna invest all the dough into things which create new jobs? Guess they got sidetracked supporting illegal employers who hire and abuse poor, desperate people with brown skin for more fun and more profit.

America, you are now a feudal state. Accept it. We are now governed by the ultra rich based on pre-Magna Carta rules.

Economy is fine? How long before bush tells us to eat cake?

[SammyWinstonJack]

16. How many jobs per month were created under Clinton's Administration?

From wikipedia: Creation of 22.5 million jobs-the most jobs ever created under a single administration, and more than were created in the previous 12 years. Of the new jobs, 20.7 million, or 92% were in the private sector. Something to ponder.

[zbdent]

12. Take the Dem years out of the average

and your current rate of return for the period would probably be in line with the average ...

[SheilaT]

17. Several years ago

it was easy to find charts which showed that under Republicans, job creation was minimal and the stock market did much worse than under democrats. And yet, Republicans are supposed to be good for the economy. Yet another example of cognitive dissonance.

[MiniMe]

18. It partly depends on how old you are, theoretically at least

If you are young, the "wisdom" is that you are buying cheap shares now, and when it goes up, you will be rich because you will have more shares. If you are older than 40-45, this sucks, because you are buying investments that don't seem to be moving at all, and you are in trouble if the value goes down.

My personal take on it...The economy is only good if you are rich.

[LondonReign2]

20. You can change your investment mix

Hi Horse,

If, as you say, you did not make an election in how to allocate your 401(k), chances are you were put into the company's default option. Typically this is either a money market fund or short-term bond fund, which are the most stable and safe investments usually offered. As a fiduciary, a company protects itself by placing you in the lowest risk (and therefore typically lowest return) investment option. These have the best chance of preserving your capital, but of course limit your likely gains.

Generally, the value of bond funds will move inversely to interest rates. That is, if rates are going down, your bonds funds will gain in value, while if rates go up your value will go down. This relationship is more pronounced the longer the duration of the bonds. Since you have short-term bonds, they will move less than long term bonds in response to interest rate fluctuations.

More conservative investments like money market funds and short-term bond funds will not perform OVER THE LONG TERM as well as more aggressive investments, but they can be your best bet in certain situations, such as you needing the money in next few years. During the bear market from 2001 - 2003, for example, cash and bonds outperformed stocks.

As another poster pointed out, there are lots of online planning tools available at most brokerage sites that can help you think through and evaluate your investment choices. Ultimately, it comes down to how much risk you are willing to take, as well as when you need that money.

[trekbiker]

22. Your 401K should have a website

thru the plan administrator. Mine is thru Fidelity for example. You should be able to log in and see exactly what your allowed investment choices are (usually a bunch of bond and stock funds). I'm sure your company HR rep can direct you to this if you cant find it. You are responsible for your investment choices which is good for some people and not so good for others. There should also be some online help tools to help you determine a good investment mix depending on you age, years to retirement, risk tolerance etc.. Bear in mind that there are usually minimum holding periods in these funds, usually 90 days. Not a problem for most people since they tend to choose some investment funds and then forget about it for a year. The only problem I have with 401K's is the limited choices. I wish they would allow individual stock investing like my IRA does. The only individual stock most 401K plans allow you to buy is your own company stock. Thats not always a good choice (Enron). in any case, remember to DIVERSIFY. use the online tools to help determine an appropriate mix of money market/stocks/bonds for your particular situation.