My 401k plan part 2


I am eligible to enroll to my company’s 401k today and I decide to contribute 6% of my paycheck to maximize my company’s matching contribution. IRS allows personal contribution to 401k of maximum of $16,500 per calender year but I still have to save for mortgage down payment, so I do not max out my limit. There are two big questions about my plan that I have to find out the answers:

1. Administrative expenses. Even if I choose to direct my investment, all the transactions are still managed under Merrill Lynch, a contractor with my company. Also, each individual fund has its own expense. I need to read about this Plan Fees Document. It mentions Gross and Net Expense Ratio. I have an overall idea from Stocks for the long run but I need to dip in further.

2. There are 9 funds under the plan for me to choose. I already mentioned their categories in the previous post. However, when it comes into detail, I have no idea about these funds.

The booklet the company sent to me has a brief description about the above funds in 2 1/3 pages. Only 2 1/3 pages 😦 I do not think it is sufficient. It states in the booklet that you should feel comfortable about what you are going to invest. In reality, it is just a game of luck. Warren Buffet reads annual reports every day as a pleasure reading. Technical analysts use maths to predict the market trends. Using information from 2 1/3 pages to decide how to invest, it does not make sense at all. Therefore, most of the time people ask professionals to manage their investments. I can request copies of their prospectuses, financial statements and reports, but to understand and make a decision, I still have a long way to go.
The funds are different from individual stocks. Some are indexed, some have a pool of individual stocks (mutual funds). I wonder what the difference between Trust and Fund is. A pool of stocks are considered safer than picking individual stocks. But I have to see the holdings of each fund.
I feel a little bit tired because of the overwhelming information. Making money is not easy and I do not know whether my time and efforts are worth it. A lot of people, including my father, do not like investing in stocks. They prefer business or real estate. I believe everything is interconnected but stocks are more challenging because they involves the whole world’s market and human behaviors.

“I can calculate the motions of the heavenly bodies, but not the madness of people.” – Isaac Newton, South Sea Bubble

By the way, I start to use technical terms. In case you do not understand, let me know and I will try to explain to you :). Investopedia does a better job in explaining, so this blog is just a way to show my progress in the long journey to make the 1st million dollar. The first is always the hardest. When you have 1 million, it is easier to make 2 millions and so on.

Have a safe Independence Day weekend.

(Remember this, anyone?)

Do you own stocks? Do you read their annual reports?


2 thoughts on “My 401k plan part 2

  1. 401k is just a retirement account from which you can deduct your income from federal income tax. It is up to you how to invest your money. It is complicated when you decide where to invest. Thanks for cheering me up :D. The 401k plan is similar to pension plan in Vietnam if you work for government. The information is not relevant to you, so you do not have to understand. Will try to post something fun and interesting about my summer.

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