Thursday, June 14, 2007

401(k) Rules of the Blessed Morningstar

Now I throw in another "saving for your future" sermonette.

Morningstar.com put out this article on 401(k) plans and what to do with them. It's pretty basic, but most people need basic, since "complicated" triggers headaches, double vision and nausea. Here's Morningstar's four 401(k) tenets (each expressed in the negative):

Mistake One: Not Investing at All

Mistake Two: Investing Without a Plan

Mistake Three: Letting Your 401(k) Run on Autopilot

Mistake Four: Borrowing from Your 401(k)

Morningstar has somewhat different takes on 401(k) investing that I do, but not that different. My basic advice about where to put 401(k) money is:

Diversify across different asset classes (percentages of your money to a) domestic large stocks, b) domestic small stocks, c) international stocks, and d) bonds.)

Set your percentages (say, 25% in each of the above) then rebalance back to those percentages once a year, because some assets will grow faster than others.

And yes, this is a simple model, but simple is a good way to go when you have neither the patience nor interest to study investing in detail and depth...and therefore shy away from investing in anything at all.

The chart above shows the best asset allocations you can make. But "the best" is always a (somewhat) moving target.

1 comments:

Sturob said...

I agree with this. Your asset allocation is the key as well as starting young if you can. I found some short savings guides on ShareBuilder401k.com. These guides are written in a very straightforward way and aligns right with this discussion. Definitely a quick interesting read for those that want some pracitical advice -- though you have to give your contact info to download them.

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