Monday, December 03, 2007

I Went to a 401K Seminar

Does your company offer informational sessions about how to invest in a 401K? I'm sure many do. A representative from Fidelity or Prudential or whichever company happens to administer the plan comes in to explain all the basics, and encourage you to participate. Whenever my company has offered one of these, I always thought I knew enough about my 401K and didn't bother to attend. But last week, after hearing one of my colleagues describe one of these sessions as "really excellent," I decided to play investigative reporter again and see for myself what it was all about so I could report back to my readers!
About 10 people from my company attended the session. I didn't know whether to see that as a good sign or not-- it's not like I'd expect hundreds to be there. The presenter, who I'll call Todd, welcomed us, told us a little more than we needed to know about where he was from, and then launched into a guided tour through a Powerpoint presentation and a look at the company's website. He was actually a very good speaker, and clearly explained the basics about the different kinds of funds available, asset classes and the kinds of portfolio diversification that are appropriate for different age groups. He also led us through a questionnaire that would help us analyze our tolerance for investment risk based on a variety of factors, such as age, job situation, debt, current savings, family status, etc.
At various points, Todd asked the audience questions, such as "do you consider yourself an expert investor?" Only one person raised his hand to that. When he asked if anyone considered themselves intermediate investors, I raised my hand. Everyone else said they were beginners. I was a little surprised at this, knowing that several of those people are in their mid-40s, and one one of them came into publishing from a previous career as an accountant. Several were also single women who did not have partners who might be handling their finances for them.
A couple of people asked questions, mainly about the new Roth 401K option we'll have starting in 2008. One person also asked a few questions about the group of funds we can invest in that are designed to target a retirement date and then automatically adjust their portfolio diversification over time so the individual investor doesn't have to. The questioner just obviously wasn't getting how they worked and was asking if you could switch from one to the next as you got older, and whether they offered a guaranteed return.
All in all, I found the seminar a good introduction to 401Ks, and I'm glad I had the chance to hear more about the Roth 401K, though I'm still not certain if it will be a good thing for me to direct some of my retirement savings into it. (I already do a separate Roth IRA on my own every year.) I already understood most of the information that was presented, but there were a couple of investment terms that were defined in the handouts that I had never quite bothered to understand fully (such as "beta"). The seminar also gave me a kick in the pants about adjusting my own portfolio, which I'd been meaning to do. I decided to take the funds I'd built up in a managed income fund (low risk, low return) and use them to buy into one of the target retirement date funds. I figured since the market's been in a bit of a dip, it probably wasn't a bad time to make that kind of switch. My portfolio had been a little less aggressive than is usually recommended for someone my age-- that doesn't bother me too much, but a bit of a tweak seemed to make sense. My contributions will still have a small portion directed into that managed income fund, and I'll play it by ear what I want to do with it when it builds up again.

So, if your company offers this kind of 401K information session, I'd suggest going to one unless you really consider yourself a highly informed, expert investor. You might sit through some basics you already knew, but you might learn something too, and it never hurts to be forced to do a quick analysis of your own tolerance for risk and how your portfolio is allocated. One thing to remember is that the investment company's representative can't give you investment advice, just "information" or "guidance." According to Todd, there may be a change in the laws about this that would mean that people like him could give investment advice-- if that is the case in the future, I'd say we should all take their advice with a grain of salt-- remember that the investment company is out to make money by getting their hands on your money. You have to make your own decisions about what is best for your retirement plans and act accordingly.


Anonymous said...

Bronx Chica- My 401(k) seminar is this wednesday. Though i'm not allowed to join until i do a year at the job, i'll go check it out.

Anonymous said...

I worked at Caltech when I went to the 403(b) seminar when it was offered by our plan administrator, TIAA-CREF.

The presenter received my full attention because he was clever enough to title his presentation to us, “If You’re So Smart, Why Aren’t You Rich?”

Chief Family Officer said...

I think you've convinced me to go to the next seminar at work. They have them periodically and I always dismiss them, but you've got me thinking that I should at least give it a try. And it might even come with a free lunch!

Financial Planner said...

Why do you have bonds in your 401(K)? If your under 40 you won't be touching that money for 20 years, and over any 10 year period the market has been up to the tune of an average annual return of 10%, which is greater then bonds average return of 6%. More importantly during periods of low interest rates when the forward earnings yield of the S&P is more then 1% greater then the 10-year treasury (currently 3% in a favor of the S&P) stocks average return has been 20%. Bonds are simply overvalued relative to stocks right now, and if your investment horizon is 20 years, the risk is minimal.

limeade said...

I haven't heard of anything like this where I work, but that doesn't mean they don't exist. I probably wouldn't go though since I'm fine with how I'm currently handling things.

retirement pro said...

If you are self employed and have no employees, you can be qualified for a solo401k plan. You can have checkbook control and invest in anything allowable - only collectibles are not allowed. I own no stocks in my retirement plan and have been investing in real estate for 15 years.