401k News

After a slow start, I think I finally have my 401k asset allocation in order. About 3 months ago I took a good look at how I had been contributing to my 401k and found to be investing too much in balanced funds. In mid August, before I started this blog, my year-to-date return was just over 3%. Not very good! I could have been making more money not contributing to my retirement plan and instead going with an ING or Emigrant Direct saving account. I couldn't beleive it, and I decided to be more aggressive...a lot more aggressive. I moved a big chunk of assets in my balanced funds to aggressive growth funds, namely American Funds EuroPacific Growth Class A (AEPGX) and T. Rowe Price Small Cap Stock (OTCFX). Don't get me wrong, I still have plenty of balanced funds in the mix, but in about 3 months my year-to-date return went from about 3% to 9% as of today. I'll be extremely satisfied if my portfolio stays at or above 9% in a year where Wall Street only expects single digit returns.

Traditional, Roth or ETF

This January I'm going to set up a retirement plan that my wife will contribute to. Currently, she has no retirement plan in place as her employer doesn't offer one. I have a few things in mind: the traditional IRA, the Roth IRA or an ETF like Nasdaq's QQQ or the S&P's Spiders. I know the tax benefits of the Roth vs. the traditional IRA, but I've also been researching investing in ETF's as well as they seem to be growing in popularity. I'm all over the place with these and can't make up my mind as to which one to go with. It'll probably come down to personal preference. Check back and see in a month or two to see what we come up with.

3 "Baskets"

Ok so I'm taking this from David Bach's Smart Couples Finish Rich and want to share how we're taking advantage of this.  The 3 baskets consist of the retirement basket, the security basket and the dream basket.  As of this writing, I am contributing 10% of my gross income into my 401k as my retirement basket, $250 a month into an ING Direct money market account with a 4.4% return, and my wife and I are actually in the process of cleaning out our dream basket to fix up and furnish the house we just bought.  We started the ING account on September 15, 2006.  This will be used for emergencies only, and my goal is to accumulate at least 6 months of expenses (not income) to use for a rainy day.  I plan on putting my annual bonus (March '07) and my income tax return (also around March) into the ING account as well, just to give it a little kick.  The dream account will be refunded when the improvements on our house are finished, at approximately $100 a month, and I plan on increasing my 401k contribution to 11% starting July 1, 2007.