Automatic Asset Allocation for 401K Plan

Automatic Asset Allocation

That's what the green button says on my 401K plan with Nationwide...And I have been staring it at for quite a while over the past few weeks. All the financial gurus out there recommend rebalancing your stock/bond portfolio at least twice (2) a year, either automatically or manually.

I knew I wanted to rebalance my portfolio because over the last two years, the small cap and mid cap stocks in my portfolio have skyrocketed to nearly 30% of the portfolio. They had been doing very well, indeed. That fell out of congruence with the initial mixture that consists of 10% small cap and 10% mid cap stocks...big time. The portfolio had drifted away from the initial mixture by nearly 10% in each category while large cap stocks and international stocks fell slightly behind by 5% to 10%.

I knew I needed to rebalance badly! However, I just had not pressed that automatic rebalancing feature (free with nationwide plan) because it's hard to sell off well-performing stocks to buy lagging ones. But I DID it! On 1/31/2014, I finally rebalanced an 8 year old account with a future quarterly rebalancing schedule.

According to Morningstar.com, as a rule of thumb, when your assets drift 5% or more away from your allocation, you should re-balance. It proposed considering the alternative...which is what happened to people during the tech stock boom of the late 1990s. The technology stocks grew out of proportion withi many people buying more and more of the tech stocks and not enough of the other stock categories. When the market crashed in March of 2000, the largely disproportionate percentage of their portfolio had nothing to fall back on. That consideration mainly prompted me to finally hit that Automatic Asset Alloation button. Finally.

Then, of course, today, the markets tanked. What is it with me and timing, lol? Hopefully, this was a good move in the long run.

Mutual Fund Exchanges In Roth IRA

After I recovered from the weekend trauma, involving a horrible "friend" who left me stranded on Friday night at her boyfriend's place until six a.m. on Saturday, I decided that I'm going to tinker with the funds I have in the Roth IRA account at American Funds. I know...I know...I need to figure out a better way to release anger :)!!

Since, I already buy the Bond Fund of America (ABNDX) through work's 457b Plan , I decided to exchange the bond shares with their New World fund (NEWFX), an emerging market fund. Originally, the bond shares were bought with a load charge of 3.75%. The New World shares require a 5.75% load charge on shares bought, normally. However, since I'm exchanging ABNDX shares with NEWFX shares, no additional load charges were applied to the shares that were transferred. Great...I got a 5.75% load fund while only having paid 3.75%. I'm not sure if I can keep doing this (buying the bond fund first and then exchanging out the shares) whenever I want to invest in 5.75% load funds. No redemption fees apply since I'm still keeping the money in American Funds. Since capital gains will have to be considered, I won't be able to keep the automatic investment plan if I were to go with this method. Instead, maybe a once a year transfer will do and with an accumulated lump sum.

Or maybe I should just abandon American Funds and their load charges altogether and open up a roth ira at Fidelity, instead. I have a rollover ira with a $2,500 amount with Fidelity in a Freedom Fund. So far, I'm happy with the results over there.

If only exchanging out bad friends with good ones are this easy... (sigh).

Sharebuilder Bonus for Costco Members

I was looking through my mom's Costco coupon book this weekend (Oh, what a weekend...of cooking, cooking, and more cooking for my dad's house warming party.) I came across a bonus offer to open a new sharebuilder account for Costco members. Costco Executive members can get a $85 bonus while Gold Star & Business members can get the $65 bonus. One of the requirements is that you make a first transaction. The offer is not valid with individual retirement accounts or education savings accounts. It says that the bonuses will be deposited into the sharebuilder account within 4-6 weeks after the first transaction has been made. The catch is, of course, you have to be a current Costco member and open a new sharebuilder account with the first transaction made in the newly opened sharebuilder account prior to June 4, 2006.

Pretty good for current Costco members....too bad, I'm not one.

Grandma's Stagnant Money Pile

My grandma's first dream was to become a doctor but it was stopped short when world war II occurred and she became pregnant with her first child. She had to find a way to feed her newborn baby (my dad) and so, her next dream was to own her own business. She was always stronger and more independent than my grandpa in terms of ambition and mind...she has always been the bread winner between the two of them. She managed to create and build an export/import business from the ground up, which was very successful after the war ended. In a way, she also got her first dream since all her children became doctors.

She was rich. I say "was" because she has spent most of her fortune through out her life and on her children. For example, she financed all her children's mortgages (she has five children). That is pretty nice of her considering that all her children live in prime real estate areas; Southern California, Bay area, and Hawaii. However, her savings have not exactly been growing since she has sold her business. Imagine, 40 years of her money twiddling thumbs and standing still.

However, she has divided up her some of her savings into large, small, and smaller piles prior to putting them into safe and slow savings accounts. Ten years ago, she has a very small amount of money put in a six month CD under my name after much persuasion from my mom that CDs are not going to kill her money. The interest rate currently is 1.87%. An all time high for this CD! Hey, at least she's not using shoeboxes anymore.

I'm the least favorite and most distant grandchild in my grandma's world. I don't expect her to give me this money and I doubt that she has the intentions to. To be honest, I think she has forgotten these smaller little piles she has spread around. I don't consider this money (approximately $12,000) my money but, since I can legally do what I want with this money, I'm going to put it in HSBC direct savings account, which has a much higher yield of 4.25%. I will have until the end of the month to withdraw the money from the CD account before it renews itself automatically. If she ever needs this pile, at least it'll have grown just a bit better than her other piles. This move has no benefit to me but really, I am just sick of getting the CD account statement every six months and staring at that horrible one percent interest rate. I wonder if she realizes that I have to pay taxes on the interest accrued for this money.

The HSBC savings account I had opened on my mom's behalf is now up and running with a $25 bonus since the online application was submitted two weeks ago. So far, it's been a smooth experience for me.

The next step is to open up a HSBC savings account for MYSELF :)!!

Selecting Funds for the Rollover IRA

Ever since I saw this particular episode of Jim Kramer's "Mad Money", a few months ago on the potential rise in the healthcare sector due to the healthcare needs of aging babyboomers, I've been thinking about getting a healthcare sector fund. I'm not a fan of "Mad Money" but I agree with his reasoning on this topic. Frankly, he scares me quite abit with his squeals (his voice).

One fund that I was thinking about buying was Fidelity Select Medical Delivery (FSHCX). I should have done so earlier this year, of course, when the value was abit lower. I think I'll wait a wee bit for a small drop.

I already have primarily allocated retirement contributions to Large Growth and Value Funds as well as a Bond Fund and Foreign Funds. Also, some into the Midcaps as well. So, maybe, the rollover IRA money can be allocated to a fun and exciting (and scary, perhaps) focus fund or sector specific fund. Compared to other specific sectors, the healthcare sector seems to be abit less scary for the next few years.

But, I really have no experience in assessing funds and their potential, except for having read a couple of books on such topics. I've read that it's not advised that one buys a fund toward the end of the year due to fund distributions that are usually issued at the end of the year. But I am in not in a high income bracket to worry about a high tax bill, so I think it should be allright for me to buy at this time. I just don't want to leave the money in the rollover ira to stagnate for a couple of months or so.

Variable Universal Life Insurance

Finally, I received some word back from One National Life Insurance that was bought through a representative from the MONY group. I went through the medical exam a few weeks ago, that consisted of loads of medical history inquisition (:D), a blood test (twice because I'm supposedly hard to draw blood from), and a urine test. I guess they didn't find anything exciting about me because I got the standard rate for the variable life insurance.

The monthly payment is quoted at $ 96.00. This rate will not change with age or medical problems in the future ( which I know there will be loads of, with the way things are turning up). The money will be tax-deductible and will be invested in a few mutual funds or annuities. I don't have the list of investment options yet. If the investments do well, you can opt to pay for the insurance premiums with the profits you make from the investments. The principal amount of the balance would be available for withdrawal at any time. The growth of the money in the account will grow tax free until, of course, you take it out.

I wonder if it would be a wise option to use or view this life insurance account as a forced savings account that has a growth feature with compound interest with the benefit of having your life insured for $250,000. But then, I've heard that this is not a very wise thing to do as well.

I haven't been able to update frequently during the last week due to this week being the exam week. Have exam on this tuesday and wednesday..I really hope I pass!

Also, I found out today that my work only pays for $1,500 per fiscal year for tuition reimbursement!!! That's pretty low. But then, it's better than nothing!

Fidelity Rollover IRA Update

Earlier this week, I had talked about the rollover process from an old 401K plan into Fidelity's rollover IRA account.

I was worried about the length of time it was taking to get processed, but I received the check from the old 401k plan provider today! Whew! The check's made out to Fidelity and nothing was withheld, so I'm happy enough. I guess, they don't directly send it over to Fidelity but send it to me first and then have me send the check to Fidelity. I assume that this is due to security purposes.

It took approximately a month and a half, beginning from the day on which I had submitted the distribution form to my old employer til the day I received the check (today!). I talked to Fidelity today and told them to be patient... all of my meager $2,600 rollover is coming soon to them. $2,600 is still $2,600 and I'm darn glad to have it! :).

Wow, I'm talkative today...this being the third post in one day.

Financial Planning Workshop

Financial Planning Workshops

I signed up for a financial planning workshop that's offered through work yesterday. The financial planner doing the seminar is a regular financial planning advisor who writes for the Orange County Register. The seminar is scheduled for November 10, 2005. Hopefully, good information tidbits will come from the workshop.

Also, I'm looking into enrolling in flexible spending accounts with AFLAC that's offered through work. The main reason is that I recently found out that I have medical problems and this 2005-2006 year is expected to a high cost year in terms of medical costs. I might have to go through multiple surgeries and medical procedures plus specialist visits and prescription co-payments. I know it makes sense to enroll in a flexible spending account to keep the true medical costs down due to its pre-tax feature. But, my side consulting business has been slow for the last couple of months and I'm finding it hard to deduct money ahead of time for forecasted medical expenses.

Basically, the irrational mind is reigning queen. On November 19, 2005, there's a workshop with AFLAC that's going to explain more about the services they offer and the rational me has signed me up for it.

401K plan Rollover to a Rollover IRA

During the third week of September, 2005, I had initiated the rollover process for my old 401K plan at the previous job into a rollover IRA account at Fidelity Investments. Now, it's beginning of November but the funds still has not been rolled over into the new account. However, the funds have been emptied out from the old 401K plan already. The distribution check designated for Fidelity Investments still has not arrived. I think it takes about a month or so to get this process completed, so I'll give it another week or so before I start looking into why the check has not been received.

The distribution check isn't much since I didn't contribute the maximum contribution to get the company's match. The company's match is fully vested only after three years and since I knew that I would not be staying with the company that long anyway, I was not worried. However, I do wish that I had contributed at least 5% of pay to the old 401K plan. I believe I contributed the minimum contribution percentage, that's set as a default by the company.

Does anyone know how long the rollover process takes in general, beginning with submittal of the distribution form to your old company and ending with the deposition of your money into the new rollover IRA account?

Dollar Cost Averaging

Dollar Cost Averaging

This is supposd be done to reduce market risk by investing in stocks or funds or etc on a regular time interval in set amounts. I read that instead of investing in a lump sum at the beginning of the year, it's better to spread the cost basis out over a longer period of time, which guards you against fluctuations in the market price.

If you set up an automatic plan with a mutual fund family, like I did, it's almost a brainless activity that's supposed to benefit you in the long run by buying shares regularly without paying any heed to the share price being low or high on that specific day.

However, I have set up a taxable account and a roth ira account at American Funds for about a year now with a monthly automatic investment plan. Freakishly enough, as I was looking through the past transaction history of these little regular buy-ins, the share price is the highest of the month or at least higher than regularly on the exact date that my automatic investment plan would buy shares.

Then, it would go down and down... and then by the time, the next buy-in date comes around, it'd be up again!!!

Is this just a stroke of bad luck for a year or do mutual fund share prices drop toward the last week of the month (which is when I have set up the plan to buy for me)??????

Now, I'm even considering changing the investing date to the middle or beginning of the month but I wonder if it would make any difference?! Does the economy do better at specific times of the month than at other times OR am I just being paranoid and not looking at the big picture like dollar cost averaging asks you to?

Points to ponder as I'm leaving for Knotts Berry Farm for some fun with my cousin, her husband, and my nephew. Of course, I've never really been to Knotts Berry Farm since I was a teenager, but this time around, it should be fun since I'll be seeing it through my little nephew's eyes. Ah kids....they're so adorable....until they ask you for money.

:)

457 K plan Deferral Contributions

I have decided to defer approximately $395 out of my paycheck per pay period. to the new job's 457 K plan. According to calculations done with a payroll deduction calculator at http://www.javacalc.com/java/457Payroll.html, there will be a reduction of $72.00 in each paycheck should I increase the contribution percentage to %25.

The $72 per paycheck doesn't sound alot but it does make a difference when one is counting on every dollar of that paycheck. Luckily, I'm not in a position where I have to do that yet but in the near future, I might be if there's a change of residence. Also, since I'm also contributing to my Roth IRA account on an automatic investment program every month, I think it'll have to be a while before I can increase my contribution percentage to %25.

For the 457 K plan through the new job, I havn't really looked through the fund options that I have thoroughly. So, this is what I picked in approximately five minutes before handing off the plan enrollment to the HR specialist;

Deferral Elections by Asset Class

- Large Cap Stocks = 35%

- Mid Cap Stocks = 15%

- International Stocks = 35%

- Bonds = 15%

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I know I need to adjust the election percentages and adjust the funds that I've elected. Right now, I just picked the following:

Fidelity Contrafund for Large Cap Stocks category

Federated Kaufman Fund for Mid Cap Stocks category

Templeton Foreign Fun for International Stocks category

Bond Fund of America for Bond category

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This weekend, I'm going to go over the other fund options and make some deferral changes.

Investing At All Budget Levels

Investing can begin at all budget levels.

Over at The Motley Fool, you can invest with just $20, or with $100, or with $1,000 plus.
I might have to start with the $20 dollar level, of course.

How to invest $20:

One of the best ways to invest small amounts of money cheaply is through Dividend Reinvestment Plans (DRPs), also known as Drips. They and their cousins, Direct Stock Purchase Plans (DSPs), allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.

More than 1,000 major corporations offer these types of stock plans, many of them with fees low enough (or free) to make it worthwhile to invest as little as $20 or $30 at a time. Drips are ideal for those who are starting out with small amounts to invest and want to make frequent purchases (dollar-cost averaging). Once you're in the plan, you can set up an automatic payment plan, and you don't even have to buy a full share each time you make a contribution.

While you have to keep good records for tax purposes, Drips may be one of the surest, steadiest ways to build wealth over your lifetime.

How to invest $100:

Consider investing it in an index fund. An index fund that tracks the S&P 500 is your entrée into an investment that has traditionally returned 11% a year, and lately has been doing a good bit better than that.

There are some index funds that require as little as $250 for you to call yourself an owner. This low minimum is usually restricted to IRAs (Individual Retirement Accounts). After your initial investment, you can add as much money as frequently as you like for no additional costs or commissions. You purchase index funds directly from mutual fund companies, so there are no commissions to pay to a middleman.

If you have a few hundred dollars to start with, then this is a great, low-cost way to establish an instant, widely diversified (500 companies!) portfolio.

How to invest $1,000 plus:

With $1,000 you can open up a discount brokerage account, but look at the rewards if you can scrape up an additional $1,000 a year to add to your original investment:

Say you've got 40 years to retirement. If you start with $1,000 and invest an additional $1,000 each year, and your money earns 10% annually, then when you're ready to retire at age 65, you'll have $532,111.07. That seems worth it to us. If you have earned income, you can set up a Roth IRA, and you won't even pay any taxes on that $532K when you withdraw it.

The key is to keep fees from eating up your earnings. So make sure that the costs of investing (including brokerage commissions, stamps to mail in checks, and books that help you learn to invest) are less than 2% of your account's overall worth. Nowadays, with such low commissions being offered by discount brokers, it's easy to manage your account for much less than 2% of your assets annually.

So, there it is! I may still have some hope. I need to start soon in order to take advantage of the compound interest (the sooner you save, the longer the time period you have before retirement... mean the better the compound interest works hard for you).