The Personal Finance Podcast - The EXACT Steps You Need to Take To Research and Choose Your 401(K) Investments

Episode Date: March 6, 2024

In this episode of the Personal Finance Podcast, we are going to talk about the exact steps that you need to take to research and choose your 401k investments. How Andrew Can Help You:  Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Monarch Money: Get an extended 30 day free trial at monarchmoney/pfp Thanks to Fundrise for Sponsoring the show! Invest in real estate going to fundrise.com/pfp Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/  Links Mentioned in This Episode:  Here is the IRS Link The Easiest Way To Invest: Target Date Retirement Funds Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Learn more at tellus.com slash online security. No one can prevent all cybercrime or identity theft. Conditions apply. On this episode of the Personal Finance Podcast, the exact steps you need to take to research and choose your 401k investments. Buddy and welcome to the personal finance podcast. I'm your host, Andrew Founder of Mastermoney.com. And today on the Personal Finance Podcast, we're going to be talking about the exact

steps that you need to take to research and choose your 401k investments. If you guys have any questions, make sure to hit us up on Instagram, TikTok, Twitter, at Master Money Co, and follow us on Spotify, Apple Podcasts, or whatever podcast player, you love listening to this podcast on it. If you want to help up the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now, today, I'm going to give you the exact steps you need to research and choose your 401K investments. And on the front end of the show, I'm going to be explaining the different types of 401Ks that are out there.

If you already know all that stuff and you want to skip down to the second half of the show, you can go ahead and skip down because I'm going to give you the exact steps that I utilize to research funds inside of a 401k. And what I would look for when I am looking at a 401k and some of the funds that we are going to be looking at. So there are some changes, and this is directly from the IRS. There are some changes in 2024 at the time I'm recording this to the contribution limits of a 401k.

So if you don't know what a 401k is, we'll explain it here in a second. but the amount of money that you can put inside of a 401k is called a contribution limit. And the contribution limits have changed for 2024, where you can actually put $23,000 inside of your 401K. And so this is up about 500 bucks from last year and has gone up for the last couple of years over that time frame. So if you want to look up all the 401K contribution limits, all the changes that have happened of the course of last year, I'll link up the IRS document down below so that you can

check that out and see what those are. And so the first thing we're going to be talking through is the different types of 401ks that are out there. And a lot of people ask me, you know, which one should I open or which one should I go for? And so these are some of the options that are out there that we're going to talk through is the traditional 401K, the Roth 401k, and the solo 401k will talk through each of those as well. Now, if you have a thrift savings plan or you have a 403B or you have a 457 plan, all of those also will fall in line with the 401k and what I'm talking. about here, and specifically the traditional 401K. So those are great options as well as we talk through this. So first, what is a traditional 401K? So if you've never heard of a 401K,

you're just getting your money right. You've never listened to this podcast or you haven't been listening long. The 401K is a fantastic wealth building tool. In fact, Ramsey Solutions did a study of 10,000 different millionaires and they found that 80% of those millionaires actually became millionaires through their 401k. Now, you're going to see a lot of people on TikTok and Instagram, and all these other places saying 401K is a scam. The 401K is not a place to put your money, all these different types of things. And guess what?

A lot of times the people that are preaching that are trying to sell you something else. Either they're trying to sell you their real estate course and or they are trying to sell you on life insurance or something else along those lines. But a majority of Americans in the U.S. today built their wealth via slow and steady growth inside of their 401K.

401K is not a get-rich quick platform. It is not a way to build really quick wealth. Instead, it is contributing money over time and allowing that money to grow so that you are able to retire. So the way that it works, it has pre-tax contributions, meaning the money that you put into your 401K comes directly out of your paycheck typically and goes into your 401K. So you haven't paid taxes on that money yet. You're getting paid and then the money is going directly into your 401k. Now, the cool thing about this is you have tax deferred growth, meaning because you're deferring on those taxes,

you can grow that money over time and you don't pay taxes on earnings until you withdraw that money so it can grow a little faster. Then once you withdraw that money in retirement, it is taxed as ordinary income. So if you withdraw the funds before age 59 and a half, then it may be subject to a 10% penalty. So you don't want to put money into your 401k that you're going to need right away. That money needs to stay in there until your age 59.5, which is one of the bigger arguments of people saying not utilizing your 401k, but we have ways around that, including a Roth conversion ladder and some things that you can do to access those funds even earlier. And another great thing about the traditional 401K is a lot of employers will offer what is called

an employer match, which we will talk about more in this episode. But the employer match is something that allows you to build more wealth and it is a 100% rate of return on your money, but they will offer to match the amount of dollars that you put into your 401k up to a certain percentage. And so there's a lot of incentives for them to do that. That is why they offer that incentive. And so for most folks, this is a great way to ensure that you, you can build additional wealth over time. And I'm going to show you how much more your money can compound if you get that employer match as we go through this episode.

The second option for a 401K is the Roth 401K. Now, the Roth 401K is something your boy loves. I love me, a good old fashioned Roth 401K. One of my favorite accounts out there because, unlike the traditional 401K, contributions are made with after tax dollars. I mean, you already got tax on that paycheck. Then your money can go into the Roth 401K. And so you pay taxes on money.

now, but when you withdraw it in retirement, you're not going to be pay taxes on that money. And in addition, you get tax-free growth, which is why I love this account, because you get tax-free growth when you put your money into a Roth, meaning that money is going to grow completely tax-free. Now, you've heard how much this money can grow at a Roth IRA where you can only put $7,000 per year in there. Well, imagine how much you can grow in a Roth 401k where you can get almost $23,000 in there and that money can grow tax-free. Major compounding there if you can get that money in there. There also are no income limits for a Roth 401k. So they don't not have those income limits that the Roth IRAs do. So it makes them accessible for high earners. And in addition,

some employers also offer a match on this. If they offer the match in addition to having a Roth 401K, boy, oh boy, do you have a double whammy there. Then lastly, we have a solo 401K. And a solo 401K is for self-employed folks. So if you are self-employed, you're a solopreneur. The solo 401k is also known as the individual 401k and is designed for business owners with no employees other than the owner and their spouse. And so that's what you can utilize. If you have a bunch of employees, there's things like the SEP IRA or you can set up your own 401K plan through the provider that you have there. Then they have high contribution limits. So same thing. It's all the same pretty much. And you can do solo 401K plans for Roth or traditional and they have flexible contributions.

where you can actually contribute a lot more money into a solo 401k if you do it right. So those are the differences between the three. Most people have the traditional 401K. I think there's a very low percentage of Americans that have a Roth 401K. But you can check with your HR department to see if you have that Roth 401k option because it is an amazing option. And then if you do, I would consider utilizing that because I think it is one of the best ways to build wealth with that tax-free growth.

I love that tax-free growth when it comes to the Roth 401K. And the next thing I want you to understand is just understanding the power behind the 401K. So first of all, you have those tax advantages. And I want you to understand why we even consider these. So the tax advantages are number one. And you've got that pre-tax contributions in the 401K are really, really important. Two, you got the employer match. Three, you have really high contribution limits, meaning the contribution limits are much higher

than things like the Roth or the traditional IRA where you can get more money in there. Four, is you can compound grow this money over time. and typically 401ks will have okay investment options. If yours does not have great investment options, meaning it has high fees, which we'll talk about in a second. I'll tell you what to do. But usually you get some great options there

where you can compound over time. And one big thing about the 401K that a lot of people just don't think through is that a lot of 401ks will auto enroll you, meaning that when you started a company, they're going to start putting money into your 401k for you, even if you did not elect to start to do that. And so what this does is it creates a forced savings

for a lot of people to start investing. And this is why so much people build well through their 401ks because they have this forced savings of money that they never saw. So there's a psychology behind 401ks that allows people to save more money because it comes directly out of your paycheck, whereas a Roth IRA, you have to actually take action in order to put those dollars into the Roth IRA with a 401k, you don't have to do that. It comes directly out of your paycheck, which you can see just based on the power of automation, how this can make a massive difference in your finances. So making sure that you are checking to see if you're auto enrolled

A and then making adjustments is going to be really, really important. Another big thing, though, about the 401k is it is actually more portable than a lot of people realize, where you can do a roll over IRA and be able to take your 401k with you. So if you leave your job, for example, your money is not stuck there unless you have a certain amount that needs to be vested when it comes to your employer match outside of the vested amount. The money is not stuck there. You can take this money and you can roll it over into a rollover IRA and there are tools out there that you can actually help you do this for free.

But when it comes to this, you do not have to leave it at your current employer. You can actually take that money and roll it into a roll over IRA. Now, I like to roll money over when I leave a job because then I can put it into somewhere like Vanguard, for example, which I absolutely love. That's where my rollover IRA actually is. And I could take those funds and invest them into Vanguard funds and control the funds of investing it. So it is a great option for a lot of people who leave their jobs to go ahead and do that. And then they also, a lot of times 401Ks have some decent options. I haven't seen a lot of them

with some of the terrible options now with the widespread financial literacy that is going around now. If yours has bad options, try to see if you can get some Vanguard or Fidelity funds in there or some other great funds that you enjoy out there that have lower fees if yours have bad options. Because if your 401K has bad options, it's much harder to build wealth than it would be if you had some of those vanguard funds or those low cost funds inside of that account. So really, really important to know that. Now, next, I want to dive in to the power of the 401k match because this is something you definitely need to understand. And I want to show you why it is so important to take advantage of this and why it is the number one thing we tell you to do first with your

money. All right. So let's talk through the power of your 401k match. And the first reason why it is so incredibly powerful is because it is free money. It is a 100% rate of return on your money if you take advantage of that 401k match. Meaning that if your employer says to you, I will give you 5% added to your 401k. If you put 5% of your money into the 401k, that means you get a 100% rate of return on your money. There is no situation where you do not take advantage of that. If somebody told you, I'll give you $200 every month.

If you put $200 every month into this account, would you do it? Absolutely you would. And that is what your employer is asking when they say you get $200 every month. your employer match. And if you get a 100% employer match, really, really important. Now, some companies will do things like a vested schedule. And if you don't know what a vested schedule is, it is where if you stay at that company for a certain amount of years or you hit certain milestones, then you will get more of a percentage invested into your 401K. So say, for example, they want a five-year vested schedule. So say in year one, you get 20% of the 401k match. In year two, you get 40%

in year three, you get 60% in year four, you get 80% and in year five, you get 100% in year five beyond. And this is just to keep people around for longer periods of time. But a lot of times you got to assess the situation. If you're going to leave, really, it doesn't make a ton of sense to stick around just to get fully vested in your 401k match, especially if you're making a lot more money at another company who makes a new offer to you. So that is one thing just to consider is looking that vesting schedule up, but it's still free money. So no matter what, you're still getting free money over time. And so that is really, really important. So that's the number one. thing you do even before paying off debt or anything else is make sure you take advantage of this

match. You also get compound growth when it comes to your 401k match because it's automatically investing in the funds that you elect. And so it's really important to make sure that you get compound growth early and often. You get those tax advantages that you do for contributing to a 401k and it just encourages you to save over time. Now, there's a really cool chart that Empower did that shows the power of your 401k match. So this shows an example of a person with $65,000,000, $1,000 per year who gets a company match of 100% up to 5% of their salary. So if they don't meet the match at a 2% every single month, if they don't meet the match, the employer would put in $1,300 and the employer would also put in $1,300.

And if you invested this money over 40 years, it'd be $433,019. Okay? So that's only at a 2% contribution. they'd have close to half a million dollars. And this is just assuming an average rate of return of 6% by the way. But they would have half a million dollars more in their retirement account just by putting 2%. Okay? If you got to 5% meeting the match, if they met the actual match that their employer offered,

means that they put 3250 every year into that account. And their employer would put 3250 every single year into that account. This would grow over the course of 40 years at a 6% rate of return, which I think is very conservative. this would grow to $1,082,547. So this is a million-dollar decision to take advantage of your 401k match is to make sure that you were actually doing this if you do it up to your match.

Now let's look at a 10% contribution match. If you went above and beyond that and just put 10% in, so you put in $6,500 per year, your employer put in another 5% because they're matching it. So $3,250 per year, you have 1.623,000, million dollars in your 401k just by getting that match every single year and in addition putting

5% above. Meaning you're contributing 10%. That's all you're contributing and you'd have 1.623 million dollars over the course of 40 years inside of that account. Pretty powerful stuff. And so when it comes to million dollar decisions, your 401 match is one of them. You need to take advantage of that 401k match. If you have heard me say that over and over again and you have not taken action, now is the time to take action. This is the time to do it. it, and it's more and more powerful the longer that you have this money compounding. So the sooner you do it, the better off you will be overall. Now, let's dive in to how to research your funds in your 401k. All right. So lately, I've been noticing how fast things are changing at home.

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with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivatewealth.com. So I'm going to talk through some of these options, and I'm going to give you the step-by-step guide here on how to research the funds in your forefirm. 401K. Really, really important stuff to do. And I get a lot of questions on this. I get a lot of questions from people who are brand new to their 401k and they don't know how to figure out which

funds to choose. So I'm going to show you the exact steps today. I'm going to show you exactly what to do in order to make sure that you're making the right choice for you. Now, one thing you can do also is a lot of 401K providers will give you information that you need and help you guide through some of this stuff. But I want you to kind of think through, hey, what are my investment goals, A, and if you don't know what your investment goals are, then over time you're going to develop those as you listen to this podcast. But B, you really need to figure out what your risk tolerance is. If you're new to investing and you're really nervous and you're going to be checking your 401k all the time, then that's something where really, I want you to check your 401k less than you actually

think you should. I check my 401k maybe once a year, and that's it. Why? Because I'm going to continue to invest in that thing no matter what. And so it's one of those things that I really don't want to be checking it all the time and seeing the ebbs and flows day to day. Because what it comes down to is when you invest in the stock market, the long-term investing is what truly matters. Day-to-day, the stock market is a popularity contest. But in the long run, the stock market is an indication of good business. So you need to know the difference there because in the long run, that is all that actually matters. I never look at short-term returns. I look at long-term returns, and that's what you want to do. And if you want an example of this, I always talk about this. But if you want a great

example of this, take out your phone and go to the S&P 500 and whatever stock app you have. If you have an iPhone, just go to the stock app, open it up and click the S&P 500 index. And turn that as far as you possibly can with the longest time horizon it has available. And what direction does that market go? It goes in one direction, which is up. Long-term investors will go up over time. Short-term investors can lose money very, very quickly. So making sure that you are a long-term investor is super, super important. Now, that is number one, is figuring out kind of where you land and what your risk tolerance is. So if you've never checked out what your risk tolerance is, this means how susceptible am I to reacting based on how the market moves? So if the market goes up and then it comes back

down, are you going to panic and are you going to freak out? Or are you calm, cool, and collected and you're willing to ride this thing out because you know in the long run the market goes in one direction. You've educated yourself enough to understand that this is just part of the process. The market's going to go up. The market's going to go down. Long term, it's going to run direction. So assessing your risk tolerance is basically saying, how do I react to some of these situations? Does this make me lose sleep at night if I have more stocks in my portfolio? Because stocks are more prone to volatility, meaning they're more prone to going up and down over time. But in the long run, they have higher rates of return. And or am I going to be someone who would much more likely

have a larger bond portfolio. Bonds are less susceptible to moving up and down, but their returns are much, much lower over time. Well, really, in my belief, you need to have some stock exposure to ensure that you can grow your money over time. Growing your money means stock exposure needs to be there because bonds won't grow them fast enough in order to be able to build wealth and to be able to retire. So making sure you understand that risk tolerance and you understand how you personally react to some of this stuff is going to be important. And if you have that low risk tolerance and you really don't want to take on a ton of risk. I'll show you some stuff that you can do as we go through this. Number two is you want to understand the available fund types and the

available fund options. So typically in 401K plans, they offer a range of different funds. They'll a lot of times have things like mutual funds. They'll have maybe some index funds in there. We love index funds here at the personal finance podcast. They'll maybe have some target date retirement funds, which we also love, depending on what the fee structure is. And they might have target date index funds in there as well, we absolutely love here as well. And so you've got to understand the difference between some of these funds. And they may have specialty funds, like a health care fund or a real estate fund. They may have a bunch of different stuff in there. And so you got to understand what the options are. So what I would do is I would take out my 401k prospectus. You can ask your HR department to give you a list of your 401k

options and what the heck they do. And if they have an online version, that's even better. Sometimes they'll send you a PDF document. And then what they'll do is they'll give you little ticker symbols inside of there. And what a ticker symbol is, it's the letters and numbers that show you what this fund actually is. And then now that you have all these ticker symbols, you can start to do some research on these funds. Really important to know what's there. So first, they'll probably give you that documentation. That's probably the easiest route to go is to get that PDF or to take, if they give you a paper copy, to take that paper copy. And you can go and look at some of these funds objectives. You can look at their risk level. You can look at their past performance. You can

look at their fees because that's what we're going to do next. So in step three, we're going to take all these funds and we're going to start to look through them. Now, there are some out there. If you've listened to this podcast a long time, you know I love things like the S&P 500. You know I love the total stock market index funds. You know there's things out there I love like, you know, target date retirement funds, all those things. So if you want to target those first, you definitely can. And at the top of the list, you're going to research the funds performance. And a tool that you can use to do this is morningstar.com. Morningstar is a great place to start. You can also use another free tool called Portfolio Visualizer if you're a little more advanced. That's a great way

to kind of build out portfolios and model portfolios. And it's a free tool that I like to use also. That is really, really cool. But Morningstar is great for mutual funds and index funds. It gives them a rating. It shows what their fees are. It's going to show a lot of this information that we are looking for here. So go to Morningstar.com and you can start to look at historical returns. So that's the first thing I want you to look at with these funds is you can open it up and you'll see, for example, if you look at an S&P 500, index fund, it's going to have historical returns above 10% at the time of recording this. But if you look at something like an international index fund, it is going to have lower historical returns than the S&P 500 would at the time of recording this. Or you can look at a bond fund and it's

going to have lower returns than the S&P 500. And so you can start to look at these historical funds and compare the differential between the two. Now lower historic returns matched up with your risk tolerance is what you really want. But if you look at these returns and you, you you say to yourself, well, I would like to have an average rate of return of 7 to 10%, then you can build out a portfolio based on that based on your retirement goal. So really, really important to make sure that you're thinking through that. A lot of times for me, I'm looking at historical returns and anything above 7% I am okay with. So I'm trying to find 7% or above for stock funds. And then for bonds, it's just up to how you're diversifying that portfolio. That's what I really

want. And then if you want some international exposure, which most people say that you should, or if you want small cap value or anything like that, then you can add those funds in as well if you're interested in those to build out a portfolio. And you kind of have to decide, hey, what kind of portfolio do I want? So when you're going through maybe your goals and you're going through your risk tolerance,

you're thinking through, well, what type of portfolio do I want? Maybe I'm more prone to having 60% stocks, 40% bonds. Maybe I wanted Warren Buffett portfolio of 90% stocks, 10% bonds, or what do I really want inside of this portfolio? So as you're doing this research, you can look at this performance. Next is one of the most important things when it comes to your 401k. This is going to help you knock a bunch off of your list, is looking at the fees and the expenses.

Now, bad 401Ks are going to have bad funds with high fees. That's what is going to be indicative of a bad 401k option, is that if you have funds in there above 0.0.30% or 30 basis points, then most likely you have funds in there that have really, really high fees. Because if they're half a percent, if they're 0.75, if you have funds in there above a 1% fee, run as fast as you can. Fees are absolute wealth killers. And if you have a 1% fee that does not sound like a lot,

but it is a ton of money over the long-term time horizon. In fact, if you are investing enough money into your 401K, that could be millions of dollars that you give away in fees just by a 1% fee. So fees really, really matter. You want to keep these below 0.30% typically. And for me, that's what I'm typically looking for. If it's above 0.50%, I'm not even going to really, consider that option when it comes to my 401k. I really want to be lower than that. If that's all you have.

If all you have is higher fee stuff, I would get my match, go to the Roth, and then maybe come back to the 401k later on down the line. But for a lot of these things, I want to make sure I'm analyzing the fees. Now, where do you find the fees? When you go in and you research some of these funds, they also call them expense ratios. And the expense ratio is going to tell you how much that fee is for each of those fund options. And now I also want you. you to be aware of things like sales loads or additional fees associated with buying or selling the fund. So you can look into these and just type in, hey, does VTSAX have sales loads or additional fees associated with buying this fund? And then hit enter and see if anything comes up.

Chat GPT and some of those tools are also getting better at helping you analyze this stuff. But you just want to trust but verify a lot of these. But you can use the web search tools inside the chat GPT and it can give you some instant answers on this stuff. And then you can kind of dive deeper and make sure that is correct before you actually invest in that. But I like to use Morningstar. I just type in the ticker symbol. It's going to show you that expense ratio right up front. And I'll do an example here on the show in a second so that you can see where those are. Step five is if you're going to diversify that portfolio, it's making sure that you figure out what that mixed type of assets are. If you want 90% stocks, 10% bonds, you're going to look at something

like an S&P 500 or a total stock market index fund, for example, and then maybe you're adding in 10% of bonds, you can do that. And you're going to see when you invest in your 401k, you're going to put a percentage of your money coming in. You're going to put it in a little box right next to the fund's name. And so a lot of times that's how it works, where you're doing it by percentage, and that's going to be really, really helpful for a lot of people. Now, if you don't want to choose your asset allocation, meaning if you don't know how to choose the amount of stocks or the amount of bonds in your portfolio, what you can look for, and this is what a lot of people do in their 401k's, is you can look for $1.

target date retirement funds. And it's even better if your 401k has target date retirement index funds. And this is mainly because they have lower fees. And so if you don't know what that is, these are the funds that have years next to them. So they may have 2065, they may have 2060, 2055, 2040, 2035, 2030, all of those funds are called target date retirement funds. Now, you've got to check the expense ratio to make sure that they are okay funds. but at the same time, this is the best way to have a diversified portfolio based on when you're considering retiring. So those years are typically based on this is my retirement year and this is the portfolio. Someone that age is likely to have. Now, just because you're going to retire in

2040 does not mean you have to pick the 2040 retirement fund. You can pick the 2065 retirement fund even if you're going to retire in 2040 because you've got to look at what the asset allocation is inside of that fund. So for example, a 2065 Fidelity Fund, for example, right now, just did this on the last show and we looked it up. And it was about 90% stocks and 10% bond. So it's a war-buff portfolio. And so for me, if I was working somewhere and I wanted a target date retirement fund, I would choose that one personally because it has the asset allocation that I would want. Now, somebody else may want a 60-40 portfolio. And so you look and reflect the year based on a 60-40 portfolio, which is probably like in the 2040 to 2050 range somewhere around there. That's

where you'll find something like that. So you just want to make sure that you choose the right asset allocation in those target date retirement funds. If you are interested in learning more about target date retirement funds, we did an entire episode on that and talking through target date retirement funds. And then the last thing I would do is as you're looking through this and you're diversifying your investments, once you make your choices, then just periodically continue to review your portfolio. I like to do it yearly, like I said, you don't have to do it all the time. But if it motivates you to see that money grow over time, you can look at it. And then if you're interested in rebalancing your portfolio, you can also do that based on your rebalance plan and kind of go through

that option as well. Now there are also 401k providers also offer a bunch of online tools. So you can take advantage of some of those online tools and ask your HR department what they have available. And then also just kind of stay informed on market trends, things like that. But it does not have to be a complicated process to pick your 401k examples. So like I said, you can go to the fund's website. You can go to Morningstar. You can go to Portfolio Visualizer. All those are great tools to kind of do and research some of this stuff. So I'm going to show you an example. Let's just look at two examples here really quick. and I'm going to show you how I would look through these. So first I'm going to look at VSVNX.

So VSVNX is going to be Vanguard's Target Day Retirement Fund for 2070. And so I'm actually on in Vanguard's investor website right now. So you can type in VSVNX and Vanguard's site I'll probably pop up first. And I'll show you what I'm looking at here. And so what we're doing is first we're looking at what are the expenses on this fund? Well, this fund's fantastic. It is 0.08% expense ratio. So that is the first thing I'm looking for, okay?

Because I'm trying to figure out am I even going to invest in this fund. So next, I've looked at the expense ratio. It is low enough for my criteria. Now, I want to know some of the performance things on this. Now, you're going to see things like a one year performance. You're going to see three years. You're going to see five years, 10 years. I want to know how this has done since inception. And so for a fund like this, if it's 2070 fund, it hasn't been around a long time. In fact, this has only been around just for a little over a year. And so since inception, this has done 12.92%. What I really would want to do is that this fund has been around a long time. time. I want to look at 10 years or beyond whatever the longest time horizon is. That's what

matters most is longer time horizons. The short term, like for example, a year to date as I'm looking at this is 0.08%. I could care less about that. I don't want to know what's happening year to date. I don't want to know what's happened in the last three months. I want to know what happened long term to see if this is actually a good quality fund for my portfolio. Now the average expense ratio, one thing I like about Vanguard is they try to keep their expense ratios low. And usually if you have Vanguard options in your 401K, those are some fantastic options that I would definitely look at researching those first to see if those work fidelity. Same thing. Those are great options to you. An average expense ratio of those similar funds are 0.43%. So that you're saving a ton of

money with a fund like this if you're looking at it over that time frame. And then I like to look at the portfolio composition. And so the portfolio composition of this one is going to be the Vanguard Total Stock Market Index Fund, institutional shares, meaning it's going to be the total stock market index fund. And it's going to be the total international stock index fund, which I know both of those are fantastic. And so that means it is weighted to about 90% of the fund being in the stocks. And then about 10% of the fund is in bonds. And so it has something that shows me that. And you can look through that. And the exact number is 89.71% stocks and 10% bonds. And this is kind of why I like looking at the prospectus on here. And this tells you so much

about this fund in and of itself. So if you wanted to follow along in the podcast when you get home, if you're listening in the car, you can go back and rewind this and listen through as I'm talking through this. I also go through funds like this on the YouTube channel as well. So if you've ever seen me analyze some index funds, things like that, you can see how I analyze them, because that is exactly what I'm looking for, some of those metrics right there. Now let's look at another one just real quick is FZROX. A lot of funds may pick up this. And FZROX is Fidelity's zero fee index total stock market index fund. So it has zero fee. So for example, I'm looking at this. I already know there's no transaction fee, which is fantastic.

it is beating out that piece. And as a three-star overall rating by Morningstar. And overall, this has something of a decent return here. So over the course of one year, 19 percent, I don't care about one year, three years, nine percent, five years, 13, lifetime, 11.46. So I care more about the lifetime or the last 10 years. And so that shows me exactly what the returns on this fund is going to be. And then as I look through this, you can see some of the top holdings if this is a specific fund. So it's got Microsoft, Apple, invidia, Amazon, meta, alphabet, which is Google, Berkshire Hathaway, which is Warren Buffett's company, Tesla, Broadcom. All of these are fantastic companies to have in the top 10 holdings. These are stuff that I want to have in the top 10 holdings.

There's a lot of things that are great about this fund. So this is another one that I'd be interested in personally if I was looking in my 401k and solve this. So these are some of the things that I would look through in some of the ways that I would kind of research some of these funds. And those are just some of the parameters I would think through. If you guys have any more questions about this or you want to learn more about researching this stuff. Absolutely reach out to me. Index Fund Pro our course also kind of walks through this and shows you how to analyze some of this stuff so that you can understand how to research your options in your 401K. And Index Fund Pro members, we're going to dive deeper into this and do some more 401k option analyizations so that you

have that available to you as well as an added bonus. So thank you guys so much for listening to this episode. I hope you enjoyed this step by step guide. If you guys have any questions on exactly how to do this please make sure to reach out to me and I will help you as much as I possibly can. And thank you so much for listening to this episode and investing in yourself because that's exactly what you're doing is you're investing in yourself by listening to this podcast and you were one step closer to building that wealth and that financial freedom that you love. Thank you so much for being a wealth builder and listening to this episode. And we will see you on the next episode.

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