Beginner Question regarding which fund to choose and why it's important?

Hi,

First let me apologize. I am a newbie to 401K plans and I am just beginning to understand the basics.

If this question has been asked already please direct me to the related thread.

My scenario:

I have a 401K with Wells Fargo through my employer.

Employer matches 100% for the first 3% and 50% for the next 2%.

100% of my account balance is allocated to State Street Target Retirement 2050 P.

Question:

I understand how the contribution part works, but I am confused about the fund (State Street Target Retirement 2050 P SSDLX).  Wells Fargo lets me choose which fund to invest in. But I am not sure if I understand the "investing" part.  My 401K plan does not give me any dividends so why does it matter which fund I choose?  Does my 401K  increase or decrease based on the performance of the SSDLX?  If yes how and where would I be able to see those earnings or losses in my statement?  Is there a minimum balance in my account that is protected no matter how the SSDLX performs?

Help & advise is much appreciated.

On 8/15/2020 at 11:04 PM, AlohaGuy said:

Hi,

First let me apologize. I am a newbie to 401K plans and I am just beginning to understand the basics.

If this question has been asked already please direct me to the related thread.

My scenario:

I have a 401K with Wells Fargo through my employer.

Employer matches 100% for the first 3% and 50% for the next 2%.

100% of my account balance is allocated to State Street Target Retirement 2050 P.

Question:

I understand how the contribution part works, but I am confused about the fund (State Street Target Retirement 2050 P SSDLX).  Wells Fargo lets me choose which fund to invest in. But I am not sure if I understand the "investing" part.  My 401K plan does not give me any dividends so why does it matter which fund I choose?  Does my 401K  increase or decrease based on the performance of the SSDLX?  If yes how and where would I be able to see those earnings or losses in my statement?  Is there a minimum balance in my account that is protected no matter how the SSDLX performs?

Help & advise is much appreciated.

Help is exactly what you need, but not the kind offered here.  You need to talk to your employer and ask them who you can speak to at Wells Fargo that will explain basic investment issues.  It matters  TREMENDOUSLY which fund you go into; currently it seems that your funds are going into the Target retirement fund you mentioned, but you most likely have a number of alternative choices with the target fund probably being the default.  Find out who at WF is available to provide some employee education, which is what you clearly need.

I agree completely with Larry's great advice--would only add that your employer/HR department will have some written materials

on these funds that you should review carefully and save for future reference.

On ‎8‎/‎15‎/‎2020 at 11:04 PM, AlohaGuy said:

Hi,

First let me apologize. I am a newbie to 401K plans and I am just beginning to understand the basics.

If this question has been asked already please direct me to the related thread.

My scenario:

I have a 401K with Wells Fargo through my employer.

Employer matches 100% for the first 3% and 50% for the next 2%.

100% of my account balance is allocated to State Street Target Retirement 2050 P.

Question:

I understand how the contribution part works, but I am confused about the fund (State Street Target Retirement 2050 P SSDLX).  Wells Fargo lets me choose which fund to invest in. But I am not sure if I understand the "investing" part.  My 401K plan does not give me any dividends so why does it matter which fund I choose?  Does my 401K  increase or decrease based on the performance of the SSDLX?  If yes how and where would I be able to see those earnings or losses in my statement?  Is there a minimum balance in my account that is protected no matter how the SSDLX performs?

Help & advise is much appreciated.

No need to apologize!

On ‎8‎/‎15‎/‎2020 at 11:04 PM, AlohaGuy said:

Does my 401K  increase or decrease based on the performance of the SSDLX?  If yes how and where would I be able to see those earnings or losses in my statement?  Is there a minimum balance in my account that is protected no matter how the SSDLX performs?

Well, we can answer some of those questions.  This website typically is frequented by employee benefit specialists who help employers, not those who help participants.

Yes, your 401(k) plan balance increases or decreases depending on the performance of the investment funds that you select (or the default fund if you did not make an affirmative election).  So the fund or funds you select will affect how much money your account gains or loses.

There is not a minimum balance in your account that is protected no matter how your funds perform.  If your plan offers a stable value fund, then money invested in that fund will not usually lose money, but bad things are still possible (such as insurance companies going bankrupt or something called a "negative market value adjustment").

Typical investment advice to participants includes:

- Seek diversification to minimize unnecessary risk.  If your plan allows you to select individual stocks, don't use that feature.

- Funds can be aligned along a spectrum from low-risk, low expected return funds to high-risk, high expected return funds.  There generally is a trade-off between those two variables so that there is not a low-risk, high expected return fund.

- The percentage of your account invested in stocks or equities usually should be high early in your career for retirement savings.  You have decades to go until retirement so maximizing higher expected returns and being less concerned with risk or volatility makes sense.  As you approach retirement age and the date that you will start to spend your money starts approaching, then you want to gradually shift to a less risky mix of investments.

- As a tiebreaking factor, generally choose indexed or passive funds over active funds if you are offered both within the same asset class.  Indexed funds on average in the long run perform better than the average active fund.

- If you are unsure what to select, the target date retirement fund with the year in which you'll retire (or the year in which you'll attain 65 if you have no idea when you'll retire) is a good place to start.  Target-date funds are well diversified and shifts to be less risky as you approach retirement age.  That is probably why your plan's fiduciary defaulted your account to be invested in SSDLX.

Let me emphasize that the above is typical investment advice, not investment advice specific to you and your situation. 

Best of luck to you, AlohaGuy.