Recent grad needs advice

Hi all, I have been reading this fund forum for a few days and need some advice from experts over here.

So, I'm 23 yrs old and just graduated in May '08. I have zero experience in investment. I have done a little bit of research and believe that mutual funds would be the best option for me. I currently work for a small management consulting firm which offers me an option for a 401(k) account with Fidelity. I have chosen to contribute 16% every month. Is that too little or too much?

Also, recently, I have been thinking about opening a Roth IRA. I have $5000 ready to be put in the account. Do you think this is a good time to jump into an investment world since I have been hearing lots of bad news about Stock Market? (But I get the idea from reading that the earlier I start investing the better no matter what).

Since I will have only $5000 in my Roth accoun this year, I don't want to diversify much and would rather try to make up a core for it. I have been looking at a couple of large cap funds: FBALX (e/r 0.6), JSVAX (e/r 0.98), FDFFX (e/r 0.90), and FDFAX. Should I buy all of them? or should I just invest in only two of them? if yes, which two would you guys recommend?

Also, I'm really interested in buying FAIRX but Fidelity charges $75 transaction fee on it. Should I just avoid buying this fund then since I have to pay a fee for it.

After I max out my Roth IRA account, I should have about $6000 left in my saving. Can I still open a traditional IRA? or am I only allowed to open a taxable account then?

Last question, what is the capital gain distribution? and why would that affect when I should buy the funds?

I hope I did not ask too many questions. Thank you so much in advance.

16% to 401k is an excellent way to start. 16% each month every month. Good work.

$5000 for a Roth is also a solid move. If you do this, you cannot contribute to a traditional IRA.

Here is what you should do:

1) continue with plans form 16% 401k and an annual 5k contribution to an IRA- Roth suggested, probably, but do some reading to make sure you understand your 2008 and 2009 tax returns.

2) spend less than you earn every week/month/year
3) have an emergency fund set up with 3-6 months expenses in it (I have 3 in mine). Make sure you know what your EXPENSES are when calculating this.

3a) have 3 months expenses in cash for the emergency fund (CDs, money markets or savings)
3b) have another 3-12 months expenses in a more moderate investment than cash- think bond funds or similar. This is really important if you have volatile income or volatile employment. Also important if you want to save up for a house or similar. Keep this money in a taxable account. Keep the investment as tax efficient as possible, but liquidity is more important than tax efficiency, IMO.

Hi all, I have been reading this fund forum for a few days and need some advice from experts over here.

So, I'm 23 yrs old and just graduated in May '08.

Congratulations on your graduation, and on securing a job.


I have zero experience in investment.

Some things to do, mostly studying.... Subscribe to a financial magazine. I have tried several over the years, but I do like Kiplinger's best.

The Sound Mind Investing Handbook by Austin Pryor is a good turorial on financial things of all stripes. It is available at Amazon.com for about $15.
http://www.amazon.com/s/ref=nb_ss_b?url=search-alias%3Dstripbooks&field-keywords=austin+pryor&x=12&y=16

Of course the book may be in your local library too, ask them to get a copy for you to borrow.


I have done a little bit of research and believe that mutual funds would be the best option for me. I currently work for a small management consulting firm which offers me an option for a 401(k) account with Fidelity. I have chosen to contribute 16% every month. Is that too little or too much?

Usually the best idea is to contribute enough to your 401k to qualify for the maximum matching employer contributions.
If there are no emplyer matching contributions, then contribute to a ROTH IRA first.

Next would be to maximize your ROTH IRA contributions. The most you can contribute to your IRA in 2008 is $5,000. After doing that, contribute to your employer's 401k plan.

There is too little information available to say if 16% is too much.
If there is employer matching, contribute enough each pay day to qualify for the maximum matching contribution. The most you can contribute to all 401k plans in 2008 is $15,500.

One thing you should plan on having available is about 6 months of living expenses in a contingency fund. This wold be there for all types of emergencies.


Also, recently, I have been thinking about opening a Roth IRA. I have $5000 ready to be put in the account. Do you think this is a good time to jump into an investment world since I have been hearing lots of bad news about Stock Market? (But I get the idea from reading that the earlier I start investing the better no matter what).

I think this is an excellent time to get into investing. Many stocks are on sale now at deeply dicounted prices. Starting at age 23 is much better than starting at age 33, or 43.


Since I will have only $5000 in my Roth accoun this year, I don't want to diversify much and would rather try to make up a core for it. I have been looking at a couple of large cap funds: FBALX (e/r 0.6), JSVAX (e/r 0.98), FDFFX (e/r 0.90), and FDFAX. Should I buy all of them? or should I just invest in only two of them? if yes, which two would you guys recommend?

With $5,000 it is difficult to diversify. Each fund you own will charge an annual fee. And some funds have minimum investment requirements. It may be best to first use just one fund, and in 2009 and subsequent years do some diversifying.

Over the last 12 months, FDFFX, a large company growth fund, has been the best performing fund on your list. The second best performing fund on your list over the last 12 months is FDFAX, but is way behind FDFFX in the 12 months.


Also, I'm really interested in buying FAIRX but Fidelity charges $75 transaction fee on it. Should I just avoid buying this fund then since I have to pay a fee for it.

FAIRX performance trails behind FDFFX over the last 12 months.

Would Fidelity charge the $75/transaction for an IRA account?


After I max out my Roth IRA account, I should have about $6000 left in my saving. Can I still open a traditional IRA? or am I only allowed to open a taxable account then?

No. The most any 23 year old can contribute to their IRAs in 2008 is $5,000.
That is is collective amount, across all of your IRAs.


Last question, what is the capital gain distribution? and why would that affect when I should buy the funds?

By law, mutual funds must make distributions of their gains each year to the fund investors. Some of that distribution may be interest, some may be long term capital gain, and some may be short term capital gain. An investor in a mutual fund must pay the taxes on the distribution. Prior to the fund making the distribution, the funds price (NAV) includes the value of this money. When the fund makes the distribution, the fund's NAV will decrease by the amount of the distribution. The fund investor now has a lower per share value, and a tax bill. If the distribution was reinvested in the fund, the investor will own more shares of the fund. The tax bill remains.

This taxation only occurrs in a taxable account.
401k plans and IRAs and other tax deferred accounts are not affected by this taxation of mutual fund distributions.

I hope I did not ask too many questions. Thank you so much in advance.

Hi Thank you so much for all your help. I have a few more questions to ask then.

(a) Here are the choices in my 401(k) account

FID Blue Chip Growth
FID Contrafund (25%)
FID Fidelity
FID Stock Selector (25%)
Spartan US EQ Index
Fidelity AGGR Growth
FID Diversified INTL (15%)
FID Freedom 2005 - FID Freedom 2050
[I chose FID Freedom 2010 (20%)]
FID Freedom Income
Fidelity US BD Index (15%)

I don't really like the options that I have but I have to choose from them. The numbers in the para theses are the distribution that I chose to put my money in at the end of every month. Did I diversify too much? Should I move the money from the FID US BD Index to the large cap fund? Should I try to max out my 401(k) account despite the fact that I don't really like any of these funds? [Did I miss something important that could make me like any of these?]

(b) Is it wise just to buy only two funds (50% JSVAX and 50% FDFFX) with my $5000 now to build a core of my portfolio for the Roth IRA account ?

(c) If I decide that I really like FAIRX, is it possible to have a $2500 Roth IRA account with Fidelity and another $2500 Roth IRA account with Fairholme? or should I keep only one Roth account with Fidelity and buy a taxable account with Fairholme?

I forgot to mention that I expect my investment horizon to be about 10-15 years since I'm planning to move back to Asia by that time. Thank you so much for all your help. It has been really helpful talking with you guys so far.

Hi Thank you so much for all your help. I have a few more questions to ask then.

(a) Here are the choices in my 401(k) account

FID Blue Chip Growth
FID Contrafund (25%)
FID Fidelity
FID Stock Selector (25%)
Spartan US EQ Index
Fidelity AGGR Growth
FID Diversified INTL (15%)
FID Freedom 2005 - FID Freedom 2050
[I chose FID Freedom 2010 (20%)]
FID Freedom Income
Fidelity US BD Index (15%)

I don't really like the options that I have but I have to choose from them. The numbers in the para theses are the distribution that I chose to put my money in at the end of every month. Did I diversify too much? Should I move the money from the FID US BD Index to the large cap fund? Should I try to max out my 401(k) account despite the fact that I don't really like any of these funds? [Did I miss something important that could make me like any of these?]

Your contributions need to Qualify for the maximum employer matching contributons. Then you should contribute to your ROTH IRA for better investing choices and potential tax free distributions.

After that contributing to the 401k plan will at least be tax deferred, as will the growth.

I believe the Freedom 2010 is designed for folks that are planning on retiring abut 2010. The nature of these funds become very conservative as the retirement year approaches.


(b) Is it wise just to buy only two funds (50% JSVAX and 50% FDFFX) with my $5000 now to build a core of my portfolio for the Roth IRA account ?[quote]

This is really your choice, from your perspective on your situation.
With $5,000 to invest, I would choose FDFFX, but that is me.
My plan is to get rid of a fund when it falls below a set % as compared to it's peir funds.

Making your 2009 IRA contribution, would be a good time to diversify.

[quote]
(c) If I decide that I really like FAIRX, is it possible to have a $2500 Roth IRA account with Fidelity and another $2500 Roth IRA account with Fairholme? or should I keep only one Roth account with Fidelity and buy a taxable account with Fairholme?

You can do this. With $5,000 to invest in the IRA, I would not do that.


I forgot to mention that I expect my investment horizon to be about 10-15 years since I'm planning to move back to Asia by that time. Thank you so much for all your help. It has been really helpful talking with you guys so far.

Here is a list of your 401k funds. I could not find any data on Fidelity US BD Index. The funds are listed in order of performance over the last 12 months.

When compared to other funds in their pier group, none of these funds are in the top 25% of their group. The Contra fund stands at 28%, and the International fund stands at 27%. The other funds stand much lower in their pier group. Remember this data is based on July 1, 2008 information and will change when August 1 information is used. It has already changed, but I do not know to what.

I have added a category description (pier group) by each fund to help with diversification. Funds labeled "Hybrid fund", are not in any diversification group.

Fidelity Contrafund - Large Company Growth
Fidelity Blue Chip Growth - Large Company Growth
Fidelity Diversified International - Foreign
Fidelity Freedom Income - Hybrid fund
Fidelity Freedom 2010 - Hybrid fund
Fidelity Freedom 2050 - Hybrid fund
Fidelity Stock Selector - Large Company Growth
Fidelity Aggressive Growth - Small Company Growth
Fidelity Spartan US Equity Index - Large Company Value