IFA
Index Porfolio 90
IFA
Index Porfolio 70
IFA
Index Porfolio 50
IFA
Index Porfolio 30
IFA
Index Porfolio 10
Questions about 401(k) Plans
1. A 401(k) Plan can be one of your best tools for creating a secure retirement. It provides you with an important advantage. All of the contributions and earnings to your 401(k) are tax deferred, which means you only pay taxes on contributions and earnings when the money is withdrawn. You can invest a portion of your earnings based on the amount you make BEFORE taxes. This is favorable to a regular savings plan, because it results in a higher take home pay at the end of the year and a lower current taxable income. This is a retirement savings plan you cannot afford to pass up.
2. You are likely to retire someday and will need funds other than Social Security to pay for living expenses. It's up to you as an individual investor to plan for your own future. The Social Security Administration estimated in 2000 that Social Security will provide only 38-40% of an average retiree's living expenses.
3. A long time horizon is your biggest advantage. The sooner you begin investing, the sooner you can achieve your investment goals due to the process of compounding.
4. If your company provides a matching program, it is extra compensation for you. Do you usually turn down a raise? A company's matching contribution may range between $0.25 and $1.00 for every dollar an employee contributes, usually based on the number of years of employment.
5. Automatic payroll deduction makes it simple to save and reduces the temptation to spend the money. You can relax while investing this way, because you know your money is growing without you actually seeing it!
6. You may have a need for an extra source of emergency cash before retirement. Generally, the IRS allows for hardship withdrawals to be used for unforeseen situations such as unexpected emergency expenses, prevention of eviction or foreclosure on your home, post-secondary education expenses, or purchase of a primary residence. There is a penalty associated with early withdrawal. Another way of withdrawing funds before retirement is to take a loan from your account with a commitment to pay it back with interest. There is no penalty if the loan is repaid on time.
7. New job? Take your 401(k) with you! The new 2002 law allows employees to roll eligible rollover assets into and out of other 401(k), 403(b), and governmental 457(b) plans, on the condition that the new employer accepts and honors these rollovers.
8. You can gain access to Dimensional Funds Advisors' (DFA) funds, which are built upon a Nobel-Prize-winning investment theory. These efficient, passively managed, diversified index funds are available to you only through your 401(k) plan or a financial advisor.9. Index Funds Advisors (IFA) serves as your investment advisor, matching people to portfolios. IFA provides a Risk Capacity Survey to determine what asset allocation is best for each employee, and a 12-Step Investor Education Program that teaches how the stock market works and how risk, return, and time are related. The 12-Step Program to Index Funds provides a complete explanation of the most prudent and efficient way to invest your hard-earned money.
10. With your 401(K) Administrator, you can access your account and receive up-to-date information at any time. Rebalancing your portfolio is easy and convenient, requiring only a simple click of the mouse. Keeping track of your account is automatic and easy to understand.
2. When Can I Make Changes?
You can make investment changes daily, but we do not recommend that you do.
You can make beneficiary changes at any time. To determine when you can change
your level of payroll contributions, please refer to your Summary Plan Description
or contact your Plan Administrator.
3. How Many People Enroll?
There have been few ideas by Congress more popular than 401(k) Plans. In the
20 years since Congress invented the 401(k) Plan, over $1.7 trillion dollars
have been deposited by employees. It is safe to say that essentially 100% of
the employees in companies that do not offer 401(k) plans put pressure on their
employers to start a plan. Employers pay the cost of starting and maintaining
a plan and often provide matching as well. In these plans, the enrollment is
over 90% on average.
Is there a Company Matching
Program?
Depends on the company.
5. What Is My Vesting Schedule?
You vest according to your company's vesting schedule. The following is an
example of a schedule:
Years of
Employment |
Percentage |
0-1 |
0 |
2 |
25% |
3 |
50% |
4 |
75% |
5 |
100% |
Please refer to your Summary Plan Description or Plan Administrator for definition
of years of service for vesting purposes, and to note if any service is to
be excluded when calculating your vesting percentage.
6. Am I Eligible To Join?
You are eligible to receive employer contributions if you:
- have completed 1 year of service with the company
Once you meet the above requirements for employer contributions you enter
the plan on the next quarterly date.
7. How much can I put in?
The annual maximum for 2008 is $15,500. If you are over 50, a "catch-up" provision
allows you to contribute even more to your 401(k). In 2008, employees over
50 can deposit an additional $5,000 into their 401(k) account.
8. Portfolios of Indexes
There is only one investment decision to be made. Which portfolio of index
funds is right for you? The following chart indicates the broad asset class
allocation of each of the 20 index portfolios that are recommended by IFA.
| The three dimensions of risk and return are shown in the rotating cube on the right. These are the factors that explain portfolio returns. The 20 portfolios below are increasing the exposure to these three risk factors. Portfolio 5 has the least amount of risk and 100 has the most. You will need to take the Risk Capacity Survey to determine which portfolio is best for you. Please click below to get started. | |
 |
|
To review portfolios similar to what is available in your 401(k) plan, click on one of the portfolios below.
(In each portfolio page, click on the 401(k)/403(b) Plans tab to see the allocations
IFA 401k Portfolios)
There are over 10,000 mutual funds that can be purchased in our 401(k) plans; however, only about 15 of those funds are necessary to capture all of the risk factors described above. Therefore, we advise clients to stick to the best and lowest cost index mutual funds below. There are still 5 more of these funds that will be available soon.
10. Investor Education: 12-Step
Program to Index Funds
A recent study of 401(k) plans highlighted the Causes
of Low Returns for 401(k) Plan Participants (pg 15 to 19)
The low returns also reflect a number of inherent failings in 401(k) plans
as currently structured, involving participants, plan sponsors and the law.
Problem: Lack of Knowledge. Several studies find that many participants in
defined contribution plans have an appalling lack of understanding of basic
principles of investing. For example, a recent national survey of participants
found:
Respondents generally considered company stock less risky than a diversified
domestic equity portfolio.
-
44 percent thought money market funds included stocks and 43 percent thought they also included bonds.
-
Nearly 20 percent didn't know they could lose money in equities.
-
65 percent didn't know they could lose money in a bond fund and 60 percent didn't know they could lose money in a government bond fund.
Small wonder that so many participants in 401(k) plans have little or no grasp of the principles of prudent investing! They may have a limited or extensive list of funds from which to choose, but they base their selection on individual funds rather than investment strategy. The fund offerings may not stress the value of index funds, which invest in the stocks or bonds used to compute a particular index and have low management fees because they are not actively managed. Participants take too little risk, as in the case of those letting most of their assets stay in money market funds or cash, or too much risk, as in the case of those putting the great majority of their assets into high-tech stocks or funds. Many participants have an appalling lack of understanding of basic principles of investing.
Most investors need a better understanding of how the stock market works and how risk, return, and time are related. Our 12-Step Program to Index Funds provides a complete explanation of the most prudent and efficient way to invest your hard-earned money. You can read only the introductions to each step, or you may want to get more information on each topic by clicking the "more info" buttons at the end of each introduction. If you have any questions about the information presented, please call an Gordon Shuler at 888-643-3133. Now please start reviewing our education program by clicking here.
In addition, you may want to view the several videos on investing HERE.
