Tag: 401K

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401k and Personal Finance

Big Mac, Dollar and 401K

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Yum Brand, the parent co. of KFC, Pizza Hut and Taco Bell, had a great quarter yesterday, thanks to the loyal customers in China flocking to KFC and Pizza hut. Maybe because they think the steamed bun in Beijing are unsafe? Yesterday I heard about this Big Mac index (link to Economist) from NPR. This is how a McDonald “big mac” burger costs in a country (converted to USD). In China the index is $1.49, which is low compared to Sweden (the highest): $7.00. Although “big mac index” is not very scientific, it’s a useful measurement tool for the purchase power of different currencies. In reality I think American and Chinese consumers enjoyed a greater purchase power because of the economy of scale, the cheaper manufacturing cost (from China), the infrustructure and logistics go with it.

big mac pic

On the other hand, the “green back” hit all time low yesterday. A dollar is worth less than CNY 7.60 now? Three months ago it’s still worth CNY 7.70. This is not good news for me. But this seems to be the trend. In the short term, it appears Chinese goverment are dumping the US treasury bonds, for the fear of further drop of USD.

I’m thinking to counter this, I need to add more international funds to my 401k. Right now I have 30% international in my 401k, I may boost it to 50% in the near future. The US companies are not always losing in this global economy. For instance, multinational companies like GE, Coca-cola, McDonald, Yum Brands and Goldman Sachs etc. are all benefit from globalization. But at the same time emerging market are growing much faster, and will have a bigger piece of the “global equity” pie in the long run. Developed economies (EU and Japan) may steal a slice from the US too. So the bottom line is I will put more international flavor to my 401k pie.

PS, I have limited 401k experience: I started putting money in 401k since year 2001. For 401k we should think really long term (I mean 20 to 30 years) for retirement.

I am not expert on international economics either.

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401k and Personal Finance

Growth Fund or Value Fund?

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I prefer value fund in my 401K. This is from what I read (don’t remember exactly where) and from looking at the returns of funds in my 401K. Barrons’ statistics confirmed this. The worst growth fund is large cap growth. I don’t have any of those.

Go “values” 🙂

Categories
401k and Personal Finance

My 401K Lessons

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I did not put money into 401K right after I started to work in Fall 2000. Looking back this is my biggest mistake in 401K. Although I have some credit card debt at that time, I think I should at least put the money to get the company’s maximum match (free money, hehe). Not to mention the tax deferred effect; and the potential compound effect of growth. My friend who studied finance told me a “compound” story like this: if one puts $ 5,000 when he/she is 20, it’s like someone put $50,000 when he/she is 40 (the number may not be exact, but you got the idea).

I started my 401K in year 2002, a little more than a year after working. I was not familar with the mutual funds initially. I walked to one of my colleagues who is a stock lover and he told me “put everything in stock funds” because “we are not going to use the money for a while, and stock gives better return”. But I did not go 100% stocks. I attended the company benifits semimar; I also read the Vanguard Mutual Funds prospectus and learned about the fund types (value, growth, index), and morning star rating system. I put about 70% in stock fund and 30% in bond fund: thought diversification is my best friend. Looking back now I would not put money in bond fund. Because I have plenty of time until the withdrawl from 401K. The ups and downs of stock market in short term does not mean too much to me, and ultimately the stocks will have better return than bonds.

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