Finally, I Set up a 401(k) Account

I know, setting up a 401(k) account should be one of the first things to do after changing employer, but I waited for more than half a year to finally get it done

When I started my current job last July, I didn’t have the chance of making contributions to the retirement plan as the new employer has a rule which allows contributing to 401(k) plan only after the first three months of service. At that time, I was also actively trying to find a new job (yeah, I just got a new one, but it wasn’t the job I would like to do). So the time constrain didn’t bother that much. However, my effort didn’t have any positive outcome and I stuck with this job for nearly eight months already. As no change in my employment situation is expected any time, I thought it would be better to set up a 401(k) and start to make contributions, though my employer didn’t offer any match.

I finally got my act together and opened a 401(k) account at the end of January. The plan was managed by Sovereign Bank and investment options are less attractive. Not just that, they are quite expensive actually. Of the 30 funds offered, the highest expense ratio (ER) is 2.39%, while the lowest is 0.72%, which is the only equity fund with below 1.0% ER. Since I don’t know how long I am going to be with my current employer, I want to make my investments as simple and low cost as possible. After going the options, I settled with three funds:

• American Funds EuroPacific Growth Fund (RERCX): 40%
• American Funds AMCAP Fund (RAFCX): 40%
• T. Rowe Price Growth Stock Fund (RRGSX): 20%

with an average ER of 1.08% according to Morningstar. To makeup the missed contribution of the first month of 2008, I set my payroll deduction to 20%. When I checked my account last night, I am up 3.90% since making first investment early this month Actually, I am glad I delayed one month when the market tumbled. If I started in January, the year-to-date return could be very negative.

photo credit: _e.t

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