This post is a chapter in my book, Not Another Personal Finance Book. Free chapters here. Enjoy!
Where’s the Diet Coke?!
The grocery store shelves were fully stocked, as David scanned the selections nervously. There’s all the Pepsi products, regular Coke (who drinks that?), but no Diet Coke. He was about to ask a clerk when he leaned in and noticed the problem.
They changed the labeling.
The word “Diet” was tiny on the new label- well, it was small enough that David didn’t notice. Relieved, he grabbed a 12-pack and headed for the checkout lane.
David had just listened to the 401(k) retirement plan webinar at work, and the information offered was a bit overwhelming. He’d read a blog post on the benefits of 401(k) investing, and the benefit of the company matching his investment made sense.
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He glanced to his left and noticed the t-shirt on the woman checking out next to him:
“I don’t mean to get all chemistry on you, but alcohol is a solution”
Pretty funny, he chuckled.
As he swiped his debt card, he remembered the company 401(k) invested in American Funds, and that his sister was happy with the fund family’s performance and the customer service.
He called his sister Mary from the car:
“Yeah- the American Funds website looks great. I just don’t know how to go about choosing the individual mutual funds for my 401(k).” David thought for a minute. “I think you emailed me a document to explains things, but I don’t remember”.
Mary jumped in: “Well, before we get to that, what was the asset mix that their financial advisor suggested for you? Wasn’t it 60% stock and 40% bonds?”
“That was it- and I told him that I wanted to take a moderate level of risk with the stock portfolio, but I wanted super-safe bond investments.” David said as pulled into the Target parking lot. Might as well get all of the errands done now, he thought.
“Pull up that link I sent you”, Mary said. “It’s from an industry group, and it does a nice job of explaining mutual fund objectives. Remember- those fund managers must comply with the objectives they set. So, consider that moderate-risk stock fund you’re interested in- you can find the objective for that type of fund on their listing.”
David read through the list, which was divided into levels. Level 1 was Long-Term Funds, which he was looking for. Below that, Level 2 had an Equity category, which was stock investing, and Level 3 was Domestic Equity (US-based company stocks).
“Ok, under Domestic Equity is see a Capital Appreciation category…the objective is to seek growth of capital, dividends are not a primary consideration. That’s my Level 4. Under Capital Appreciation I found Growth. Growth says the fund invests in stocks that exhibit signs of above average growth, even if the share price is high, relative to earnings.”
Mary started again as David jotted down some notes. “Sounds like you found the description you needed. Now you can go to the American Funds website and find the mutual fund objective that is the closet fit.
You can use that listing to search for any type of fund objective- then visit the fund’s site. Bond funds, balanced funds- stocks and bonds, any fund type. Just read through each level and find the right objective.”
Davd sighed. “Ok, that’s a relief. Now I can pick my mutual funds for the 401(k). Oh- I gotta tell you how the changed the labeling for Diet Coke!”
As always, check with a CPA and a financial advisor for specific answers- this is for information purposes only.
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
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