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Should I be angry that my employer-managed 401(k) is only up 43% in that time period? Edit: This is not sarcasm - I'm not knowledgeable about investment.

ryandrake 3y ago
Yes, but only if that 401(k) is entirely invested in a (relatively risky for retirement accounts) S&P 500 index, which is unlikely.
- happytoexplain 3y ago
  Thanks, so I take it the parent's "zero effort or insight" characterization is in an implicitly riskier context (I was interpreting it as a synonym for "safe").
thegrim33 3y ago
401Ks usually target a somewhat safer subset of the market for investment than the raw S&P
- sgerenser 3y ago
  On top of that, the default “safe” investment, US investment grade bonds, are actually down since March 2020 (which is highly unusual for bond funds over that long of a period). So a typical 401k investment of 70/30 stocks:bonds would be expected to have done significantly worse than 100% stock. See: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=3wzIVO1Rl5GptiQoHZTmBZ https://www.portfoliovisualizer.com/backtest-asset-class-all...
gottorf 3y ago
Your 401(k) is probably set up to invest in what's known as a target-date fund, where you pick a year (often rounded to the nearest one divisible by 5) you want to retire, and the fund manager allocates among various risk asset classes based on that. Almost always, the further away you are from retirement, the more risk you can take; when you near retirement, it's probably almost all in bonds and other less risky assets. Sometimes employer-managed 401(k) fund managers take a much larger management fee compared to, say, Vanguard, which adds up over decades, so you could be mad about that.
hunter2_ 3y ago
That depends entirely on the ratio between how much you already had invested at the start of that time period versus how much you invested throughout that time period. If the ratio is nearly infinite (i.e., you had a lot to begin with and hardly added any more) then yeah your S&P500 balance should've grown about 100%. But if the ratio is nearly zero (i.e. you didn't have much at all invested at the start but contributed heavily since then) and for simple math we say that the S&P500 grew linearly, then you should expect only a 50% growth because only the early contributions rode that train while the recent contributions hardly had a chance. In reality it'll be somewhere in between. And as pointed out by others, this assumes S&P500. If you're in a lifecycle fund instead, that's a bit like having mostly S&P500 when you're young and hardly any when you're old.
- happytoexplain 3y ago
  Thanks - my benefits portal calls the 43% figure my "rate of return". I am assuming that doesn't include the contributions themselves.
  - jgwil2 3y ago
    Rate of return = (current value of the account - value of all of your contributions) / current value of your account. That is to say, the total growth of your contributions.

ryandrake 3y ago

Yes, but only if that 401(k) is entirely invested in a (relatively risky for retirement accounts) S&P 500 index, which is unlikely.

happytoexplain 3y ago
Thanks, so I take it the parent's "zero effort or insight" characterization is in an implicitly riskier context (I was interpreting it as a synonym for "safe").

thegrim33 3y ago

401Ks usually target a somewhat safer subset of the market for investment than the raw S&P

sgerenser 3y ago
On top of that, the default “safe” investment, US investment grade bonds, are actually down since March 2020 (which is highly unusual for bond funds over that long of a period). So a typical 401k investment of 70/30 stocks:bonds would be expected to have done significantly worse than 100% stock. See: https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&sl=3wzIVO1Rl5GptiQoHZTmBZ https://www.portfoliovisualizer.com/backtest-asset-class-all...

gottorf 3y ago

Your 401(k) is probably set up to invest in what's known as a target-date fund, where you pick a year (often rounded to the nearest one divisible by 5) you want to retire, and the fund manager allocates among various risk asset classes based on that. Almost always, the further away you are from retirement, the more risk you can take; when you near retirement, it's probably almost all in bonds and other less risky assets. Sometimes employer-managed 401(k) fund managers take a much larger management fee compared to, say, Vanguard, which adds up over decades, so you could be mad about that.

hunter2_ 3y ago

That depends entirely on the ratio between how much you already had invested at the start of that time period versus how much you invested throughout that time period. If the ratio is nearly infinite (i.e., you had a lot to begin with and hardly added any more) then yeah your S&P500 balance should've grown about 100%. But if the ratio is nearly zero (i.e. you didn't have much at all invested at the start but contributed heavily since then) and for simple math we say that the S&P500 grew linearly, then you should expect only a 50% growth because only the early contributions rode that train while the recent contributions hardly had a chance. In reality it'll be somewhere in between. And as pointed out by others, this assumes S&P500. If you're in a lifecycle fund instead, that's a bit like having mostly S&P500 when you're young and hardly any when you're old.

happytoexplain 3y ago
Thanks - my benefits portal calls the 43% figure my "rate of return". I am assuming that doesn't include the contributions themselves.
- jgwil2 3y ago
  Rate of return = (current value of the account - value of all of your contributions) / current value of your account. That is to say, the total growth of your contributions.