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educate me 401-k

  1. #1501
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    Re: educate me 401-k


    Quote Originally Posted by tsorfas View Post
    Capital one 2%
    That would have to be a CD. Don't believe CapOne has a traditional savings or MM account yielding > 1.8%.

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  2. #1502
    Lifer tsorfas's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by db79 View Post
    That would have to be a CD. Don't believe CapOne has a traditional savings or MM account yielding > 1.8%.
    It’s traditional savings with a minimum balance, don’t remember the amount now.

    Regardless 0.2% won’t make you or break you

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  3. #1503
    Your Father csmutty's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by tsorfas View Post
    It’s traditional savings with a minimum balance, don’t remember the amount now.

    Regardless 0.2% won’t make you or break you
    Correct. Cap One was never higher than Synchrony before this that I know of. Might swing back the other way when interest rates increase again.

    Has me really considering refinancing again in February, once I can with no extra fees.

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  4. #1504
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    Ally has been excellent. Rates not quite where all y’all are at though.

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  5. #1505
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    Re: educate me 401-k

    Quote Originally Posted by tsorfas View Post
    It’s traditional savings with a minimum balance, don’t remember the amount now.

    Regardless 0.2% won’t make you or break you
    I have their MM account which requires a $10K minimum along with their traditional savings account. CapOne has since introduced a basic savings account with no minimum that yields the same (1.7-1.8%) as the MM account. CapOne reduced from 2.0% earlier in the year when the Fed cut rates.

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  6. #1506
    Member Tom M's Avatar
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    Re: educate me 401-k

    I'm currently getting 1.6% interest, down from 2% a few months ago, from Clinton Savings Bank "eXPERIENCE" online savings account. $100 minimum and a much better interest rate than I could get from my usual bank.

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  7. #1507
    Your Father csmutty's Avatar
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    Re: educate me 401-k

    Synchrony and Capone are the same at 1.80%.

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  8. #1508
    Lifer tsorfas's Avatar
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    Re: educate me 401-k

    Thought/question of the day.
    Part of my compensation is commission - we typically get paid commission a month out. That means my December commission will be paid in January. Will that go towards my 2020 or 2019 contributions?

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  9. #1509
    Lifer Chippertheripper's Avatar
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    Re: educate me 401-k

    2020, likely.

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  10. #1510

    Re: educate me 401-k

    What am I missing about compounding interest? I understood the benefits, contributed to 401k heavily but now that I know more it makes less sense to me.

    The growth of the mutual fund doesn't compound on itself unless it gets sold, turned into profits and gets reinvested. The growth percentages aren't locked in profits but rather relative growth of the mutual fund stocks that I own.

    Over the last 7 years I'm 30% up from my contributions total and this year alone was 20%. Yet I've shown growth almost every year. 22.4%, 7.8%, -3.2%, 7.1%, 21.4%, -11.1%, 19.9%

    How can the growth be compounded if its never secured in the sale of stocks? Isn't this all just overall relative growth/loss from the underlying?

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  11. #1511
    Your Father csmutty's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by Vovchandr View Post
    What am I missing about compounding interest? I understood the benefits, contributed to 401k heavily but now that I know more it makes less sense to me.

    The growth of the mutual fund doesn't compound on itself unless it gets sold, turned into profits and gets reinvested. The growth percentages aren't locked in profits but rather relative growth of the mutual fund stocks that I own.

    Over the last 7 years I'm 30% up from my contributions total and this year alone was 20%. Yet I've shown growth almost every year. 22.4%, 7.8%, -3.2%, 7.1%, 21.4%, -11.1%, 19.9%

    How can the growth be compounded if its never secured in the sale of stocks? Isn't this all just overall relative growth/loss from the underlying?
    Correct. The only way a held fund or stock would compound is if they were to issue dividends and you had a drip setup.

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  12. #1512
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    Re: educate me 401-k

    You are correct, it is not compounded. Only something earning interest compounds.

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  13. #1513

    Re: educate me 401-k

    Ok. Glad to hear I'm not crazy and have a mild grasp on whats going on.

    I'm not going to change this strategy but it's a mild reality shock to come to this realization after years of reading online the classic mantra of the "super forces" of compounding interest along with the Einstein quote and that it's achieved simply by investing into 401k.

    I have been parted of the problem parroting "compound interest" benefits to people when encouraging them to start up a 401k.

    Is this a common misconception? Just searching compound interest and 401k reveals a million links like this

    https://www.moneyunder30.com/power-of-compound-interest

    "Jennifer held off and didn’t start saving until age 35. She put away $1,000 per month from her 35th birthday until she turned 45. Like Michael, she left the balance in her investment account, where it continued to accrue at a rate of seven percent until age 65."

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    Last edited by Vovchandr; 12-09-19 at 12:29 PM.

  14. #1514
    Soul Rider Paul_E_D's Avatar
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    Re: educate me 401-k

    If your fund is taking dividends and re-investing them, then it kind of mimics compounding interest.

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  15. #1515
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    In that sort of situation, growth is the interest.

    Interest is the money you earn but letting someone else use your money for a time period. The time period in question is how long you let someone use your money in that mutual fund/stock.

    The annualized return on investment is your interest.

    Same as a savings account. You don't see that interest until you pull the money out.

    And remember, when the fund makes money and pays out based on percentage, the more you have, the more you make. Hence the compounding year after year.

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  16. #1516
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    You are talking about DRIP there. Without a reinvestment plan there is no real compounding of dividends. Not all outfits offer DRIP.

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  17. #1517
    Member jimmycapp's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    You are talking about DRIP there. Without a reinvestment plan there is no real compounding of dividends. Not all outfits offer DRIP.
    Direct reinvestment of profits??

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    Last edited by jimmycapp; 12-09-19 at 07:45 PM.

  18. #1518
    Your Father csmutty's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by jimmycapp View Post
    Direct reinvestment of profits??
    Direct Reinvestment Program IIRC.

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  19. #1519
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    Dividend ReInvestment Program

    Depends on the earnings a stock yields. This can play to all kinds of strategy. 20+ years ago blue-chips that paid big, reliable dividends were the thing to have. Set up a DRIP and just let 'er ride. There is a lot of tax strategy at play; pay the dividend tax now vs pay the gains tax later. If it is inside a 401k or IRA shelter then it matters not. You don't pay dividend or gains tax; you pay tax on withdrawals instead.

    Not that it matters. My impression is the big, reliable dividend machines are a thing of the last century.

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  20. #1520
    Lifer
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    Dividend ReInvestment Program

    Not that it matters. My impression is the big, reliable dividend machines are a thing of the last century.
    I wouldn’t say they’re a thing of the past. They are just a different approach.

    I am long on T stock and enjoy having part of my portfolio that DRIPs. Retirement as we’ve all discussed here should be a multifaceted approach and DRIPs are just one other thing to be aware of.

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  21. #1521
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    I'm not saying they are a thing of the past. I'm saying there just aren't many big, reliable dividend payers these days.
    Maybe I'm wrong about that. Dividends aren't a big part of my plan, growth is.

    Anyway.

    I guess we are mincing terminology re: using the word "compounding" for growth, etc?!

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  22. #1522
    Super Moderator TheIglu's Avatar
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    Re: educate me 401-k

    Exactly.

    Gains in value accelerate over time.

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  23. #1523
    Lifer Chippertheripper's Avatar
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    Re: educate me 401-k

    I just keep putting money in.
    That’s all I know.

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