September 19, 2008

403(b) Investing - Choice of Firms and Investments

There was a huge response to the blog from yesterday regarding AIG VALIC and the safety of your account. From everything I have continued to read, the accounts do in fact seem to be safe with no issues. I would personally recommend not using VALIC due to fees, investment choices, etc.

In regards to the ability to choose a firm to use for your 403(b), most counties have more than one firm to choose from. In Gwinnett, you actually have the ability to choose between four firms - AIG VALIC, Lincoln National, Jefferson National, and Fidelity. It is probably obvious which one I would recommend - Fidelity.

Fees, investment choices, ability to roll it over later without fees, customer service, ease of use, etc. Fidelity pretty much is on the ball here.


I have received several questions over the last few days about investments and continuing to make contributions when the market is rough. First, on the investments, you should always try to make sure that you are well diversified. This does not mean choosing every fund, but looking at all of the funds, and selecting the best funds from a variety of categories - large cap, mid cap, small cap, international, etc. The amount you allocate to each also matters.

Personally, since you have a secure pension, I believe in allocating little to nothing in bonds in a 403(b). This is more aggressive, but considering, the bulk of your assets are already in fixed income (your pension), you are not making anywhere near the "bets" that business people make with their 401(k)'s. Everyone is different though, and the closer you get to retirement, the more you might want to see about having more bonds. The key is to be diversified and really understand what it is you are invested in.


I know that when the market gets rough it is tough to think that you may be losing money on day one when you contribute, but the main point here is that no one can predict the bottom of the market. When the market is low, you are buying more shares of the funds you own with every paycheck. As the market turns and trends higher, your next paycheck will actually buy less shares. This is called "dollar cost averaging".

By investing this way, study after study has shown this to be the most effective and efficient way to maximize your return. Since you are contributing every month, sometimes you will buy when it is high and sometimes you will buy when it is low. Just continue making the contributions, and you will win over the long term. Just remember to diversify...

Let me know if you have any questions - just e-mail me.

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