Month: October 2006

When I was a teenager, the idea of the mega electronics store was still a new concept. I remember many people would buy their electronics at their local furniture store! Then came the VCR and all of a sudden the mega electronics store was born. By the beginning of the 90’s though, the boom was over, and many chains were closing shop, declaring bankruptcy, or rebranding to stay alive. The next big thing came along in 1995, and it was software: Windows95 was bigger than life itself, and the electronic stores that sold computers, cashed in on Microsoft’s most popular OS release. The good times would not last and in the Internet era, many stores felt the new pressures of competing against online retail giants like Amazon.com. All of a sudden online retail took off and you could literally order anything you wanted, at any hour of the day. Sure it took a while for UPS and FedEx to get it to your door, but the prices were cheaper. What the mega electronic stores were good at were good prices, but in today’s internet commerce world, their prices are actually higher than most online stores. And this is perhaps BestBuy’s biggest problem. How do you sell more volume when your prices are actually higher? This is something which BestBuy still hasn’t figured out.

For electronics there really is two types of customers, bottom line value customers and higher end. Higher end goods are hard to stock in mass quantities because they sell in less quantities than cheaper items, and they are manufactured in smaller quantities. A retail giant like BestBuy needs massive quantities to stock all of its stores. This makes it hard for BestBuy to cater to higher end consumers, therefore they settle for value customers who spend less. An ideal store would be able to cater to both customers. And this is exactly what online stores do. My personal favorite online store is Newegg.com. They not only carry massive selection of everything computer related, but they also have the best prices. These days, BestBuy is more concerned with trying to attract more walk-in customers than actually providing an interesting shopping experience. Much like Wal-Mart and Target, BestBuy depends on new DVD and CD releases to bring in customers every week. This strategy is not going to work forever, eventually Apple’s iTunes Store is going to take a significant amount of these customers, leaving BestBuy to come up with another way to attract physical customers.

This brings me the main point: is BestBuy a good deal or not? Perhaps in home appliances it is a good deal, but lets face it, BestBuy has not carried the best prices in a long time. Their accessories are overpriced compared to Target and Wal-Mart, and in consumer oriented video and audio, their prices do not even come close to online stores. Everyone seems to write about how bad Wal-Mart is doing, but in my opinion BestBuy is the one who should be worried.

Most companies offer their employees a 401k program instead of a retirement plan. Unlike retirement plans, 401k programs differ in that you are entirely responsible for your own money. Your company only sets up the plan and gives you access to it. All the decisions that determine financial success are left entirely up to you. Many people end up with only modest gains in their 401k, because they never learned to take advantage of their 401k. And who could really fault them, even with all the materials provided, the programs can be quite daunting and confusing if you never took a business course in your life. Now I am not a financial wizard or even someone who can manage his money very well, but I do know how to research things I don’t know about, and best of all, I listen to my accountant. What follows is some basic advice on how to go about setting up your 401k, for people who like me, have busy lives and who do not have a business degree.

Easy 401K

The first thing to do is to get information about your specific 401k plan. This is usually available online or in paper form. Usually the online information will have more recent information. What you want to find out is what mutual funds your plan actually offers and what their performance has been. You need to find out what type of stocks each mutual fund invests in. Is the mutual fund primarily a large cap, mid cap, small cap type of fund? Is the fund global, international only, or just US based stocks? Depending on your plan, the online site may offer something called MorningStar summaries or reviews. If they do, print these out. This will give you more information as to how the mutual fund has performed.

Diversify!

Every finance guide will tell you, that diversification is the key to 401k plans, but what does this mean exactly? To diversify your plan, means to separate your money among different types of stocks. For example, the most common way to diversify is to invest in both large cap and small cap funds. When large cap funds do bad, small cap funds go up and vice versa, so if you invest in both, you stand a better chance of making money no matter how the market swings. The other way to diversify is to invest part of your money into international funds, so that you can ride out domestic economy problems. And yet another way to diversify is to have some percentage of stable funds, so that incase all other funds go down, you still make some money. I myself tend to divide my plan to include international, small cap, large cap, and a small percentage of stable funds: around 40%, 25%, 25%, 10%. However I am not a financial advisor, so it would be best to consult your accountant to see what is best for you. Diversification is really about your own personal comfort level. You have to decide which funds and how much.

To some degree, MorningStar ratings help, because they rate most major funds using a simple 5 star system. So if you have a low performing one star fund in your plan, this makes it easier to perhaps exclude that one fund. Though past performance does not mean the fund will be as successful in the future, it is one indicator that the fund is at least being successfully managed.

Opening Your Wallet

Now that you finished your research, and you picked your funds and decided the percentages, it is time to throw in your money, but just how much should you invest in your plan? The answer may surprise you, but you actually have to put in a lot if you want your 401k plan to be successful. First see what your company match is and what your limit can be. The IRS changes the limit based on inflation, so you might be able to invest more than the year before. At the very least, you should invest the exact amount needed for the maximum company match. This is after all free money your company is giving you, so why not take advantage of it.

The best advice I have ever read when it comes to financial matters is that ten percent of what you make is yours to keep. This means that ten percent of whatever income you have, you can save for yourself. Over time this ten percent can grow to be your own personal wealth. If you are not saving ten percent already with all your investments combined, or if you are solely relying on a 401k plan for retirement, the ten percent rule is something you should think about. Believe it or not you can actually live on only ninety percent of your income!

Save Wisely And Prosper

Once you find out how your 401k plan performs, you will be able to gauge just how well your fund choices fared in the market and what you can do to better diversify your plan. And as always, there is plenty of financial information available on the Internet and even at your local library. Whatever time you spend on your 401k will definitely help you in your retirement.