Fidelity 401(k) investment

Question

I have started investing in a 401(k) recently. I have few questions on how Fidelity 401k investments work.

1. Choosing Investments: Let's say I didn't choose any investment options, does that mean my money and employer match are not reinvested in anything and will stay the same over time?

2. Can I invest a part of 401(k) money in investments?

3. If I set up my investment plan in stocks/bonds now and my money is deposited in 401(k) account in a week, will Fidelity invest that money immediately in the stocks based on the plan I have setup? How much time does Fidelity take to invest the 401k money in stocks based on the investment plan?

4. Isn't it better to wait for the stock market to go down (if I think the market is doing well and will crash in a month or so) before I set up the investment plan?

Any advice would be appreciated.

Answer 1

1. If you did not choose any investment options for your 401(k) plan (administered by Fidelity), then the money that you contribute each paycheck gets deposited into the default investment option which is typically either a Fidelity money-market mutual fund or a Fidelity variable annuity (sometimes called a guaranteed income contract (GIC)). Which one it is is determined by the terms chosen by your employer while negotiating the employer's contract with Fidelity for acting as the administrator of the 401(k) plan. Ditto the employer match. Currently money-market mutual funds are paying less than 1% per year as interest (technically dividends, not interest) and so the money will not stay the same over time but the growth will be so gradual that it would be better to spend time watching paint dry than to waste it watching your 401(k)'s growth.
2. Yes you can, but you have to be proactive about it. Neither Fidelity nor your employer will do it for you. You can invest the money you already have in your 401(k) money market account into mutual funds or stocks and bonds etc on the Fidelity website for 401(k) plans. If the default investment is in a GIC, might have to pay surrender fees to get your money out so that you can invest it elsewhere. You can also direct your 401(k) contributions from future paychecks to go directly into your chosen investments if you like instead of having them go to the money-market account and then be put into investments whenever you get around to it next.
3. Investments are made within a day or two after you get your paycheck. Warning: you cannot control the exact date when the investment is actually made and so if your idea is to time the market, direct investment is not going to work optimally for you.
4. Investments in stocks and bonds have the problem that each payroll contribution (likely the same each paycheck) is unlikely to buy an integer number of shares or bonds each time. So, Fidelity will have some money left over each time and this will add to the funds available for stocks and bonds purchases the next time around. Even then, generally you pay less in brokerage fees to buy shares and bonds in round lots (100 shares or bonds in a round lot), which might, or might not, be a consideration for you. Since you seem eager to time the market and buy only during a downturn, it might be best to have your contributions go into a money-market fund and then watch like a hawk to decide the best time to swoop in and invest in stocks and bonds.