Author Topic: help me balance my assets in my 401k  (Read 2154 times)

snafuing1

  • 5 O'Clock Shadow
  • *
  • Posts: 33
help me balance my assets in my 401k
« on: October 22, 2014, 02:17:44 PM »
So I'm trying to figure out my company 401k. The company offers a lot of proprietary funds (no tickers, lower expense ratios). Right now I have my money in something called an Aggressive Life Strategy Fund, which has an ER of .10 and looks like this:

46%   Total Stock Market Index Fund (.03 ER)
20%   Total Int'l Stock Market Index Fund (.10 ER)
8%   Total Bond Market Fund (.05 ER)
2%   High Yield & Emerging Markets Bond Funds (.42 ER)
7%   Real Estate Investment Trust Index Fund (.13 ER)
3%   Int'l Real Estate Index Fund (.24 ER)
4%   Commodities Fund
10%   Balanced Exposure Fund

I can buy the above funds that have ERs listed individually instead, and in different ratios, and it seems like that might be the better way to go. I'm not sure how to balance it all though, or if I should do something different than this fund does for me.

Also to make sure these proprietary funds are on the up and up, this is the make-up of the Total Stock Market Index Fund:

18.2%   Information Technology
11.5%   Industrials
12.9%   Health care
17.2%   Financials
10.0%   Energy
8.2%   Consumer Staples
12.6%   Consumer Discretionary
3.2%   Utilities
2.2%   Telecommunication Services
3.9%   Materials

Does this look good? Should I stick with the "Aggressive Life Strategy" or make up my own balance?

For reference, I'm 26 years old, just started at the company so only a couple thousand put away here so far, but I am planning on maxing it out every year from here on out until FIRE, which I am hoping will be about 10 years from now.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1323
  • Age: 34
  • Location: Missouri
Re: help me balance my assets in my 401k
« Reply #1 on: October 22, 2014, 05:38:23 PM »
Allocate your 401k into these three funds according to the Asset Allocation you have determined best suits your risk profile:

Total Stock Market Index Fund (.03 ER)
Total Int'l Stock Market Index Fund (.10 ER)
Total Bond Market Fund (.05 ER)

If you need help determining an AA, I can give you my quick take. You're 26 and want to retire in 10 years, so you should likely start out aggressive in hopes of building your stash quickly. In that case, an 80/20 AA is reasonable. That might look like this:

60% Total Stock Market
20% Total International Stock Market
20% Total Bond Market

Rebalance every 6 months to a year, enjoy your eventual FIRE.

livetogive

  • Stubble
  • **
  • Posts: 235
Re: help me balance my assets in my 401k
« Reply #2 on: October 22, 2014, 06:06:34 PM »
Allocate your 401k into these three funds according to the Asset Allocation you have determined best suits your risk profile:

Total Stock Market Index Fund (.03 ER)
Total Int'l Stock Market Index Fund (.10 ER)
Total Bond Market Fund (.05 ER)

If you need help determining an AA, I can give you my quick take. You're 26 and want to retire in 10 years, so you should likely start out aggressive in hopes of building your stash quickly. In that case, an 80/20 AA is reasonable. That might look like this:

60% Total Stock Market
20% Total International Stock Market
20% Total Bond Market

Rebalance every 6 months to a year, enjoy your eventual FIRE.

This is a perfect answer.  +1.  Another way to do it is (100 - your age) = equity allocation; starting at 50/50 domestic/international and moving according to risk and expense.  I'd do 75/25 domestic / international as suggested and ratchet bonds down from 26% of portfolio to 20% of portfolio because why not.

snafuing1

  • 5 O'Clock Shadow
  • *
  • Posts: 33
Re: help me balance my assets in my 401k
« Reply #3 on: October 28, 2014, 02:47:13 PM »
Interesting that you guys are suggesting I hold more bonds than I am right now. Isn't that less aggressive, not more?

Philociraptor

  • Pencil Stache
  • ****
  • Posts: 794
  • Age: 28
  • Location: DFW, TX
  • FIRE Deadline: May 2029
Re: help me balance my assets in my 401k
« Reply #4 on: October 28, 2014, 02:50:13 PM »
It is less aggressive. It's been shown that holding small amounts (not less than 20%) of uncorrelated assets results in higher returns through rebalancing, aka buying low and selling high.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1323
  • Age: 34
  • Location: Missouri
Re: help me balance my assets in my 401k
« Reply #5 on: October 28, 2014, 06:14:51 PM »
It is less aggressive. It's been shown that holding small amounts (not less than 20%) of uncorrelated assets results in higher returns through rebalancing, aka buying low and selling high.

(Argument Alert) There is quite a bit of research showing that holding 100% equities ultimately results in higher returns over a long enough time period. Bonds start acting as a drag to your total return.

That said, with the OP, I wouldn't call his 10 years till retirement a very "long" time period. Hence my recommendation that he include bonds in his portfolio.

My personal portfolio is 100% equities, but I'm also 25 years from retirement.

Philociraptor

  • Pencil Stache
  • ****
  • Posts: 794
  • Age: 28
  • Location: DFW, TX
  • FIRE Deadline: May 2029
Re: help me balance my assets in my 401k
« Reply #6 on: October 28, 2014, 07:16:01 PM »
It is less aggressive. It's been shown that holding small amounts (not less than 20%) of uncorrelated assets results in higher returns through rebalancing, aka buying low and selling high.

(Argument Alert) There is quite a bit of research showing that holding 100% equities ultimately results in higher returns over a long enough time period. Bonds start acting as a drag to your total return.

That said, with the OP, I wouldn't call his 10 years till retirement a very "long" time period. Hence my recommendation that he include bonds in his portfolio.

My personal portfolio is 100% equities, but I'm also 25 years from retirement.
I'm with you wtj, now that I can take control of my 401(k) at the end of the year I'm going 100% S&P 500 with it, fastest way to my number.

NP

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: help me balance my assets in my 401k
« Reply #7 on: October 29, 2014, 12:02:39 AM »
This is a minority opinion here but I think that having three times more US equities than international (60% vs. 20%) would be putting too many eggs in one basket. The US had a good run in the 20th century and if I had to take a wild guess, I'd place my bet on it performing reasonably well compared to the rest of the world in the short term. Long term results, however, are not something I would dare to bet on.

Many people believe in market capitalization based total stock market indexes and not without a good reason. In 2012 the US made up about 40% of the world total stock market, and that number is likely to decrease as other countries are catching up. You may want to have more than 40% US equities because they're cheaper to own or because many big US companies operate internationally or to decrease currency risk or because you personally have more confidence in the US economy. But a ratio as high as 3:1 seems like a speculative bet to me if we're talking about long term investments.