Author Topic: Rebalancing my 401k Portfolio, and it was super scary, please help!  (Read 6524 times)

whitedragon

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As a little background, I've educated myself quite a bit on the passive investing strategy throughout 2014, and I opened up a taxable account with Vanguard full of VTSAX.  I also fully funded a Traditional IRA at Vanguard for 2014 as well, and am working on 2015 at the moment. 

I've always contributed a decent amount, just shy of maxing out my 401k at work, but last year I really hunkered down and was able to get the max contribution (17,500).  The issue was, I had been buying almost 100% of the company's stock in my 401k.  Now, I actually lucked out over the past several years and the company was one of the fortunate few that has had stellar performance the past couple years, and has helped me get a significant head start on my FI plans in spite of an early youth of rampant consumption and no savings.  Anyway, I know its dangerous to have 100% assets in a single company stock, so last year I drafted myself an investor statement/plan/charter/whatever that I would rebalance in January and then every January thereafter to the S&P 500 Index.  I feel/felt pretty good about all that, and I rebalanced and everything was great......

Now for the actual issue.  The company stock I was in has continued to climb over the past couple weeks and now I'm having significant "rebalance" remorse and am starting to think of doing stupid things.

So what I'm looking for I guess, is some reassurance or coaching or positive thoughts or well anything, to help keep me on track, and not try to recreate my past "luck" with a single stock.

Any words of wisdom?

ZiziPB

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #1 on: February 19, 2015, 07:43:56 AM »
You are absolutely doing the right thing and if I were you, I would accelerate your rebalancing and I would never look back.  Investing any significant portion of your portfolio in a single stock is extremely risky.  Doing so by investing in your employer's stock is even worse.  You are basically tying both your employment status (and income) as well as your portfolio to one company.  And if that company stumbles then both your job and your 401k may be gone in one fell swoop.  Think Enron!!!

Take your gains, say a thank you prayer and invest the proceeds in accordance with your investment statement :-) 

aj_yooper

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #2 on: February 19, 2015, 07:50:57 AM »
You did the right thing!

Keep reading on finance blogs and at the library.  Rick Ferri is very good and he also writes regularly for Forbes magazine.

dandarc

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #3 on: February 19, 2015, 07:53:34 AM »
You did the right thing for sure.  As ZiziPB mentions, Enron stock looked like a fantastic investment, right up until it didn't.

If it makes you feel better, even when you are 100% out of company stock directly, you'll likely still have some via VTSAX or your S&P 500 fund.

skyrefuge

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #4 on: February 19, 2015, 08:11:23 AM »
Now, I actually lucked out over the past several years and the company was one of the fortunate few that has had stellar performance the past couple years

It's not clear to me; are you actually comparing your company stock against anything? Your "fortunate few" statement makes me a bit doubtful, since tons of companies (and thus, the VTSAX index as a whole) have also had "stellar performance the past couple years". Maybe your company stock actually hasn't done any better than VTSAX anyway? Furthermore, in "the past couple weeks", VTSAX has also continued to climb, up about 5.5%. How much is your company stock up since January 30? And since January 1, 2013?

Anyway, even if it has actually outperformed VTSAX, don't be a sucker and buy more of it. If the company is really doing well, that means they'll pay you more, and that's a much more-guaranteed way to accelerate your FI date.

seattlecyclone

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #5 on: February 19, 2015, 08:26:17 AM »
Stay the course. Individual stocks tend to be more volatile than the market as a whole. If your employer is perfectly average, it might still outperform the market half the time. Your employer may well be doing great things at the moment that are loved by the market. Will that still be the case in a year? Ten years? How will you be able to predict when the stock will stop being favored by the market? You don't want to wait to sell until afterward.

Gone Fishing

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #6 on: February 19, 2015, 09:06:36 AM »
What ratio did you rebalance to?  You may need to sell more...
« Last Edit: February 19, 2015, 11:13:42 AM by So Close »

Heckler

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #7 on: February 19, 2015, 10:37:00 AM »
My sister in law used to work for Nortel. All her bonuses were in options on the upside, not vesting till the downside when she also got her severance.  Her story has me convinced.


Mississippi Mudstache

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #8 on: February 19, 2015, 11:35:11 AM »
The benefits of diversification are real. My company's stock grew sixfold in four years between its nadir in 2009 and its apex in 2013. Since its apex, it's down 60%. I know someone who put 100% of their 401k in company stock after its incredible 4-year performance (I doubt they timed the peak perfectly, but it must have been damn close). So in the span of 1.5 years, their 20 years of contributions have been cut in half. Not a pretty picture.

The silver lining is that our stock is fundamentally undervalued by about 20% right now, so at least there's some upside. I have 2% of my total portfolio in company stock right now, but once it hits 5%, I'm capping it. And once it reaches a value that I feel is appropriate, I'm selling it all.

I was part of the team responsible for calculating our company's vet asset valuation. We use the number to determine the point at which stock buybacks make more sense than capital investment. So I have a pretty good feel for how our company should be valued. Do you have a similar idea of what the appropriate price is for your company? Do you have a specific strategy for entry and exit points? It doesn't sound like it. You made the right call. No second-guessing yourself. But if you want to keep a specified portion of your portfolio in company stock, that's fine. Keep it reasonable and stick to it.

misschedda

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #9 on: February 20, 2015, 09:26:14 AM »
Wow, that Nortel graph does a great job of visualizing the point everyone's making. A single stock is so volatile and slight remorse over not getting those gains in your company's stock is way better than serious regret over losing half your portfolio value for good when the company tanks.

forummm

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #10 on: February 20, 2015, 10:23:45 AM »
I would only buy the stock of any company I worked for if they gave me a discount on it. And then I would only hold it for as long as it made sense to from a perspective of taxes (e.g. it is goes up, then holding a year to get long-term gains) and if there was a minimum requirement to hold it to get the discount. And when I met that threshold I would immediately sell it and buy an index fund instead.

What happens if your company hits hard times? It's easy to see scenarios where you get laid off right when their stock tanks.

I wouldn't hold a single stock worth more than a few percent of my portfolio unless I could get it at a discount.

Heckler

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #11 on: February 20, 2015, 12:20:32 PM »
Three more examples even closer to my heart (so I won't name them) that have me 100% convinced on indexing vs individual stocks.  The upsides look pretty appealing, don't they?!




Heckler

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #12 on: February 20, 2015, 12:23:39 PM »
Then again...  TSX doesn't looks so hot either.

« Last Edit: February 20, 2015, 12:25:16 PM by Heckler »

Heckler

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #13 on: February 20, 2015, 12:25:46 PM »
Oops!  yes it does! Just need to look longer term.


dunhamjr

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #14 on: February 20, 2015, 02:46:43 PM »
Just rebalance and forget it.  Or better yet, if possible, setup an autorebalance.  I have my 401k to auto balance twice a year.

And remember.  that while YES your company stock DID go up. 
how crappy would you have felt if you DIDNT rebalance and the stock took a huge dump?

whitedragon

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Re: Rebalancing my 401k Portfolio, and it was super scary, please help!
« Reply #15 on: February 26, 2015, 01:40:42 PM »
Thanks for the pep talks folks, that's exactly what I needed to hear.

It's a week later and I feel alot better about it, and I'm breathing alot easier, and I enjoyed everyone's response.  I feel like you guys are my Investor's Anonymous group!