Author Topic: Unsure of how to adjust my retirement allocations  (Read 3115 times)

MouseStash

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Unsure of how to adjust my retirement allocations
« on: April 24, 2013, 11:19:39 AM »
Hi all,

I'm early 40s and have a decent start on retirement savings, but still a long way to go. My former plan for picking funds to put in my retirement account was to look for mutual funds that had high return rates. I also picked a small handful of stocks that I thought would do well. I do realize that I'm probably not smart enough for this to be an effective strategy. :-)

So, last month I tried rebalancing everything - adding index funds, selling some of the wacky and underperforming mutual funds I'd bought, and reducing the amount of individual stock shares I had. I think it's better, but probably still needs work. Here's what I have now in my employer-run retirement account:

-- 16% in individual stocks (3 companies. I didn't intend to have this high a percentage, but the three have done surprisingly well, which has made the percentage go up. I did sell off a bunch last month to bring the % down to this.)

-- 24% in AMAGX (a growth fund which seems to do well, but I'm realizing the fee may be too high)

-- 10% in SAGYX (a growth fund that's done well so far)

-- 5% in SSMVX (a small cap value fund that's done well, but has higher fees)

-- 9% in NAESX (vanguard small cap, just bought this last month)

-- 18% in VIMSX (vanguard mid cap, have had this awhile)

-- 16% in VFINX (vanguard s&p500, just bought this last month)

I'm also opening a Vanguard Roth IRA next month with $3000. Haven't bought anything in there yet.

So my questions:

1. Is the above portfolio still as complicated and fiddly as I feel like it is?

2. If the answer to 1 is "yes", since I just made a bunch of trades to get it this way, and since I have to pay for trades, am I better off letting it sit for now, and reconfiguring it next year, so as not to pay another round of trading fees? Or is it better just to suck it up and rework it now? I usually try to do trades only a few times a year to minimize the fees.

3. I would probably have been better off going with a total market fund, instead of small/mid/500 individual funds. But since I've bought those, and paid the trading fees, should I just stick with them, essentially rolling my own total market fund? Or should I transition it all to a real total market fund?

4. What should I do with my pristine Vanguard Roth IRA? I'm starting it with $3000 and I hope to max out my contribution to it each year. International? Bonds? I have neither of those things right now.

TL;DR: How can I make this particular portfolio better going forward while avoiding unnecessary additional fees?

Thanks for any advice you guys can give.

destron

  • Bristles
  • ***
  • Posts: 377
  • Age: 41
  • Location: Seattle
    • Mustachian Financial Calculators
Re: Unsure of how to adjust my retirement allocations
« Reply #1 on: April 24, 2013, 11:47:58 AM »
I don't have enough time to truly comment on this right now, but I did want to point out one thing: by selling your underperforming funds and holding your funds that have done well, you are committing to the "buy high, sell low" strategy of investing. Once you do figure out your portfolio balances, you can rebalance once or twice a year (or continuously by purchasing more of your funds that have done less well to bring the balance back) by selling the stocks that went up and buying more of the stocks that have done poorly.

Check out the bogleheads wiki.

NumberCruncher

  • Pencil Stache
  • ****
  • Posts: 612
Re: Unsure of how to adjust my retirement allocations
« Reply #2 on: April 24, 2013, 12:00:01 PM »
+1 to checking out the bogleheads wiki http://www.bogleheads.org/wiki/Asset_Allocation


Your risk tolerance and long term goals are going to be huge contributors to what you should allocate.


As to what to invest where (esp. in IRA) get a good understanding of tax efficiency:
http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

MouseStash

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Unsure of how to adjust my retirement allocations
« Reply #3 on: April 24, 2013, 12:05:12 PM »
by selling your underperforming funds and holding your funds that have done well, you are committing to the "buy high, sell low" strategy of investing.

Yep, I kind of realized that as I was doing it. But if I was fairly certain that those funds were the wrong funds to hold in principle (since they were non-index and some had higher fees - like I said, I think my original purchase decisions were flawed), surely I shouldn't have put *more* money into them?

MouseStash

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Unsure of how to adjust my retirement allocations
« Reply #4 on: April 24, 2013, 12:39:26 PM »
Thanks NumberCruncher. From the asset allocation wiki it sounds like I desperately need at least *some* bonds, especially being over 40. Maybe I should sell off all the AMAGX, SSMVX, and SAGYX and use all that to buy a bond fund. That would kind of balance out my "buy high/sell low" error by selling off the high performing funds that I shouldn't have (right?), and also be closer to a better allocation. It would give me 40% in bonds in this account, which may be a bit high, but I could get a total market fund (or an international fund?) with the new Vanguard Roth to balance things out a little better. Does that sound like a step in the right direction?

NumberCruncher

  • Pencil Stache
  • ****
  • Posts: 612
Re: Unsure of how to adjust my retirement allocations
« Reply #5 on: April 24, 2013, 12:54:11 PM »
Thanks NumberCruncher. From the asset allocation wiki it sounds like I desperately need at least *some* bonds, especially being over 40. Maybe I should sell off all the AMAGX, SSMVX, and SAGYX and use all that to buy a bond fund. That would kind of balance out my "buy high/sell low" error by selling off the high performing funds that I shouldn't have (right?), and also be closer to a better allocation. It would give me 40% in bonds in this account, which may be a bit high, but I could get a total market fund (or an international fund?) with the new Vanguard Roth to balance things out a little better. Does that sound like a step in the right direction?

A bit...

I think the key is to first decide on an asset allocation, then decide on the best investment vehicles to reach that allocation. It sounds like you're working on the problem a bit backwards, looking at what you currently have and selling because you think you should.

It probably does make sense to sell the funds with high fees and use the money to rebalance your portfolio, though.