Help me allocate my 401k....

[Zeze]

I'm a total noob to this.


My company's 401k plan (via John Hancock) offers following. I'm new to 401k and overall overwhelmed at all the info. All I know is that generally I should stick to indexed funds and just pull some allocation % out of my ass based on how much risk I want to take.

• Early 30s.
• No debt
• Got a new job few months ago & don't have much 401k savings as I'd like. I just started allocating 10% of my paycheck to aggressively 'catch-up'. So I'm looking to be moderate to heavy risk. Or whatever is best after fees.
• The $3000 401k balance from this new job is currently allocated 100% at OAKBX.

How do I allocate % of below options? And generally why you recommend x y z?

• Stable Value Option
• Lord Abbett High Yield Fd I (LAHYX) (Lord Abbett High Yield Fund (Class I))
• Indexed Bond Fund (MIXIX) (MainStay Indexed Bond Fund (Class I))
• PIMCO Total Return Instl (PTTRX) (PIMCO Total Return Fund (Institutional Class))
• Templeton Global Bond Fund Adv (TGBAX) (Templeton Global Bond Fund (Advisor Class))
• MFS Diversified Income R4 (DIFGX) (MFS Diversified Income Fund (Class R4))
• Balanced Fund (FBALX) (Fidelity Balanced Fund)
• Invesco Growth & Income R5 (ACGQX) (Invesco Growth and Income Fund (Class R5))
• S&P 500 Index Fund (MSPIX) (MainStay S&P 500 Index Fund (Class I))
• MFS Total Return Fund R4 (MSFJX) (MFS Total Return Fund (Class R4))
• Equity and Income Fund (OAKBX) (Oakmark Equity and Income Fund (Class I))
• T Rowe Price Equity Income (PRFDX) (T. Rowe Price Equity Income Fund)
• American Growth Fund of Am R6 (RGAGX) (American Funds - The Growth Fund of America (Class R6))
• Capital Appreciation Fund (FDCAX) (Fidelity Capital Appreciation Fund)
• Ivy Mid Cap Growth Fund Y (WMGYX) (Ivy Mid Cap Growth Fund (Class Y))
• Low-Pri Stock Fund (FLPSX) (Fidelity Low-Priced Stock Fund)
• Invesco Select Companies R5 (ATIIX) (Invesco Select Companies Fund (Class R5))
• JP Morgan Mid Cap Value Inst (FLMVX) (JPMorgan Mid Cap Value Fund (Institutional Class))
• JP Morgan U.S. Equity R5 (JUSRX) (JPMorgan U.S. Equity Fund (R5 Shares))
• T. Rowe Price Real Estate (TRREX) (T. Rowe Price Real Estate Fund)
• Vanguard Mid Cap Index Admiral (VIMAX) (Vanguard Mid-Cap Index Fund (Admiral Shares))
• Vanguard Small Cap Index Adml (VSMAX) (Vanguard Small-Cap Index Fund (Admiral Shares))
• American EuroPacific Growth R6 (RERGX) (American Funds - EuroPacific Growth Fund (Class R6))
• Ivy Asset Strategy Fund I (IVAEX) (Ivy Asset Strategy Fund (Class I))
• Lazard Emerging Markets Inst (LZEMX) (Lazard Emerging Markets Equity Portfolio (Institutional Shares))
• MFS Intl New Discovery R4 (MIDJX) (MFS International New Discovery Fund (Class R4))
• MFS International Value R4 (MINHX) (MFS International Value Fund (Class R4))

 

[maziwanka]

wish i could offer advice, but i would try reddit's personalfinance and similar subreddits and the bogglehead forums

 

[Aharami]

sup Ronnie!

 

[dullard]

Sound logic behind these choices (with historical data to back it up) is all found here:
http://www.amazon.com/The-Four-Pillars-Investing-Portfolio/dp/0071747052

William Bernstein even gives recommendations for the exact percentages in each category depending on your tax status, age, and risk tollerance. I highly suggest it for a 401k novice.

The general idea is that NO ONE can accurately choose which of those options will do best for you. So, you want to diversify. You want some small companies, some medium companies, some large companies. You want some growth companies and some value companies. You'll want mostly stocks, but a few bonds (more so as you age). You want all that diversity in US and then again all that diversity in international companies. That way, if something tanks, you don't lose much. Or, if another Apple comes along, you own it and get to ride the profits.

But, ANY ONE can tell you which of those options are bad. Those are the options that have high fees. The fees look small, but the vast majority of investors make basically nothing on their investments while their investment managers become billionaires (all off of those fees that look small to you). If you have two similar options, ditch the one with the higher fees without a second thought.

The best part though, is since your balance is small, whatever you choose doesn't matter much. The difference between a 5%/year gain (rather poor choice) vs 10%/year gain (a rather good choice) on $3000 is less than 50 cents a day. Don't sweat having a wrong choice at this point while you figure it out. That is, unless the fund is high in fees since that would destroy your gains outright.

I didn't bother to look up the allocation of all of those funds, nor would I know what fees they are charging you (the fee list should have been provided to you). That said, an off-the-cuff thought would be:

* 45%: S&P 500 Index Fund (MSPIX) (MainStay S&P 500 Index Fund (Class I))

* 30%: Vanguard Small Cap Index Adml (VSMAX) (Vanguard Small-Cap Index Fund (Admiral Shares))

* 25%: Whichever international fund is the most diversified with low fees.

That should give you big and small, value and growth, US and international without having to worry much.

 

[MustISO]

Check the fees and see what each fund contains. The fees can be a killer unless you're doing very well. You may not know what the different assets are but it would be nice to learn. Look at past performance especially during the "bad" years, no indication of future performance but if during a downturn of the market the fund didn't fall a massive amount I would feel better about it. Over the long term, index funds should do well. Value and Growth funds should also be looked at. This is a good chance to learn more about the market and the funds you have available to you.

 

[dr150]

You're young. You have decades ahead so you can afford to be more aggressive. Jim Cramer has answered this question before like this and I agree with that.

BTW, most of those funds look expensive and dogshit.

The ones I'd maybe dip into are FLPSX, VIMAX, VSMAX....maybe MSPIX depending on fees. The int'l funds look expensive and dogshit as well.

Put 75% of the total in domestic...of that, focus 50% on mid/small cap and 50% on large cap as a base. There are no right ratios but small cap tends to overperform large cap over the long term, which is right up your alley since you're young.

----> Look into whether your 401k provider allows to have your 401k money moved into a cash trading account so you can put that money to work into something better. Most good 401k accounts allow this nowadays.

My wife's Fidelity account allows this and 100% of it is put into a cash trading account and is automatically programmed to purchase better funds outside of the plan that are top performing and cheaper...much cheaper! It has worked out great! Ask your 401k administrator about this option. It's a no-brainer!

I know of many really intelligent employees who can't be bothered with this shit and just buy a Life Fund. That's OK too. But I believe one should have a firm grasp of the financial world and allocate more intelligently. This is easy to do and your growing experience will lead to less fear and you'll be more nimble and outperform the crappy funds with your better performing fun choices.

Whatever you do, remember that bonds are in a large bubble and remember that you're young so you can avoid this area entirely(!) at your age.

Also allocate a good portion to Int'l (i.e. 25% of total), with a current focus on growth sectors like Japan and Europe. Int'l has underperformed versus domestic these past years so that's why I mean to allocate intelligently when you see trends and to overweight for growth regions accordingly. Europe is destined to overperform (and is doing so this year) as it takes the growth baton away from the USA......so now is not a time to underweight this region. BTW, I was out of Int'l/Europe entirely for the past 5 years and was solely in the USA growth sector, BUT now due to change economics of the world, I have a good bite into Europe as it is indeed showing some long overdue growth promise.

BTW, if you can, focus on growth funds over value funds due to rising interest rates. Going forward, Healthcare (boom!), technology, financials, and consumer discretionary funds are sectors that are also destined to overperform the market so try to get a bite of that pie as well.

 

[dullard]

BTW, if you can, focus on growth funds over value funds due to rising interest rates. Going forward, Healthcare (boom!), technology, financials, and consumer discretionary funds are sectors that are also destined to overperform the market so try to get a bite of that pie as well.

Dr150 gave good suggestions. But I do want to point out that with only $3000 so far, trying to get into specific sectors like healthcare is a bit too premature. Add at least a zero and probably two to your balance before you worry about specifics like that.

 

[KB]

I try to get into the vanguard admiral funds. They have the lowest fees but you need 10000 before you can get into the fund.

https://investor.vanguard.com/mutual-funds/admiral-shares

I would start by putting 50 percent in MSPIX and FBALX (I like vanguard and fidelity). When you get the 10,000 in the FBALX move it into the VIMAX admiral shares for the low fees and good returns.

 

[Jeff7]

I try to get into the vanguard admiral funds. They have the lowest fees but you need 10000 before you can get into the fund.

https://investor.vanguard.com/mutual-funds/admiral-shares

I would start by putting 50 percent in MSPIX and FBALX (I like vanguard and fidelity). When you get the 10,000 in the FBALX move it into the VIMAX admiral shares for the low fees and good returns.

That minimum limit likely only applies to individual investors, and not a 401k. But I could possibly be talking out of my ass on that.

Go here, read post, follow instructions, register, post new thread, get answers.

 

[pete6032]

You need to look at the fee structure of each fund. Some of the fees on 401K funds can be outrageous (over 1%).

Personally I go with a Lazy portfolio with my retirement savings, which tracks the market. The goal with retirement investing is not to beat the market in any given time period, the goal is to track the market and get rich slowly. A rising tide raises all ships.

 

[kranky]

Edit the first post to include the Expense Ratios of each fund. Those fees matter A LOT.

 

[jpiniero]

Put it all into bitcoins and flooz.

 

[Nograts]

50% VSMAX, 50% Whatever cheapest SP500 is (didn't see VFINX) up to match. Anything over match put in a traditional Roth with the same allocation. Reinvest any dividends. After your first 4 years (so on the 5th year), put the whole year into international index. Don't touch bonds until 45.

That'll get you to "caught up", it's pointless arguing allocation until you're sitting around 50 grand or more, gotta think %s not #s.

Read Jack Bogles book to learn how stupid easy allocations to win are. Bet on the casino. Obligatory "knowledge is the best investment"

Clicky

 

[Nograts]

Also, for Ameritrade at least, you can't get admiral shares. Investor class is fine if you don't have access. Or I guess get multiple accounts but meh, lazy. I don't want to transfer 60k over

 

[s0me0nesmind1]

<snip>
* 45%: S&P 500 Index Fund (MSPIX) (MainStay S&P 500 Index Fund (Class I))

* 30%: Vanguard Small Cap Index Adml (VSMAX) (Vanguard Small-Cap Index Fund (Admiral Shares))

* 25%: Whichever international fund is the most diversified with low fees.

That should give you big and small, value and growth, US and international without having to worry much.

What about bonds for risk (depending on OPs age)?

Overall though, I agree. Maybe not so much in small caps though?

Edit the first post to include the Expense Ratios of each fund. Those fees matter A LOT.

THIS.

 

[Nograts]

Dr150 gave good suggestions. But I do want to point out that with only $3000 so far, trying to get into specific sectors like healthcare is a bit too premature. Add at least a zero and probably two to your balance before you worry about specifics like that.

Most funds require 1k-3k initial buy ins, with only 3k he should beef up to at least 50k before going beyond 2 funds. He's got 30+ years

 

[Nograts]

What about bonds for risk (depending on OPs age)?

Overall though, I agree. Maybe not so much in small caps though?




THIS.

Small caps historically outperform large cap over longer periods.

 

[s0me0nesmind1]

Small caps historically outperform large cap over longer periods.

Simply put, they are more volatile. When they lose, they lose big - I wouldn't trust that much personally - would rather opt for splitting into small/medium/large

 

[Nograts]

Simply put, they are more volatile. When they lose, they lose big - I wouldn't trust that much personally - would rather opt for splitting into small/medium/large

Yes, but his investment time frame is 30+ years. He won't be full tilt forever.

 

[DaveSimmons]

I didn't bother to look up the allocation of all of those funds, nor would I know what fees they are charging you (the fee list should have been provided to you). That said, an off-the-cuff thought would be:

* 45%: S&P 500 Index Fund (MSPIX) (MainStay S&P 500 Index Fund (Class I))

* 30%: Vanguard Small Cap Index Adml (VSMAX) (Vanguard Small-Cap Index Fund (Admiral Shares))

* 25%: Whichever international fund is the most diversified with low fees.

That should give you big and small, value and growth, US and international without having to worry much.

That's good advice, but if you can also do a Roth IRA (or Traditional if you need the tax deduction), you could open that IRA at Vanguard or Schwab, and put it 100% into a good International index fund.

If your international fund is in the IRA you don't need to worry about picking a bad international fund in the 401k, just put more into the S&P 500 and Vanguard small cap.

 

[dullard]

What about bonds for risk (depending on OPs age)?

Overall though, I agree. Maybe not so much in small caps though?

Bonds would be needed as he ages. But I'm certainly not going to recommend bonds right now with bonds in a bubble and interest rates likely to rise (especially considering he has 30+ years to retire). Give it a year or two and see if they fall first.

I considered putting the small caps at 25%, but the international funds are likely to be almost all large companies anyways. So, a 70% large and 30% small mix isn't too far off of where he should be. I would also eventually recommend a midcap fund (my personal 401K is 68% VIMAX, but my 401k is only a small part of my whole portfolio) but at $3000, he doesn't need that many funds yet. And the small/large cap funds have enough mid cap stocks in them to cover it. The exact percentages won't matter until he has far more money in the mix.

 

[brianmanahan]

Most funds require 1k-3k initial buy ins, with only 3k he should beef up to at least 50k before going beyond 2 funds. He's got 30+ years

it's a 401k, so there wouldn't be a minimum purchase requirement

 

[brianmanahan]

Put it all into bitcoins and flooz.

lol i remember all the flooz posts on ATOT!

 

[brianmanahan]

tbh zeze, the most important thing right now is just that you save as much as possible in the tax-advantaged spaces. asset allocation still matters, but it really starts to matter more as you get more money.

fill up the full 18$k in 401k for you (and another $18k if your wife has access to 401k/403b/etc).

then do a backdoor roth IRA to save another $5.5k for you and your wife

and then if you have more to save, start putting money in a taxable investment account.

as for figuring out exactly what to invest in and how much risk to take, that's a personal decision you need to make. the book all about asset allocation helped me a lot in deciding what allocation to use.

 

[JEDI]

is 10% of your paycheck = hitting the 401k max contribution by federal law?
if so, then :thumbsup:

as for allocation, keep it simple:
Bonds = Age - 10 = 30 -10 = 20%
int'l = 25%
total market = the rest = 55%

total market = 75% s+p 500, 25% small cap

thus:
bonds 20%
int'l 25%
large cap = 55% x 75%
small cap = 55% x 25%

oh.. and intl = 50% Europe, 25% japan, and 25% emerging markets.
emerging markets = Russia, china, south Africa, latin america