Company 401k Weighting Question

**dardhel** · 02-13-2008, 02:33 AM

It looks alright, how old are you? Early 20s? Then I wouldn't mind it, if you weren't in a 401k I would ask what are your fees but I would guess you wouldn't have too much choice with your 401k and as these are index funds within the retirement fund it is probably below 1%

**humandraydel** · 02-13-2008, 03:28 AM

Really this isn't a bad allocation at all. I should be retiring in 2035 and I use something similar. My only comment is that in general I prefer short term bonds. You could be slightly more aggressive, but it's probably not necessary. I use this allocation (which is pretty aggressive):

37% S&P
33% International
25% Small Cap
5% Short Term Bonds

**InDebtInDC** · 02-13-2008, 04:05 AM

I do 100% International, but again I'm risk-tolerant to a fault. Honestly, even I think this is stupid, but I don't care enough to adjust it despite numerous financial planners tellin me to.

For the past few years I've enjoyed generous gains of 20-30% APY, this year it looks like 20-30% loss in the first month and a half, but I didn't even flinch. I just let it ride since I don't have that much and I want to ride it up again. Honestly every type of fund was hit hard so everybody walked away a loser unless you had the foresight to stash all of your money in.

Maybe when my portfolio hits 6 figures I'll rebalance it properly. Right now the fluctuations are still small so it's no big deal.

**jIM_Ohio** · 02-13-2008, 05:15 AM

solid 90-10 allocation, with a huge bias towards large caps. Doing nothing is an option, and a good option.

I might suggest with such an aggressive portfolio you do 2 things

1) increase the weightings of other asset classes slightly (maybe 5% each to mid and small caps)
2) find a more diversified bond fund (long term bonds are just one type of bond). Intermediate term bonds, real estate, short term and money markets could be considered for a slice of the bond position. It is OK to have 2% to one type of bonds and 2% to another, 2% to a third etc...

How old are you?

**Broken Arrow** · 02-13-2008, 05:41 AM

Originally posted by InDebtInDC View Post

I do 100% International, but again I'm risk-tolerant to a fault. Honestly, even I think this is stupid, but I don't care enough to adjust it despite numerous financial planners tellin me to.

If you honestly believe that this is stupid, then PLEASE change it now. It may or may not hit your six figure milestone, and investing in this way isn't investing at all. It's just... pure insanity! It's like saying, "Well, when I finally hit X amount of dollars at the craps table, then I'll leave." Where's the logic in that?

You probably don't need me to tell you all that, but I felt the need say it anyways. Hence my subtitle.

**disneysteve** · 02-13-2008, 05:40 PM

Originally posted by jIM_Ohio View Post

2) find a more diversified bond fund

I agree. I use Vanguard's Total Bond Market index. See if something like that is available in your plan.

Otherwise, I think your allocation is just fine.

**InDebtInDC** · 02-14-2008, 04:06 AM

Originally posted by Broken Arrow View Post

If you honestly believe that this is stupid, then PLEASE change it now. It may or may not hit your six figure milestone, and investing in this way isn't investing at all. It's just... pure insanity! It's like saying, "Well, when I finally hit X amount of dollars at the craps table, then I'll leave." Where's the logic in that?

You probably don't need me to tell you all that, but I felt the need say it anyways. Hence my subtitle.

I know. Historically though I've enjoyed huge gains in my portfolio compared to small and large caps. Gov securities I don't even want to waste my time with.

As much as everybody was hurting, I only lost several thousands. To me that's not much compared to other people who has balanced portfolio to the extent possible (employer offers limited investment opportunities). Everyone lost money except for people who buy Tbills.

Right now my balance is too small and transaction fees are higher relative to possible losses. So it doesn't make sense to actively manage my portfolio.

I actually welcome this latest crash. It's a gut check for me to see if I can stomach the kind of loss my portfolio would be exposed to, and it looks like I can, at least for now. I think $100k would be the time when I would actively manage it. With any luck I'll be there in 3 years.

**jIM_Ohio** · 02-14-2008, 06:08 AM

Originally posted by InDebtInDC View Post

I know. Historically though I've enjoyed huge gains in my portfolio compared to small and large caps. Gov securities I don't even want to waste my time with.

As much as everybody was hurting, I only lost several thousands. To me that's not much compared to other people who has balanced portfolio to the extent possible (employer offers limited investment opportunities). Everyone lost money except for people who buy Tbills.

Right now my balance is too small and transaction fees are higher relative to possible losses. So it doesn't make sense to actively manage my portfolio.

I actually welcome this latest crash. It's a gut check for me to see if I can stomach the kind of loss my portfolio would be exposed to, and it looks like I can, at least for now. I think $100k would be the time when I would actively manage it. With any luck I'll be there in 3 years.

The amount of money you lose is not the relevant issue. The percent of assets is. Bill Gates might have "lost" on paper a few billion when Microsoft tanked (failed takeover bid of yahoo). I lost a few thousand on the deal. We both lost the same percentage.

If you lost "only a thousand" investing in emerging markets, I'm guessing it's because you may have had only 10k to begin with, and you lost around 10%. Long term returns (over 10-20 years) of emerging markets is around 8-10%. Large Caps are around 9-12%. In addition to that, the probability large caps drop 50% over a one or three year period is low. Emerging markets have dropped 50% over 1 and 3 year periods more than once.

Large caps provide consistent and more stable returns. Emerging markets will hit "home runs" and also strike out quite a bit. I prefer the smoother ride.

Here is an example I like to use
assume a 10k portfolio
assume a weighting of 45% large cap, 15% small cap, 15% mid cap, 15% foreign large cap and 10% foreign small cap or emerging markets.

There is $4500 invested which will continually generate around 8% returns. 8% of $4500 is $360.

There is $1500 invested in mid caps and small caps. Mid and small caps might generate along lines of 12-15% returns. These will also lose money on occasion, so the ride is not as smooth. 15% of 1500 is $225. Slightly lower dollar return for 1/3 the risk of the top asset class.

There is $1000 invested in emerging markets. Assuming a 20% return (the home run), this returns $200 for less than 1/4 the risk of the top asset class. If return is 36%, I got same dollar amount ($360) as large caps for a fraction of the risk.

The goal of investing is the best risk adjusted returns. If you shoot for only the highest returns, you might not realize the risks being taken. It's possibly you and I will have the same long term returns (8-9%). Who took on the least risk to get there?

Large caps are the top class for three reasons
1) consistency of returns
2) size of the companies
3) stability of their business models and markets

Think of it this way- a large cap in the US is above $5 billion in market cap (meaning companies outstanding stock is worth more than $5 billion). GM is worth $10 billion, Microsoft $200 billion plus, GE $300 billion plus.

A mid cap in the US is worth between $2 billion and $5 billion. A small cap in the US is worth less than $2 billion, but probably more than $500 million. Anything under $750 million in the US is considered TINY, some people even call these microcaps.

A large cap in Europe might be similar to a US company (greater that $5 billion). A large cap in India or Africa will be much smaller. Few companies in those countries are worth $2 billion. In the US that would be a small cap. More often than not emerging markets investments could be in countries whose entire market cap is less than $2 billion, meaning the companies in the market of that country might only be worth $200 million or less. Those are penny stocks/ micro caps in the US.

**InDebtInDC** · 02-17-2008, 03:58 AM

Historically, for the past 3 years my fund dominates large and small caps so there's no competition. This year my fund also lost less money than large and small caps. The only way to have prevented my loss would be to move it all into gov securities.

Moving forward, unless something drastic happens, I'm determined to stick with my guns. To be honest, I wouldn't even care if I lost it all. I can't manage the money the way I want so I said screw it and let it ride. I'll roll it over to an IRA and manage it properly when I'm eligible.

Company 401k Weighting Question