Need 401k fund advice

[skydivingchic]

I started working in 2000 and immediately began putting money into my 401k. I've put together a spreadsheet to keep track of my returns, and well, it is depressing. Over 9 years, I have earned an annulized return of 1.2%. This is with an aggressive portfolio as I am young (33). Currently my portfolio is broken up as follows according to the Fidelity site:
~72% domestic stock
~15% foreign stock
~6% bonds
~6% short term, other

Currently it is held in the following funds:
Large Cap (36.9%):
FGCKX
FMGKX
MEIJX
Mid Cap (31%):
FLPKX
RAISX
International (4.1%):
FDIKX
Blended (1%):
FFFFX
Bonds (8.6%):
PTTRX
Company Stock (18.4%)

My company is privately held and some of their matching dollars are given in company stock. I cannot vote or sell those shares since we are privately held. I don't like having that much company stock, but I can't get rid of it and it is one of the only consistent performers in my portfolio (10%+ per year).

I am maxxing my 401k and maxxing a Roth IRA. The Roth is only a few years old, so its balance is less than 10% of my total portfolio. Broken up ~50/50 bonds/domestic stocks.

I know that I am along for the long term ride and that fluctuating markets are to be expected. I did nothing when things dropped 40% in 2008/2009 and continued investing. However, an annualized return of 1.2% is ridiculous. I would have been far better off investing all my money in bonds, CDs, and other equally conservative vehicles.

So, what do you investment gurus say? The large cap funds have been the been the worst performers over the last ~9.5 years. I am considering at least redirecting my investments to a bond fund, if not outright selling the large cap stuff as well as redirecting my contributions. At 1.2% returns, I'll never be able to retire.

Any advice is appreciated.

[jIM_Ohio]

First, you are doing well. Do not let the return fool you. I assume the 1.9% is your IRR and if the market was going up up up your IRR might not be much better because the newer shares purchased would be much higher price. Your next 10 years will be better than the first 10 because you have so many shares already before the next 10 years even begin...


I do not know the tickers you listed, and am not plugging them in anywhere, only thing I see is not enough small cap and not enough international. Having company stock is OK, just offset it with more diversification (bonds and cash) than you might otherwise consider, and also realize as time passes, your company stock will be less and less of portfolio.

One more editorial- past performance cannot predict future results- its on every prospectus you and I read, but if we did not believe past performance, we probably would not be investing in the first place.

Focus on coming up with an allocation for yourself- something like 25% large cap, 20% mid cap-20% small cap-20% foreign stocks-15% bonds; then make sure the bonds are enough to offset risk of the company stock.

I have been investing for 14 years (since 1997) and weathered 1999 and 2008 both nailing me for 40-50% losses. I am still net positive on my returns because if you are willing to accept a 40% loss, you will eventually be rewarded for that risk with 40% gains or higher. If you want the reward, you need to accept the risks it brings.

[MonkeyMama]

Not a ton to add. Your rate of return seems fine. Have you looked at the benchmarks for the last decade? I graduated college in 1999, and feel lucky to have made a (slim) profit on my investments over the last decade.

I'd probably take on more foreign stock and small cap, as well. Mid cap really shouldn't matter so much (10% or so should be fine - it also has a lot of overlap with large cap, anyway).

I'd personally be in at least 20% foreign stock.

As far as large cap - well, they had a sucky decade. Right when everyone gives up is when they will be on fire again, right? Not sure I'd give up. I agree to just pick an allocation and stick with it.

[jefffou]

My inclination would be to appropriate a LOT more to the Pimco Total Return Bond Fund. It's a boring bond fund, but a dang good one.

Besides, with 18% of your portfolio in individual company stock, there most likely is more volatility in your portfolio than there needs to be. This fund would add quite a bit towards smoothing some of that out. Not to mention, if the most recent decade is any indication, it may make those returns a little better.

While equities (almost across the board) have flat-lined over the last ten years, PTTRX has returned almost 8%.

Not that I would do it for myself (or recommend it for anyone else) but I would LOVE to see how your portfolio would backtest with about 80% in PTTRX and 20% in your company stock.

Just a thought,

Jeff

[jefffou]

In practice, 401(k) plans may not offer mutual funds representing all the asset classes we think are appropriate. When selecting mutual funds from a 401(k) plan, we emphasize the lower cost mutual funds within the favored asset classes or their closest substitutes and will then increase the weighting of the chosen funds to compensate for asset classes not represented in the plan. Allocations may be adjusted based on the tradeoff between the expense ratio of the fund and the representative asset class.

Carson,

That came directly from this site.

Were you the original writer of that content? If not, you should reference him/her.

Jeff
401k Advice

[dannin]

Yeah, don't beat yourself up over your returns too much. Your timing for investing in the market has not been all that good. The DOW was trading around 10,650 in the middle of 2000 and now in 2010, is at about 10,800. This has been one of the more stagnant periods for the stock market.

There are some people who believe that the stock market won't continue to be the great investment vehicle it has in the past. So, if you want less risk, maybe T-Bills would be better for you.

But if you do decide to keep your money in the stock market, unless you really get in there and take an active roll in the research to choose where the money goes, you can't really sweat it too much.