Please advise on my 401K plan investment elections

[NCDave]

I am 47 years old, and I work in Corporate Security for a large Bank. I have good health and plan to continue working until the normal retirement age. I curently allocate 6% of my earnings to my 401K, and my Company matches 5%. My 401K is managed by Fidelity. I currently have only $11k divided into the below investments, however I am think I am too spread out.

Current Percents:

Stock Investments LARGE CAP GROWTH GROWTH FD AMERICA R6 5%
Stock Investments LARGE CAP VALUE DODGE & COX STK FD 10%
Stock Investments FOREIGN FIDELITY DIVERS INTL 5%
Bond Investments INTERMEDIATE-TERM COLUMBIA CORE BOND 30%
Bond Investments INTERMEDIATE-TERM WA CORE BOND I 30%
Bond Investments STABLE VALUE STABLE VALUE FUND 15%
Company Stock COMPANY STOCK BAC COM STK FUND 5%

[elessar78]

I just asked myself the same question and what I found through my research is this:

1. Based on my age (32) and risk tolerance level: I found an 80% (stocks)-20% (bonds) split ideal for me. You have to determine that split for yourself, but you probably want money to grow so something similar?

2. For the part in stocks/equities I split that further into domestic (60%) and foreign stocks (40%)... but it could be different for you: 70/30... 50/50

2a. The domestic stocks are simply in an SP500 based index fund. What I found is that even actively managed funds, like you have above, have trouble beating the SP500. Furthermore, since it's not an "actively" managed fund the cost to own the fund is much lower, keeping more money in your "pocket" (instead of paying commissions to Fidelity. You could also go with a Total Market fund that is the entire stock market.

3. Foreign stocks are important because businesses make money abroad too and it balances things out in case things aren't going so well here in the US economically.

4. Bonds. I'll be honest, I don't know much about this. I put half of my bonds in TIPS (US Treasury Inflated Protected Securities) and the other half in a Bond Market fund (because those were the choices available in my plan. I received advise to look into Intermediate Term US Treasury bonds. You want to hold some bonds because, while they don't gain as much, they are pretty stable.

5. Are you spread out too much? Research was done on this by some experts, I'll try to find the link, and they found that randomly picking 3 mutual funds did not appreciably reduce the risk vs having 30 different mutual funds. So there's just as much risk in owning 3 funds than owning 30. It was by investing guru David Bogle in a speech.

6. First thing I look at now with a fund is the expense ratio. This will determine how much of your money you get to keep. As an example my lowest expense ratio is for the SP500 index fund I own and that's .09%.

[jIM_Ohio]

This is in another thread, posted by me, the advice is still correct.

Asset allocation is about owning different assets which behave differently under the same conditions.

If the 2 growth funds own the same stocks, they will behave the same all the time, with only difference being the expense ratio and manager decision making. I would not own 2 different growth funds which owned the same stocks. That is redundant.

I would own one growth and one value fund (only) if both funds owned small and mid and large companies. If one fund is a mid cap value fund and the other is a small cap growth fund, there are 4-7 other funds you need (large growth, large value, mid growth, small value and maybe large blend, mid blend and small blend).


I also would NOT own a target fund and the others- if you own a target fund, just choose that one fund, and that fund will own many other funds (read its prospectus). One target fund will own domestic and foreign, stocks and bonds, large companies and small. It is instant diversification with just one decision (choose your retirement year).

So the way to figure this out is decide what types of companies you want to own. Then how much of each. Each type of company has different characteristics for how it profits at different parts of the market cycle.

For example
Know how much risk you want to take, then decide on % stocks and % bonds which define this risk. For example might be 100% stocks or 80% stocks and 20% bonds. Most investing web sites have questionnaires which help you get this information.

Once you know % stocks -% bonds, decide what types of stocks and bonds you want to own.

Large cap stocks
Mid Cap stocks
Small Cap stocks
Foreign large stocks
Foreign small stocks
Emerging markets stocks
US government bonds
Corporate bonds
Junk bonds
Foreign bonds

Also decide % domestic vs % foreign you want to own. Decide this before looking at any mutual fund.

The break that down into percentages (do not look at mutual funds yet)

If you chose 80% stocks and 20% bonds you might decide that list above is this

Quote:
40% Large cap stocks
Mid Cap stocks
20% Small Cap stocks
15% Foreign large stocks
Foreign small stocks
5% Emerging markets stocks
10% US government bonds
10% Corporate bonds
Junk bonds
Foreign bonds
note that is 80% equity and 20% bonds
it is also 80% domestic and 20% foreign

If you chose 40% stocks and 60% bonds you choose differently

Quote:
15% Large cap stocks
Mid Cap stocks
5% Small Cap stocks
20% Foreign large stocks
Foreign small stocks
Emerging markets stocks
20% US government bonds
10% Corporate bonds
10% Junk bonds
20% Foreign bonds
That is 40% stocks and 60% bonds
it is also 60% domestic and 40% foreign

Once you do the above, then pick one fund and allocate that portion of allocation to it (meaning if value fund is really a large cap fund, then you put the entire large cap allocation to that one fund).

[Broken Arrow]

What are the tickers for these funds, especially STABLE VALUE STABLE VALUE FUND? I can't find that one.

Also, I see you have 60% allocated to bond funds. Is that what you really want? It seems a bit too conservative, and I have concerns about the near future performance of bond funds.

Finally, do you really want to hold the BAC stocks? It might be worth considering a small cap fund instead.

[jIM_Ohio]

BA- most stable value funds exist only in the 401k and will not have tickers on the NYSE or similar. Not sure why, but I have read that in multiple sources.

[Broken Arrow]

Thanks Jim. Are they essentially cash then? I had one in my old 401(k) like that, and as expected, it did not have a ticker.

[jIM_Ohio]

Thanks Jim. Are they essentially cash then? I had one in my old 401(k) like that, and as expected, it did not have a ticker.

Right- it would be closest to a money market fund, but there are differences. Not sure specifically what.