401k Asset Allocations

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Topic Author
ACJC
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Joined: Wed Sep 27, 2017 1:13 am

401k Asset Allocations

Post by ACJC »

I’m thinking of changing my target date fund to...

10% S&P 500 Index
20% International Equity Index
10% Large Cap Value Index
40% Small Cap Value Index
10% REIT Index
10% Emerging Market

Thoughts?
Thank you :)
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ruralavalon
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Location: Illinois

Re: 401k Asset Allocations

Post by ruralavalon »

ACJC wrote: Mon Dec 11, 2017 10:40 pm I’m thinking of changing my target date fund to...

10% S&P 500 Index
20% International Equity Index
10% Large Cap Value Index
40% Small Cap Value Index
10% REIT Index
10% Emerging Market

Thoughts?
Thank you :)
It's not possible to evaluate any asset allocation in a vacuum.

What is your age? About how long to expected retirement?
How do you rate your tolerance for risk?
Why no bond allocation at all?
What index is used by the international equity index fund?
What are the full fund names, tickers and expense ratios for each fund?
What is your tax bracket, both federal and state?
What type of account is this in?
Do you have other accounts?

Please simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
ACJC
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Re: 401k Asset Allocations

Post by ACJC »

I am 38 and plan to retire at 65. I have no other accounts. I realize that this is high risk de to no bonds. I will adjust as I get older. I am unable to tell exactly what funds. I love in Colorado and taxed at 28%. Emergency account is fully funded. This is through my employment at HCA. Hope that helps.
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ruralavalon
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Re: 401k Asset Allocations

Post by ruralavalon »

ACJC wrote: Tue Dec 12, 2017 8:17 am I am 38 and plan to retire at 65. I have no other accounts. I realize that this is high risk de to no bonds. I will adjust as I get older. I am unable to tell exactly what funds. I love in Colorado and taxed at 28%. Emergency account is fully funded. This is through my employment at HCA. Hope that helps.
At age 38 I suggest about 25-30% in bonds. This is expected to substantially reduce volatility (risk), with only a relatively slight decrease in return. Graph, "An Efficient Frontier: the power of diversification". Please see the wiki articles Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk", and "Asset allocation".

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). You can find lots of debate here on international allocation, opinions rangeing all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box (upper right, this page).

This works out to about 25% bonds, 20% international stocks, and 55% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

. . . . .

I do not understand why you are "unable to tell exactly what funds" (the full fund names, tickers and expense ratios for each fund) are used in your work-based plan. You can look them up in the Plan Document and the Summary Plan Description, on the plan website, or simply ask HR at your employer. You need to know what you are investing in.

. . . . .

Here are some general comments on your allocation.

1) I recommend a modest but reasonable bond allocation at age 38.

2) About 2/3 of domestic stocks in small-cap value is very extreme. If you want a small value tilt, then I suggest using a small-cap value index fund at around 25% of domestic stocks. “My preference is 75 percent to a total market index fund and 25 percent allocation to a small-value index fund “, Rick Ferri, etf.com, "To Tilt Or Not To Tilt?". I use 25% of domestic stocks in Vanguard Small-cap Value Index Fund Admiral Shares (VSIAX).

3) In my opinion your 30% of stocks in international stocks is within the range of is reasonable.

4) I cannot comment on the 10% in emerging markets, not knowing what index is used in the international equity index (which may already include emerging markets, or not).

5) An allocation of 10% of stocks to a REIT index fund is within the range of what is reasonable in my opinion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
ThriftyPhD
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Re: 401k Asset Allocations

Post by ThriftyPhD »

ACJC wrote: Mon Dec 11, 2017 10:40 pm I’m thinking of changing my target date fund to...

10% S&P 500 Index
20% International Equity Index
10% Large Cap Value Index
40% Small Cap Value Index
10% REIT Index
10% Emerging Market

Thoughts?
Thank you :)
You'll notice that most of the advice people have on this board is the Three Fund Portfolio or similar. The typical target date fund will be a 3 or 4 fund portfolio. Vanguard TD, for example, is the 3 fund portfolio with international bonds added.

You're thinking of switching from a TD fund, which is probably similar to a 3 fund portfolio, to a 6 fund. Perhaps as a starting point, you could explain why this change appeals to you. What are you hoping to achieve with this change? How will you rebalance? In a 3 fund, you can use relatively wide rebalance margins, say 5%. With 6 funds you might want to tighten those up, since a change of 5% on a fund with only 10% AA can be a big swing.
3funder
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Re: 401k Asset Allocations

Post by 3funder »

I don't think you need to invest in a REIT fund. Also, that's quite a small-cap tilt -- typo?
Global stocks, US bonds, and time.
dbr
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Re: 401k Asset Allocations

Post by dbr »

The thought is WHY?

You can invest that way if you want but commenting needs some input about what you are trying to do.
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jhfenton
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Re: 401k Asset Allocations

Post by jhfenton »

ACJC wrote: Mon Dec 11, 2017 10:40 pm I’m thinking of changing my target date fund to...

10% S&P 500 Index
20% International Equity Index
10% Large Cap Value Index
40% Small Cap Value Index
10% REIT Index
10% Emerging Market

Thoughts?
Thank you :)
It looks fine. I think 100% equities is fine at 38 if your emotions can handle the volatility and won't lead you to sell out in a crash. We were 100% equities until age 45. We're now 80/20 at 47. I also tilt heavily to small cap value. I don't hold a REIT fund because our Vanguard Small Cap Value fund is already overweight real estate. We are 50/50 U.S./International, with a heavy small cap and emerging markets tilt.

Whatever you decide, figure out why you have it and stick with it.
Topic Author
ACJC
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Joined: Wed Sep 27, 2017 1:13 am

Re: 401k Asset Allocations

Post by ACJC »

Thank you. I’m am trying to increase my risk by adjusting my 401k.
delamer
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Re: 401k Asset Allocations

Post by delamer »

ACJC wrote: Tue Dec 12, 2017 11:48 am Thank you. I’m am trying to increase my risk by adjusting my 401k.
There inevitably will be a downturn in the stock market that will cause a drop in peoples' 401(k) balances. This decline will be most severe for someone who is 100% in stocks.

Have you experienced such a downturn previously and are you confident that you will not panic and "sell low" when one comes? One of the reasons for a bond allotment is to lessen the impact of a stock decline and reduce the impulse to sell low.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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ruralavalon
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Location: Illinois

Re: 401k Asset Allocations

Post by ruralavalon »

ACJC wrote: Tue Dec 12, 2017 11:48 am Thank you. I’m am trying to increase my risk by adjusting my 401k.
Why do you want to increase your risk?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
ACJC
Posts: 86
Joined: Wed Sep 27, 2017 1:13 am

Re: 401k Asset Allocations

Post by ACJC »

Trying to get the most out of my 401k :)
iasw
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Re: 401k Asset Allocations

Post by iasw »

How are the fees on those funds?

Do you have an IRA as well? Taxable account? Helps to view all investments as a whole.

40% small cap is too high, imo.
Topic Author
ACJC
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Joined: Wed Sep 27, 2017 1:13 am

Re: 401k Asset Allocations

Post by ACJC »

Thank you everyone for bringing me out of the clouds. I’m planning on leaving it the TDF and increasing my length to retirement.
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