Am I making mistakes in my 401k/roth allocations?

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bradpevans
Posts: 838
Joined: Sun Apr 08, 2018 1:09 pm

Re: Am I making mistakes in my 401k/roth allocations?

Post by bradpevans »

KlangFool wrote: Fri Jul 05, 2024 6:51 am OP,

If you are unemployed in the coming recession and the stock market crashes 50%, how long before you have to sell your stock?

What is the size of your portfolio in terms of your annual expense? How many years?

What is the size of your portfolio in terms of your annual savings and investment? How many years?

KlangFool
The OP is speaking about 401k and Roth. Both are decades away from being withdrawn without penalty (save the Roth “basis”)

If stocks drop you’ll get more shares with your next paycheck
SnowBog
Posts: 5003
Joined: Fri Dec 21, 2018 10:21 pm

Re: Am I making mistakes in my 401k/roth allocations?

Post by SnowBog »

bradpevans wrote: Tue Jul 09, 2024 9:53 pm
KlangFool wrote: Fri Jul 05, 2024 6:51 am OP,

If you are unemployed in the coming recession and the stock market crashes 50%, how long before you have to sell your stock?

What is the size of your portfolio in terms of your annual expense? How many years?

What is the size of your portfolio in terms of your annual savings and investment? How many years?

KlangFool
The OP is speaking about 401k and Roth. Both are decades away from being withdrawn without penalty (save the Roth “basis”)

If stocks drop you’ll get more shares with your next paycheck
Think you missed part of the post...

It was also related to their AA being 100% stocks...
Northern Flicker
Posts: 16017
Joined: Fri Apr 10, 2015 12:29 am

Re: Am I making mistakes in my 401k/roth allocations?

Post by Northern Flicker »

myrongains wrote: Tue Jul 09, 2024 8:33 pm
Northern Flicker wrote: Tue Jul 09, 2024 8:15 pm
myrongains wrote: Mon Jul 08, 2024 12:09 pm Well, I rebalanced my 401k.

70% FXAIX
20% VTMNX
10% VTBIX

I imagine 10 years from now I may just change to 60/20/20, and another 10 years to 50/20/30
This is good. Minor nitpick-- you didn't rebalance, you changed your allocation. Rebalancing is resetting back to your chosen allocation if it has drifted away due to market action. I am making the point because rebalancing is something that is safe to do when the portfolio has drifted. Changes to target allocation take on timing risk and should be done very sparingly, with a very solid basis, and not in response to projections of future returns.
Well, I'm looking at my balances as of today and they are allocated now based on these percentages. I clicked "rebalance" when I made those allocations. I hope I didn't make a mistake.

So you're saying that many years from now it might turn out that due to the gain of one fund being much larger than the other, it could cause the 70/20/10 ratio to become something different? I hadn't even thought of that. So hypothetically it could go 60/35/5 and then I'd have to rebalance based on my risk tolerance at that time.. interesting.
Yes, probably sooner than in several years. The rebalancing tool will set the allocation per target weights. To use that for your change in allocation you first had to change your target allocation weights.

You should decide in a rebalancing strategy-- annually or when an asset class is a certain percentage over or under weight. Can even do it quarterly, but I think that has some detriments. Checking quarterly for allocation weights out of band is reasonable.

Here is some info:

https://www.bogleheads.org/wiki/Rebalancing

Does your 401k have an auto-rebalancer?
Northern Flicker
Posts: 16017
Joined: Fri Apr 10, 2015 12:29 am

Re: Am I making mistakes in my 401k/roth allocations?

Post by Northern Flicker »

momopi wrote: Mon Jul 08, 2024 1:15 pm
myrongains wrote: Mon Jul 08, 2024 12:09 pm Well, I rebalanced my 401k.
70% FXAIX
20% VTMNX
10% VTBIX
I imagine 10 years from now I may just change to 60/20/20, and another 10 years to 50/20/30
I'd have preferred to leave it at 100% FXAIX for now. Quoting Charlie Munger, "The first rule of compounding: Never interrupt it unnecessarily.”
Mr. Munger also did not believe in diversification or even diversifying away uncompensated risk.

Diversifying now, the OP locks in the fortuitous over-performance of the S&P500. That opportunity could evaporate at any time. No way to know until after the fact how long it will last. Nobody will ring a bell at the peak over-performance. No need to chase performance with the S&P500.
bradpevans
Posts: 838
Joined: Sun Apr 08, 2018 1:09 pm

Re: Am I making mistakes in my 401k/roth allocations?

Post by bradpevans »

SnowBog wrote: Tue Jul 09, 2024 10:14 pm
bradpevans wrote: Tue Jul 09, 2024 9:53 pm
KlangFool wrote: Fri Jul 05, 2024 6:51 am OP,

If you are unemployed in the coming recession and the stock market crashes 50%, how long before you have to sell your stock?

What is the size of your portfolio in terms of your annual expense? How many years?

What is the size of your portfolio in terms of your annual savings and investment? How many years?

KlangFool
The OP is speaking about 401k and Roth. Both are decades away from being withdrawn without penalty (save the Roth “basis”)

If stocks drop you’ll get more shares with your next paycheck
Think you missed part of the post...

It was also related to their AA being 100% stocks...

I'm guess I'm suggesting the 401K/Roth IRA are not typically the tools to combat unemployment risk
SnowBog
Posts: 5003
Joined: Fri Dec 21, 2018 10:21 pm

Re: Am I making mistakes in my 401k/roth allocations?

Post by SnowBog »

bradpevans wrote: Wed Jul 10, 2024 10:29 am
SnowBog wrote: Tue Jul 09, 2024 10:14 pm
bradpevans wrote: Tue Jul 09, 2024 9:53 pm
KlangFool wrote: Fri Jul 05, 2024 6:51 am OP,

If you are unemployed in the coming recession and the stock market crashes 50%, how long before you have to sell your stock?

What is the size of your portfolio in terms of your annual expense? How many years?

What is the size of your portfolio in terms of your annual savings and investment? How many years?

KlangFool
The OP is speaking about 401k and Roth. Both are decades away from being withdrawn without penalty (save the Roth “basis”)

If stocks drop you’ll get more shares with your next paycheck
Think you missed part of the post...

It was also related to their AA being 100% stocks...

I'm guess I'm suggesting the 401K/Roth IRA are not typically the tools to combat unemployment risk
It's not impossible... https://www.bogleheads.org/wiki/Placing ... ed_account
rockstar
Posts: 7241
Joined: Mon Feb 03, 2020 5:51 pm

Re: Am I making mistakes in my 401k/roth allocations?

Post by rockstar »

I’m 100% S&P 500 in my 401k. It has the cheapest ER, which is important to me since there are plan fees as well. Since I can’t touch it until 59.5, I’m okay being all in. I don’t have a lot of great alternatives in my plan.
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