401K Asset Allocation

[cmanion]

New here and wondering if you guys can help me out. My wife (27) and I (28) have our first child on the way, due in October. I have 30,000 in an Roth IRA and she will open a Roth IRA soon. We have no debt whatsoever. She grosses $128K and I will start another job next January at around $50K. She also has the option to contribute to her company's 401K; the first 2% is matched by the company. We have to allocate the % of the contributions over the following funds. Can you guys suggest a good mix for her?

Here are the funds to choose from:

Stable Value Fund
Bond Fund
Conservative Stock/Bond Fund
Moderate Stock/Bond Fund
Total Stock Market Index Fund
S&P 500 Index Fund
Large Company Stock Fund
International Stock Fund
S&P Midcap 400 Index Fund
Russel 2000 Index Fund

Thanks in advance.

[snafu]

Asset allocation is very personal. The investor must assess their risk tolerance so that they are comfortable and able to 'sleep at night.' All the choices have difference risk factors at different times, for different reasons. Just now the American market is tipping down and people are getting frightened. Germany as the workhorse of Europe is trying so hard to keep things together. Your government recently announced they are holding interests rates down for 2 yrs. so payout is miniscule while we see escalating costs for food, gas, and utilities for example. Natural resources are profitable if India [having turmoil] and China keep-up their break-neck development.

A lot of decision making is based on the Management Expense Ratio [Mer] and/or fees of funds as these can make the difference between her profit and loss. Small business is often the vehicle that leads profit in the right conditions but today's conditions are not favorable. I'm not seeing ETFs [Exchange Traded Funds on your list. I'm not seeing a Dividend Fund on the list. That segment holds businesses that pay-out dividends when they make profits.

Since you have 35/38 years to add to and let your investments grow. The old 'buy & hold' philosophy has proved itself impractical. Many of us have been adjusting our portfolios bi annually. Lately even quarterly. The idea is to sell the most profitable and add to the cheapest/best buy to capture profit but just now...the rules are being tossed on waves of political one-upmanship.

Once upon a time, investors subtracted their age from 100 to determine splits between Stock & Bonds. 70% stock, 30% bonds for example. Once a reasonable sum accumulated, the stocks portfolio was split with 10% to a well respected International Fund. As sums accumulated we invested in higher risk funds like Health and Technology.

The economy that sizzles just now is China but nothing there is as it seems and the level of corruption exceeds the middle east,according to experts. China has a 5,000 year old culture so corruption/misrepresentation of facts/cheating is totally ingrained. If someone gets caught stealing, the attitude is 'oh...to bad he got caught/found out.'

As a risk taker, if I were starting out, I think I would hold my nose and DCA [dollar cost average] into Vanguard's Index Mutual Fund.

[humandraydel]

30% S&P 500 Index
15% S&P Midcap 400 Index
10% Russell 2000 Index
25% International Fund
20% Bond Fund

[mcfroggin]

Originally Posted by humandraydel

30% S&P 500 Index
15% S&P Midcap 400 Index
10% Russell 2000 Index
25% International Fund
20% Bond Fund

With the market down and you both being young, I would decrease the Bond Fund to 0-10%.
Increase the Russell 2000 to 20%.

[ez1]

For my baseline asset allocation, I like to use the tool at Bankrate

Couple of other notes based on what you wrote. I usually stay away from things like "conservative fund" or "aggressive fund" because you are basically letting them control the mix for you. I prefer to decide on the mix myself. You can make it as conservative as you want that way.

One other thing, I didn't see it in your plan offerings, but some other people's plans (like mine) also have a REIT (real estate investment trust) option. And still others may have something for commodities. Bankrate doesn't incorporate those. I take the Bankrate allocations and then add a manual percentage for things like REIT and commodities. Then adjust the Bankrate allocations to accommodate those manual percentages. Example: I want to have 5% in REIT and 5% in commodities. That means that you have use 90% of what Bankrate says for each of its asset classes.