401K and S&P

[gekkoplus]

I started investing in my 401K last year in October. My yearly performance is -42%. Interestingly S&P also fell down by 42% during the same period. Which means that I am not doing any better job with my asset allocation and would do equally good (or better by saving expense fees) if I had just S&P index in my portfolio.

[maat55]

Your just buying shares. I personally, hope that the market lingers while I buy up more shares. Though, I do feel for those who are retired at this time.

[disneysteve]

I am not doing any better job with my asset allocation and would do equally good (or better by saving expense fees) if I had just S&P index in my portfolio.

That may be true in the short term, but over time, allocation is important since not all sectors perform the same. Some periods will favor large caps. Some will favor small caps. Sometimes US stocks will dominate. Other times foreign stocks will. This just happens to be one of those rare times when almost everything is going down the tubes.

Enjoy the fact that you are buying everything at bargain prices.

[jIM_Ohio]

Just because S&P 500 went down 42% and your porfolio went down 42% does not mean one mirrored the other.

Two reasons stick out
1) you bought into the market multiple times, so you did not have the same value as S&P 500 Jan 1 and each purchase throughout year.

2) A year is a single datapoint, even if you were correlated in a year where everything went down, 2000-2002 my large cap fund (which the S&P tracks) has 2 positive years where as S&P 500 lost 50% of it's value in 2000-2002. If you chose your allocation well, it is probable that you will have different performance than the index.

[gekkoplus]

Changed my 401K portfolio composition

I readjusted my 401K portfolio today. After a closer inspection I found that 24% of my contribution went into VIDMX (Inst Dev Mkts) which performed consistently below S&P during past 6 months. I lowered this contribution to 6% and increased it for VSCIX (Small Cap Index) from 6% to 24%. (I found that VSCIX performed consistently well when compared with S&P during last 6 months.)

My new portfolio looks like this -

DODGE & COX INTL STK 18%
VANG INST DEV MKTS 6%
VANG INST INDEX PLUS 23%
VANG SM CAP IDX INST 24%
VANG WINDSOR II ADM 22%
VANG TOT BD MKT INST 7%

What do you guys think?


EDIT:

I again changed the portfolio. This time I only kept Large Cap, Small Cap Indices and Bonds.

VANG INST INDEX PLUS 45%
VANG SM CAP IDX INST 45%
VANG TOT BD MKT INST 10%

This will hopefully outperform S&P in coming days. Any thoughts?

[disneysteve]

I found that 24% of my contribution went into VIDMX (Inst Dev Mkts) which performed consistently below S&P during past 6 months. I lowered this contribution to 6% and increased it for VSCIX (Small Cap Index) from 6% to 24%. (I found that VSCIX performed consistently well when compared with S&P during last 6 months.)

What do you guys think?

I think you are comparing apples and oranges. You should not be evaluating your developing markets fund based on how it performed against the S&P 500. You should not be evaluating your small cap index fund based on how it performed against the S&P 500. You should evaluate the developing markets fund based on how it performed as compared to other developing markets funds. Same goes for the small cap fund. Compare it to other funds in the same asset class.

[jIM_Ohio]

I agree and disagree with Disney Steve.

I agree the S&P 500 vs Emerging markets stocks is a bad comparison.

I disagree the S&P500 vs small caps is a bad comparison.

I would also like to point out that when a sector goes down, that is a good time to contribute more or overweight. Financial stocks took a beating this year, and in my wife's Roth we send 4X as much to a financial services fund as we do to any other fund.

Do not make portfolio changes based on market performance- you should have an asset allocation and stick to it. You might overweight portions of the allocation to gain outperformance, but the allocation in and of itself should not change unless your risk tolerance changes.

Changes in the market should not change your risk tolerance.

[kork13]

I again changed the portfolio. This time I only kept Large Cap, Small Cap Indices and Bonds.

VANG INST INDEX PLUS 45%
VANG SM CAP IDX INST 45%
VANG TOT BD MKT INST 10%

This will hopefully outperform S&P in coming days. Any thoughts?

I don't know the funds themselves, but do they incorporate any international markets? If not, you might consider adding some international exposure. It's not a definite, but sometimes when certain sectors of the american markets sink, similar international sectors rise, or at least stay steady. This has the ability to chip at poor performance from american markets.

Keep in mind, when EVERYTHING goes down in the US markets, it's highly likely that int'l markets will also fall, largely due to the inter-relatedness of the global economy. So current-day marks don't demonstrate my recommendation very well.

[jIM_Ohio]

I don't know the funds themselves, but do they incorporate any international markets? If not, you might consider adding some international exposure. It's not a definite, but sometimes when certain sectors of the american markets sink, similar international sectors rise, or at least stay steady. This has the ability to chip at poor performance from american markets.

Keep in mind, when EVERYTHING goes down in the US markets, it's highly likely that int'l markets will also fall, largely due to the inter-relatedness of the global economy. So current-day marks don't demonstrate my recommendation very well.

Just one additional comment- usually a drop in one market (a big drop in one market) will cause a dip or drop in all other markets.

If you look at when S&P500 "drops", the US small company stocks not in the index usually drop that day too. I would not measure diversification on the behavior of that one single data point. It's how small caps behaved before that single drop and how they behave after that single drop which gives diversification (the noise between peaks and valleys is diversification).

This same analagy can be said for foreign markets, but this effect can be amplified or mitigated by currency risk as well to make matter somewhat muddier-for example it might appear foreign holdings did not drop as much, but that is because the dollar is stronger than it was before- look at price of gas dropping 33% or more- that is because in part to a stronger dollar.

[tripods68]

I think there will be a great shift toward a more conservative investing approach. The high speculations and high leveraging game is over. The great bubble finally burst especially on housing and energy. Trillions were wipe out and retirement dates are postponed for people looking to retire this year. Investors are now viewing "leveraging" as new evil word in the market that caused the panic run of 2008. I think the "shift" has started IMO.

[jIM_Ohio]

I think there will be a great shift toward a more conservative investing approach. The high speculations and high leveraging game is over. The great bubble finally burst especially on housing and energy. Trillions were wipe out and retirement dates are postponed for people looking to retire this year. Investors are now viewing "leveraging" as new evil word in the market that caused the panic run of 2008. I think the "shift" has started IMO.

I actually think some hedge funds are still leveraged and unwinding- this is not over yet (going down is not over).

I do think some of what happened was banks were way leveraged (16:1 is what I read earlier this week in some cases) and the hedge funds might be 4:1... so there is still room to fall more.

Hopefully something about leveraged techniques will be dealt with because the actions of a few cost money for so many in this case.

[gekkoplus]

If you wanna compare performance of your portfolio, what would that single index be (if not S&P)?

[tripods68]

If you wanna compare performance of your portfolio, what would that single index be (if not S&P)?

I HIGHLY recommend Wilshire 2000 Index - This is the Index that is well best suited for individual investors to formulate their asset allocations which represent wide arrays of diverse public companies. It is less relatively volatile than S&P.

[jIM_Ohio]

wilshire 2000? never heard of it

I know of wilshire 5000
wilshire 4500
and russell 2000

S&P 500 is large cap and 75% of US market
Wilshire 5000 is the total market (75% of which is the S&P 500)
Wilshire 4500 is the wilshire 5000 with S&P 500 taken out (for small and mid caps)
Russell 2000 I think is small cap index.

[tripods68]

Sorry I meant Wilshire 5000