Need Allocation Advice - 401(k)

**Broken Arrow** · 06-02-2009, 07:39 AM

What is the objective of this money? Is it long term retirement? If so, something like Vanguard Target Fund can automatically allocate and rebalance for you.

**culaslucas** · 06-02-2009, 07:47 AM

The purpose of this money is long term retirement. My 401(k) manager will automatically rebalance my allocations at the given increment I indicate.

Since I don' think my attachment is showing up, I guess I'll have to post text instead of an image (unless I can e-mail someone the pic and they will upload it for me).

Name Ticker Total Return (YTD, 3mos) Annualized Return (1, 3, 5 year) ExpenseRatio *

American Century Inflation Adjusted AIAVX View 2.75% 2.37% -1.58% 4.70% 4.33% 0.74%
American Funds Capital World G/I R5 RWIFX View -1.66% 9.42% -37.04% -7.51% 3.66% 0.50%
American Funds New World R5 RNWFX View 7.80% 15.48% -40.01% -4.15% 8.46% 0.73%
Bridgeway Aggressive Gr BRAGX View 1.64% 7.23% -50.96% -20.00% -3.70% 1.78%
Dodge & Cox Intl. DODFX View 2.56% 16.98% -43.02% -12.61% 2.98% 0.65%
Excelsior Value & Rstrct UMBIX View 3.95% 10.86% -44.34% -14.37% -2.03% 0.99%
Fidelity Contra FCNTX View -0.61% 5.35% -33.20% -8.05% 1.77% 0.95%
Goldman Sachs Md Val A GCMAX View 0.36% 7.37% -35.46% -10.93% 0.51% 1.16%
ING Glob Real Estate A IGLAX View -8.08% 6.49% -47.30% -14.80% 1.67% 1.41%
Manning & Napier World Opportunities Series EXWAX View 1.36% 10.17% -37.14% -7.32% 4.60% 1.16%
Money Market TDWHX N/A N/A N/A N/A N/A N/A N/A
Neuberger Berman Soc. NBSTX View 4.74% 11.22% -33.29% -9.63% -0.68% 1.09%
Oakmark Equity & Income I OAKBX View -0.28% 1.90% -18.54% 0.14% 3.46% 0.81%
Permanent Portfolio PRPFX View 0.58% 4.21% -10.94% 2.17% 7.63% 0.95%
T. Rowe Price New Era PRNEX View 6.93% 8.92% -49.79% -9.04% 7.99% 0.66%
T. Rowe Price Spectrum RPSIX View 3.26% 4.69% -7.50% 1.83% 3.50% 0.68%
Templeton Global Bond Fund TGBAX View 5.64% 4.72% 6.66% 9.82% 10.09% 0.67%
$ Third Avenue Value TAVFX View 6.12% 12.19% -37.78% -13.78% -0.21% 1.11%
Vanguard Small Cap Index NAESX View 2.30% 13.97% -31.73% -11.99% -0.60% 0.28%
Vanguard Tot Stock Mkt Index VTSMX View -1.27% 7.62% -34.60% -10.75% -2.10% 0.18%
Wilmington Trust Stable Value Fund WLSV1 N/A 1.01% 1.01% 4.39% 4.66% 4.46% 1.10%

**disneysteve** · 06-02-2009, 07:54 AM

Originally posted by culaslucas View Post

I contribute 5% of my income
Estimated pre-tax income this year is $148,000

I'll leave it to others to pick funds for you but I wanted to address this.

5% is not enough to be saving for retirement. Are you also funding a Roth (or are you over the income limit?)? You should be maxing your 401k. 10% of income would be $14,800, just a tad under the $15,000 max.

**culaslucas** · 06-02-2009, 07:58 AM

Originally posted by disneysteve View Post

5% is not enough to be saving for retirement. Are you also funding a Roth (or are you over the income limit?)? You should be maxing your 401k. 10% of income would be $14,800, just a tad under the $15,000 max.

Ya...I know, I'm working on paying off some bills, building up my emergency fund and saving for a house. But I should be able to bump up my contribution to the full amount soon. I do have a separate Traditional IRA and HSA that I contribute to regularly as well.

**EEinNJ** · 06-02-2009, 08:23 AM

You indicate you have very high risk tolerance, at your age that's ok because time is on your side. But, if you're not an experienced investor, you may find you don't have the stomach for it when the market tanks. There have been a couple of bear markets in the last few years, and it's no fun to watch your investments go down 40% across the board. A big mistake a lot of people make is not being disciplined, and they bail out at a loss. Then when things improve they jump back in- only it's too late.

For selecting funds, "Modern Portfolio Theory" suggests an asset allocation model. That's what these target funds do, with rebalancing. A well rounded portfolio should have small cap, international, large cap, and some bond/fixed income. The percentages depend on your age and risk tolerance. It's also good to pick funds which have low expenses, though you may not get that choice with employer plans.

**culaslucas** · 06-02-2009, 08:25 AM

Based on a few retirement calculators designed to develop an income strategy, it is suggested that I invest in:
Large Cap : 40%
Mid Cap : 10%
Small Cap : 25%
International : 25%

Does that sound about right?

According to my calculations, if I contribute 10% (after tax for my roth) of a $140k salary with a 4% match and earn 10%, I can retire comfortably at age 60 at 80% of my annual salary as retirement income.

**EEinNJ** · 06-02-2009, 09:05 AM

That's pretty good, I'd suggest just a couple of tweaks:
Large Cap : 30%
Mid Cap : 20%
Small Cap : 15%
International : 25%
Bond Index 10%

The reason I suggest these is, a Bond fund will smooth things out a bit, the mid cap market is broader than large cap, and small cap can be pretty volatile. I've done well with MCSI EAFE based International index funds.

I wouldn't count on 10% compound annual growth. I used to, but for the last 10 years that hasn't proven to be true.

**culaslucas** · 06-02-2009, 09:14 AM

Okay, good deal. Any recommendations on the options I have listed above?

Need Allocation Advice - 401(k)