401K Allocation advise

[Andres14]

Hi, I'm a 32 year old male with no retirement savings at all. I want to start my 401K plan and I need some advise. I get paid twice a month $2030 before taxes and I'm not sure how much of a percentage I should put into my 401k plan. My company matches 100% up to 4%. On top of that it gives me different investment funds that Im not familiar with.

The investment funds are as follows:

Ready Assets Prime Money Fund
PIMCO Short-Term Fund - Class R
Delaware Limited-Term Diversified Income Fund - Class R
Goldman Sachs Short Duration Government Fund - Service Class
MFS Government Securities Fund - Class R2
PIMCO Total Return Fund - Class R
Pioneer Strategic Income Fund - Class R
Lord Abbett High Yield Fund - Class R2
Oppenheimer International Bond Fund - Class N
BlackRock Global Allocation Fund, Inc. - Class R
Delaware Foundation Conservative Allocation Fund - Class R
Invesco Mid Cap Core Equity Fund - Class R
Invesco Small Companies Fund - Class R
Thornburg International Value Fund - Class R3
Templeton Growth Fund, Inc. - Class R
Oppenheimer Developing Markets Fund - Class N
Invesco Real Estate Fund - Class R

Any advise will be greatly appreciated

Thanks

[disneysteve]

Welcome. As a general rule, your goal should be to save 15% of your gross income for retirement. To start, definitely contribute enough to get the full company match. After that, if you qualify, open a Roth IRA and fully fund that each year ($5,000). You have until April 15, 2012 to make your 2011 contribution and you can also begin making your 2012 contributions any time now.

What does the rest of your financial picture look like? Do you have an emergency fund? Any debt? Any other savings and investments outside of retirement plans?

[Andres14]

Thanks for your reply Steve... Unfortunately I dont have any other savings/retirement funds but I dont have any debts either...

[disneysteve]

Unfortunately I dont have any other savings/retirement funds but I dont have any debts either...

In that case, I would start contributing 4% to the 401k immediately. Simultaneously, start setting aside an emergency fund until you have at least $1,000. At that point, exactly how to proceed will depend on how much free cash flow you have each month. I would open the Roth, as noted, but also continue to fund the EF to get it up to at least 6 months worse of expenses whatever amount that is.

If you post your income and budget info, we can give more specific advice.

As for how to invest the 401k, you'll get a variety of opinions there. At 32, just starting out, you need to be pretty aggressive to reach your retirement goals. The Blackrock fund is a good one, though only about 65% equity right now. Still, it is well diversified and Blackrock has a great reputation among institutional funds. So I'd probably put money in that but also in the Templeton fund which is nearly 100% equity to get the overall portfolio up to around 80-90% equity. So if my math is right, investing in a 2:1 ratio of Templeton Growth over Blackrock would put your equity exposure in the 80+ percent range. In other words, invest $2 into Templeton for every $1 you invest in Blackrock.

[DRILLINDK]

What are your fixed expenses each month? Rent, food, gas, etc? You definitely want to "pay yourself first before the government." In other words, maximize your pretax stuff, like your 401k.

[Andres14]

thanks guys, here is my info...

My income before taxes is $4060 and after taxes is around $3422. My fixed expenses are just under $2500.

Thanks

[kv968]

As for how to invest the 401k, you'll get a variety of opinions there. At 32, just starting out, you need to be pretty aggressive to reach your retirement goals. The Blackrock fund is a good one, though only about 65% equity right now. Still, it is well diversified and Blackrock has a great reputation among institutional funds. So I'd probably put money in that but also in the Templeton fund which is nearly 100% equity to get the overall portfolio up to around 80-90% equity. So if my math is right, investing in a 2:1 ratio of Templeton Growth over Blackrock would put your equity exposure in the 80+ percent range. In other words, invest $2 into Templeton for every $1 you invest in Blackrock.

Allocating at a 2:1 ratio would bring the equity portion up to 85% but it would also only have 35% in US stocks and 50% in int'l (39% in Europe alone) which I think is WAY too much. The Templeton Fund and Blackrock Fund have non-US equity exposure of 61% and 28% respectively. Tempelton has no bond holdings, but the int'l is way too high whereas Blackrock has less int'l but 25%+ fixed. Hard to allocate around that.

Which leads me to a question for the OP...Is that all of the choices you have in your 401k? I find it wierd that they don't have at least one large cap domestic fund that doesn't have much fixed income in it. Half of the funds you listed are a fixed income fund of some sort. I can understand the company may want to be conseravative with what they offer in their 401k, but that's a little much.

[disneysteve]

Allocating at a 2:1 ratio would bring the equity portion up to 85% but it would also only have 35% in US stocks and 50% in int'l (39% in Europe alone) which I think is WAY too much.

Thank you. I agree with you and had overlooked that.

This is why I usually let others answer the allocation part of the question.

[kv968]

Thank you. I agree with you and had overlooked that.

This is why I usually let others answer the allocation part of the question.

Unfortunately with the funds the OP has available its hard to drop the bond exposure while picking up just domestic equity.

A possiblity could be:
60% Blackrock Global
30% Invesco Mid-Cap
10% Invesco Small-Cap

That would bring the allocation to about 50% U.S., 20% Int'l, 11% bonds, but still 12% cash due mostly to the current cash holdings in the Invesco Funds.

[jadet]

I'd say go 15%-20% for the more you have the more you spend