Asset allocation at 23

**kork13** · 09-11-2012, 03:37 AM

Welcome!

Your 401k's allocation is unusually heavy in the small market index (typically the S&P 500 serves as a young portfolio's core), but it's not outrageous... As long as you understand that the small cap companies tend to be more unstable (value-wise). That's why the S&P 500 is typically held as a core investment -- although it goes up and down with the rest of them, most of those companies are financially strong enough to be expected to continue rising in value over the long term. With small companies, they can do very well, or very poorly. That said, if it's an intentional play (betting that small companies will grow significantly as the economy slowly recovers), then feel free to stay the course as you have it.

Another piece is sort of puzzling: Have you looked closely at what stocks VWUSX holds as compared to both VFINX & VSISX? My bet is that there is significant duplication. It's okay if you want to weight toward growth stocks, but understand that it reduces the diversification of your portfolio, which means that it's swings will be more severe based on a smaller bunch of stocks.

You've accomplished the hard part--starting to save & invest. From here, it's simply fine-tuning. My only recommendations would be that you consider a few changes (not critical, but could potentially help):
1. Consider adding an international component, such as VGTSX (Vanguard Total Intl Stock Index) to give you exposure to the global economic markets, some of which can perform better than the US market.
2. Consider reducing the weighting of VSISX and increase VFINX, as discussed above.
3. Consider replacing VWUSX with another (more diversifying) fund. A small (10%) holding in either a bond fund or possibly a sector fund could be of benefit. Or, simply replace VWUSX entirely with an international fund like VGTSX.

As for the Roth, I think the target date fund is a good choice for you, at least for now. Let that steer itself and it'll do just fine.

As a 23-y/o, you're doing great. Continue saving over time, keep learning and asking questions, and you'll be set up quite nicely for your future.

**MonkeyMama** · 09-11-2012, 04:57 AM

Just one note on the Target Retirement Fund - these have gotten a lot of criticism for being *really* aggressive in stocks. I presume the 2055 fund is 90%+ in stocks. If you are a risk taker, that may be fine for you. But I have seem a lot of recommendation to pick Target years for a better investment allocation for your age. For reference, I am 35 and invested in the T Rowe 2025 retirement fund (75% stocks). I overall like Target Date retirement funds, but just a heads up. & you can't just set it and forget it - is a good idea to check asset allocation at least once a year, and make sure that is what you really want and are comfortable with.

**markr867** · 09-11-2012, 05:37 PM

Originally posted by kork13 View Post

Welcome!

Your 401k's allocation is unusually heavy in the small market index (typically the S&P 500 serves as a young portfolio's core), but it's not outrageous... As long as you understand that the small cap companies tend to be more unstable (value-wise). That's why the S&P 500 is typically held as a core investment -- although it goes up and down with the rest of them, most of those companies are financially strong enough to be expected to continue rising in value over the long term. With small companies, they can do very well, or very poorly. That said, if it's an intentional play (betting that small companies will grow significantly as the economy slowly recovers), then feel free to stay the course as you have it.

Another piece is sort of puzzling: Have you looked closely at what stocks VWUSX holds as compared to both VFINX & VSISX? My bet is that there is significant duplication. It's okay if you want to weight toward growth stocks, but understand that it reduces the diversification of your portfolio, which means that it's swings will be more severe based on a smaller bunch of stocks.

You've accomplished the hard part--starting to save & invest. From here, it's simply fine-tuning. My only recommendations would be that you consider a few changes (not critical, but could potentially help):
1. Consider adding an international component, such as VGTSX (Vanguard Total Intl Stock Index) to give you exposure to the global economic markets, some of which can perform better than the US market.
2. Consider reducing the weighting of VSISX and increase VFINX, as discussed above.
3. Consider replacing VWUSX with another (more diversifying) fund. A small (10%) holding in either a bond fund or possibly a sector fund could be of benefit. Or, simply replace VWUSX entirely with an international fund like VGTSX.

As for the Roth, I think the target date fund is a good choice for you, at least for now. Let that steer itself and it'll do just fine.

As a 23-y/o, you're doing great. Continue saving over time, keep learning and asking questions, and you'll be set up quite nicely for your future.

Thanks for the reply!

So are you suggesting to do something like this:
VFINX - 33%
VSISX - 42%
VGTSX - 25%

I used the Instant X-Ray calculator on Morningstar for the first time and it says I would be 49% in Large Cap, 19% in Mid Cap, and 32% in Small Cap. It also says I would have 25% in foreign stocks.

Is this a better allocation than what I currently have?

Asset allocation at 23