401k Options...should I go all S&P 500?

[A-Aron1]

Hello,

I’m 30yo and single. I work for a small company (14 employees) and have a 401k. The cheapest fund to own is the S&P 500 index fund (.35% expense ratio) and then there are a bunch of different Lord Abbott funds and some different international funds with ER’s all over 1%. Right now I’m using 8 different funds including large caps, mid caps, small cap, international, and a REIT... all of these funds besides the SP500 fund are actively managed. I’m doing this for diversification but I’ve considered putting everything in the S&P500 because it’s cheaper.

What would you recommend? Thanks

[kork13]

Do you have a Roth IRA outside of your 401k? You might consider using the S&P 500 index fund as your exclusive holding in the 401k, then using the greater flexibility present in your IRA to diversify into some of those other segments of the market that you're clearly aware of and tracking. S&P 500 is a GREAT core investment, so if your 401k is heavy in that fund, it shouldn't pose a problem at all for your overall asset mix.

[A-Aron1]

Do you have a Roth IRA outside of your 401k? You might consider using the S&P 500 index fund as your exclusive holding in the 401k, then using the greater flexibility present in your IRA to diversify into some of those other segments of the market that you're clearly aware of and tracking. S&P 500 is a GREAT core investment, so if your 401k is heavy in that fund, it shouldn't pose a problem at all for your overall asset mix.

I’ve got an IRA that I’ve been contributing to over the last 10-12 years and also rolled an old 401k into it. Last time I checked there was about $175K in there- Vanguard ETFs, American Funds, international etc. Financial advisor set it all up way back when.

[kork13]

I’ve got an IRA that I’ve been contributing to over the last 10-12 years and also rolled an old 401k into it. Last time I checked there was about $175K in there- Vanguard ETFs, American Funds, international etc. Financial advisor set it all up way back when.

Perfect. So I'd recommend that you go ahead and put your 401k 100% into the S&P 500 fund, then with your IRA, you can diversify your overall portfolio by investing the IRA into the other stuff -- mid/small cap, international, REITs, etc. It's not ideal, but potentially the best available option for reasonably priced investments.

[A-Aron1]

Perfect. So I'd recommend that you go ahead and put your 401k 100% into the S&P 500 fund, then with your IRA, you can diversify your overall portfolio by investing the IRA into the other stuff -- mid/small cap, international, REITs, etc. It's not ideal, but potentially the best available option for reasonably priced investments.

Thanks Kork! Advice much appreciated!

[Jluke]

Seems to be a misunderstanding of the word diversify as related to investing in a number of funds instead of what a single fund is invested in.

I would revisit your IRA holdings and determine what the expense ratio is. Financial advisors don’t always go for the least expensive ones - they need to make money off of your money.