401K Investment Elections

[rvtraveler]

We are in our 50's and my husband just changed companies and will be putting our distribution check into another 401K. At this age what is the best way to allocate the funds that he will be rolling over. He had everything in a Conservative portfolio up until the crash in 2008. Moved everything to a Money Market account. If we were to choose funds by asset class how much at our age should we put into each class. I would say retirement will be in and around 10 yrs from now.

Thanks

[rvtraveler]

An Update

Here's what I came up with

29% intermediate bond
12% large cap value
12% large cap blend
31% small cap growth
16% international large cap

Now to the picks. How do you decide?

[Hector]

I dont think there is one right answer to your question.

Moving everything to cash was bad decision. If one is not able to sleep well at night when market tanks, one has inappropriate asset allocation.

Rule of thumb is to have bond equivalent to your age, but it doesn't mean that it is right for everyone. Have your asset allocation so that you guys are comfortable with it even market tanks. You are in your 50s and you have seen market crashes. For sure there will be more crashes in future. I think it is very important that you choose your asset allocation as per your risk tolerance.

[disneysteve]

The fact that until 2008 he had everything in a conservative portfolio and then moved everything to cash at the best possible time to be buying stocks, not selling them, really makes me think a new allocation that is 71% stocks is just not right for him. I would rethink that. While I like your breakdown, it doesn't seem to mesh with his risk tolerance.

Plus, he is 50 and 71% stock is a bit aggressive anyway. You might want to adjust those numbers to something more like 50/50 or 40/60 rather than 70/30 stocks to bonds.

[rvtraveler]

Hey guys thanks for the advice. I do see exactly what you are talking about. The move to cash was not a good choice. Not for the length of time that has passed. I may have him convinced how risk works by showing him some numbers. Keeping your money working for the long haul is best.

[greenskeeper]

How much do you need the fund to grow in 10 years to retire? What percentage of return do you need?

If the fund is adequate then I would be ultra conservative and not gamble.

If you need larger returns within 10 years then you have to take some risk.

[jpg7n16]

I'd suggest using this calculator to come up with a good allocation for you two.

Asset Allocator

There is no such thing as a 'perfect' allocation, but this should give you a good estimate of around where you should be. When it says cash, for 401k's I typically read that as 'short term high grade bonds.' And bonds as 'medium to long term bonds'

And there are 1000's of funds out there, so it's kinda hard to tell you which specific ones meet your needs for your portfolio. In general index funds are low cost and very well diversified. Can't really go wrong choosing a large cap index fund as your large cap allocation.

[Frugal]

Most people say it is best to invest in a mixture of international stocks and domestic. I am not an expert, however, in this area, and this is only my opinion...

I cashed out my 401-K when I got laid off. Although this is not for everyone, in my situation, it helped me somewhat.