401k Diversification

HoosierLife

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So we dump a lot of money into my wife's 401k at work. When we first started I just let Fidelity pick the funds. Which was a bad idea. They were very conservative.

Two years ago I did a lot of research and set up the funds how I thought they should be set up for aggressive growth (we're in our early 30s). I looked for funds that had at least a 10%+ track record over 15-30 years. Other than the 20% or so I put in a large cap fund. I don't have much invested in bonds though, only about 6%.

Well 2 years ago, I had a 16% return for the year. Last year, I had 24%.

So far for this year, I'm at 2.5%. I'm happy with average over the 3 years, but this year sucks!

Is that just what's gonna happen with investing from time to time? Or should I consider moving some things around?
 
So we dump a lot of money into my wife's 401k at work. When we first started I just let Fidelity pick the funds. Which was a bad idea. They were very conservative. Two years ago I did a lot of research and set up the funds how I thought they should be set up for aggressive growth (we're in our early 30s). I looked for funds that had at least a 10%+ track record over 15-30 years. Other than the 20% or so I put in a large cap fund. I don't have much invested in bonds though, only about 6%. Well 2 years ago, I had a 16% return for the year. Last year, I had 24%. So far for this year, I'm at 2.5%. I'm happy with average over the 3 years, but this year sucks! Is that just what's gonna happen with investing from time to time? Or should I consider moving some things around?
yes it does and no you shouldn't
 
So we dump a lot of money into my wife's 401k at work. When we first started I just let Fidelity pick the funds. Which was a bad idea. They were very conservative.

Two years ago I did a lot of research and set up the funds how I thought they should be set up for aggressive growth (we're in our early 30s). I looked for funds that had at least a 10%+ track record over 15-30 years. Other than the 20% or so I put in a large cap fund. I don't have much invested in bonds though, only about 6%.

Well 2 years ago, I had a 16% return for the year. Last year, I had 24%.

So far for this year, I'm at 2.5%. I'm happy with average over the 3 years, but this year sucks!

Is that just what's gonna happen with investing from time to time? Or should I consider moving some things around?

How is the other 74% allocated outside of the bond and large cap funds?
 
What return are you expecting to hit your retirement goal? Work backwards - pick a realistic retirment age (60, 65 etc...) and have a lump sum amount that will be used to fund your retirment years ($1mm, $2mm or whatever it is) at that specific age. With your contributions and match (if any) you will know if you need to adjust your contribution based on a solved rate of return.

For example, if I put in $10k (including match) and I eacheive a CAGR return of 7%, at age 65 I will have $2mm. (those numbers are fake and used as an example). If you return better = more money, less contribution or you can retire earlier. I would recommend you run some numbers and have a trail run at figuring out your retirment - never too early to start...or hire a financial planner to do it for you...just have a plan in place and don't just wing it.
 
How is the other 74% allocated outside of the bond and large cap funds?

It's hard to tell. There all mutual funds. Fidelity has some weird funds that are more aggressive the younger you are, then they change product mix as you get older to be more conservative.

I have 22% in foreign funds! but even 25% of that is large cap.

I'm still no expert at this...

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What return are you expecting to hit your retirement goal? Work backwards - pick a realistic retirment age (60, 65 etc...) and have a lump sum amount that will be used to fund your retirment years ($1mm, $2mm or whatever it is) at that specific age. With your contributions and match (if any) you will know if you need to adjust your contribution based on a solved rate of return.

For example, if I put in $10k (including match) and I eacheive a CAGR return of 7%, at age 65 I will have $2mm. (those numbers are fake and used as an example). If you return better = more money, less contribution or you can retire earlier. I would recommend you run some numbers and have a trail run at figuring out your retirment - never too early to start...or hire a financial planner to do it for you...just have a plan in place and don't just wing it.

I hear ya about working backwards, but our income has doubled in the last 3 years. And I expect at least a 25% increase over last year. We're at the point now where we are not really increasing our standard of living, we're just investing more.

Even the extra things I buy are an investment, that is if I'd stop wasting so much just putting holes in paper. ;)

I don't know, I want to be safe and aggressive at the same time. That's why I picked funds that averaged 10%+ over the long haul. Even the large cap funds are averaging 7% or better.

I would be happy with a 9-10% return. Is that a pipe dream?

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Also, a 10%+ ROI includes the 2009 crash. Most of my options have been getting 18%ish over the last 3 years. Except for this YTD. That's why I was concerned.
 
"I don't know, I want to be safe and aggressive at the same time. That's why I picked funds that averaged 10%+ over the long haul. Even the large cap funds are averaging 7% or better.

I would be happy with a 9-10% return. Is that a pipe dream?"

Keep in mind that the returns you are seeing are AVERAGES - not real returns.

For example, here are four years of returns: +15, +20, +35, -20 = 12.5 % average return.

Starting with $10k (includes all costs, fees etc..): $11,500, $13,800, $18,630, $14,904

Compunded Actual Returns = 10.5% vs. 12.5% average

Here is a better one: year 1 = +80%, year 2 = -50% = average return of +15% vs Actual return of -10%...don't pay attention to average returns, find good quality funds that fit your risk tolerance and have a plan.
 
It's hard to tell. There all mutual funds. Fidelity has some weird funds that are more aggressive the younger you are, then they change product mix as you get older to be more conservative.

I have 22% in foreign funds! but even 25% of that is large cap.

I'm still no expert at this...

Target date funds are actually getting to be quite popular. Like you said, they start out more equity heavy, and become more conservative over time. I am not personally a huge fan, because your situation is going to be entirely different than a 30 year old down the street.

Plus, they are designed to "set and forget", for the average investor that is not going to pay much, if any attention to their account, which is exactly the opposite of what you are doing: CHASING RETURNS, which is not a good thing.

Depending on your risk tolerance, IMO you should be between 80%-90% in equities ,spread across Large Cap, Mid Cap, Small Cap, and International funds, and the rest in bonds with maturities less than 5 years.
 
Target date funds are actually getting to be quite popular. Like you said, they start out more equity heavy, and become more conservative over time. I am not personally a huge fan, because your situation is going to be entirely different than a 30 year old down the street. Plus, they are designed to "set and forget", for the average investor that is not going to pay much, if any attention to their account, which is exactly the opposite of what you are doing: CHASING RETURNS, which is not a good thing. Depending on your risk tolerance, IMO you should be between 80%-90% in equities ,spread across Large Cap, Mid Cap, Small Cap, and International funds, and the rest in bonds with maturities less than 5 years.

Well that's what I thought I had done. I told them I wanted 25% foreign, 25% large, 25% mid and 25% small. Then they gave me a list of funds that fit those parameters.

Is a mutual fund the same as an equity?
 
Well that's what I thought I had done. I told them I wanted 25% foreign, 25% large, 25% mid and 25% small. Then they gave me a list of funds that fit those parameters. Is a mutual fund the same as an equity?

Equity is just a fancy name for stock, since you have equity in the company.

If you still have my email feel free to send over your fund lineup and I can help you out in about 10 minutes.
 
Here's the thing WHILE you're putting money into it, you want things to go poorly, even down is fine. WHY? CAUSE YOU'RE BUYING IT.

While the growth in these funds is great, temper it with the fact that as you continue to fund the account, you're paying higher prices for the shares now.

Your complaint in perspective is like bitc hing about your steak not costing full price. YOU WANT SALES, YOU WANT YOUR CHOICES TO BE ON SALE.


Sorry for shouting but most people get this wrong. While in the accumulation stage you want the best prices you can get. When you get to the distribution phase, you want the highest prices you can get.


There is nothing wrong with purchasing conservative funds. The market will show you that over time. You need a combination of conservative, moderate and aggressive funds, along with a small amount of super aggressive to take care of what is the urge to take big risk.

You need to rethink what you're doing a bit. Think about it for a second, "I got 24% on my fund last year." Well depending on where you're at on the time line, you either paid a premium of 24% on each new share you bought, so you bought less with your money or a year or two away from retirement you posted a 24% gain so you swept a portion of that portfolio over into a conservative fund to escape market risk and banked 24%...

You want to buy on sale. You want to sell at a premium. Easily said, very hard to do as we are our own worst enemies with this stuff.
 
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