401K investments

[mkarim]

I'm looking for advice on allocating my 401K contributions. I'm 40, single, no kids.

Small company, large caps, mid caps, international or a mix? Small caps usually do well at the beginning of a recovery and large caps do well as the recovery matures (in theory).

Thanks.

 

[boo]

Anecdotally, small-cap does best over the long term, but small-cap has already had its run, and I believe that current data shows smaller-cap trading at historically higher valuations compared to large-cap. I'm close to your age, and I'm allocated mostly to small-cap, mid-cap, and a bit of high-yield. When I see the S&P return to 2007 highs, my plan is to de-risk dramatically. I'm a bit of a gambling man, so take that with a grain of salt.

I'm assuming your plan has a line-up of target date funds to choose from?

 

[otc]

Depends how much time you really want to think about it.

A low-fee target date fund (you can buy ahead or behind a period if you want to change the risk profile a bit) is a damn good way to "set it and forget it" if you really don't want to spend time researching and rebalancing. You may pay a tiny amount more fees than a group of index funds but everything is basically taken care of and you don't have to think about it.

 

[mkarim]

Originally Posted by boo

Anecdotally, small-cap does best over the long term, but small-cap has already had its run, and I believe that current data shows smaller-cap trading at historically higher valuations compared to large-cap. I'm close to your age, and I'm allocated mostly to small-cap, mid-cap, and a bit of high-yield. When I see the S&P return to 2007 highs, my plan is to de-risk dramatically. I'm a bit of a gambling man, so take that with a grain of salt.

I'm assuming your plan has a line-up of target date funds to choose from?

Yes my plan has those but I'm currently invested in a small-cap, a mid-cap, a large-cap and an international fund. The target funds in my plan are American Century Livestrong funds. Are target funds good and designed to do what they are supposed to?

 

[Gus]

As a SF member since 2007 and as someone with a significant interest in investments and the financial markets I would urge you to avoid any advise on this forum on this subject. it runs the gambit from brilliant or lucky (selling of the market in 2007 and buying gold) to stupid and reckless (put it all into real estate in 2007).

For every good response there will be one or more horrible ones. Please, ask about ties or the width of your cuffs but not your financial future.

 

[boo]

Originally Posted by mkarim

Yes my plan has those but I'm currently invested in a small-cap, a mid-cap, a large-cap and an international fund. The target funds in my plan are American Century Livestrong funds. Are target funds good and designed to do what they are supposed to?

The one thing you need to be aware of on your target date funds is the "glidepath", or how the asset allocation varies over time. They can be designed as "to retirement', meaning that the fund takes an extremely conservative allocation at the target date, or "through retirement", meaning that the fund is designed to continue to try and provide earnings potential through your retirement.

https://www.americancentury.com/funds/livestrong.jsp

Looking at the Livestrong funds, the most conservatively allocated fund is 45% equities at retirement, which classifies it more in the latter. A lot of people in 2008-2009 that were near retirement, or even recently retired, assumed that their target date funds would be more conservatively allocated and would be shielded from market gyrations at the time. They were in for a bit of rude awakening, however, when they saw nearly half their portfolio still in equities, or at least experienced the result of that on their 401k statement. I'm not saying that such an equity allocation isn't appropriate at retirement, but you do need to be aware of it and decide if it's something you're comfortable with.

 

[Biggskip]

Originally Posted by otc

A low-fee target date fund (you can buy ahead or behind a period if you want to change the risk profile a bit) is a damn good way to "set it and forget it" if you really don't want to spend time researching and rebalancing. You may pay a tiny amount more fees than a group of index funds but everything is basically taken care of and you don't have to think about it.

^This.

Originally Posted by pocketsquareguy

As a SF member since 2007 and as someone with a significant interest in investments and the financial markets I would urge you to avoid any advise on this forum on this subject. it runs the gambit from brilliant or lucky (selling of the market in 2007 and buying gold) to stupid and reckless (put it all into real estate in 2007).

For every good response there will be one or more horrible ones. Please, ask about ties or the width of your cuffs but not your financial future.

^And This.

 

[Hannerhan]

My $.02 is that the high yield market has maybe 12 months left in it, but at this point the downside is a lot more significant than the upside. In fact I just sold my only high yield fund this morning, which had been the only fixed income in my 401k for the last 2 years.

Right now every asset class sucks.