I Re-Allocated And Re-Balanced My 401(k) Portfolio

On white: Topsy-turvy

I logged into my 401(k) plan.  Ouch! It’s been taking a beating all year.  In fact I mentioned that my 401(k) was hurting back in December when Hank over at MiB Smarter Money gave me a nice analysis of my portfolio.  Now, I understand that I’m in this for the long haul as far as the investments are concerned.  After all this is for my retirement which is still a ways off.  There’s plenty of time for the investments to recover and do well.  I’m not going to pull my money out because the market isn’t great.  The only reason my contributions were lowered is because we’re a one-income family right now (I only lowered my contributions down to the company match).

So I accept that my 401(k) isn’t so hot. Now what?  Well, I’ve been reading The Bogleheads’ Guide to Investing (which I won from The Digerati Life).  I’m not done with the book (which, by the way, is a great how-to investing read) but I have read how important it is to have a good asset allocation and to re-balance your portfolio from time to time.

This made me wonder what my portfolio looked like.  I set up how I wanted my assets allocated when I started contributing and I’ve made a few adjustments from time to time.  But reading the Boglehead book made me re-think what my allocations should be.  Also, I haven’t re-balanced the portfolio in the longest time.  I’ve changed my future contributions but rarely what was already in there.

So today I changed that.  Looking at my portfolio I realized I had funds that I was no longer contributing to but still had large balances.  I also saw that based on suggested portfolios in the book and my age that I should probably have a higher percentage of bonds in my investments.  Other funds that I was contributing a higher % to really took up a very small % in my portfolio since I haven’t been re-balancing.

First, I changed where my future contributions will be going.  This is money that comes out of my check as well as the company match.  Next, I moved investments already in my portfolio to match my new asset allocation.  Both processes were pretty easy on the Fidelity site (the company that manages the 401k).  Remember, changing your future contributions isn’t the same as re-balancing your portfolio.  You have to look at both if you want it truly balanced to the investments of your choice.

Here’s what the allocation is now:

Stocks

Large Cap

  • Fidelity Contrafund 18%
  • Vanguard Institutional Index Fund Institutional Shares 22%

Mid Cap

  • Artisan Mid Cap Inv CL 10%

Small Cap

  • Fidelity Small Cap Stock Fund 10%
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International

  • American Funds New Perspective Fund Class R5 5%
  • Fidelity Diversified International Fund 5%

Bond/Managed Income

  • PIMCO Total Return Inst CL 30%

Before I started changing anything I made sure that there would be no fees for changing investments.  Some funds charge a fee if you sell them before a certain time frame.

I also set up my account to send me an email if any of my percentages exceed 5% of what I set.  This gives me a reminder to check if I want to re-balance the funds that changed.

I’m not expecting my portfolio to all of a sudden jump into the black but it will be interesting to look and see where it’s at year-end.  Again, these funds are for the long haul as I won’t use them until I retire.  That said, I still need to adjust my contributions and allocations as time goes on.

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Published or updated April 29, 2013.

Comments

  1. Hey FFB,

    How far are you from retirement? 30% in bonds seems somewhat large from what I’ve heard and read and for the approximate idea of your age I have in my head. For some reason I’m thinking you’re about 20- 30 years from retirement. Maybe I’m way off base here, but I’m just commenting (as usual :-) ).

    Also, 10% in international seems light to me too…

  2. @ Joe – I’ve got some time before retirement. I’m going by the guidelines in The Bogleheads’ Guide to Investing. I thought the bonds were a little heavy too then I looked at what the bond fund returned versus the stocks. My portfolio would be in better shape if I had this asset allocation from the start of the year. I think the Bogleheads focus a lot on getting a return while minimizing the risk. They sugges that for bond % to use your age. My % is actually lower than my age.

  3. That’s the beauty of finance… there’s always some new research or report to contradict the last one! ;-)

    Here’s to a smooth(er) ride!

  4. Uh oh, who’s that Hank? Sounds like trouble. :) Mine actually has been having some issues as well since the market hasn’t been so happy. Keep the chin up though, it’ll bounce back.

    Joe has a good point too in that 30% does sound beefy even at your age… ;)

  5. @ Hank – Check this out: The Pimco Total Return is 2.11 gain for the year. Vanguard Index Fund (S&P) is -12.65 for the year. Maybe bonds are weighted high with 30% but if I had that all year I’b be closer to black than I am now. I’ll stick with this allocation and see how it goes. I can always re-allocate later on.

  6. I highly recommond checking out Fidelity’s SPARTAN US EQ INDEX

    Cheap s&p 500 index fund

  7. @ Frank – I’d love to but I’m limited to what my company plan offers. I’ll check it out for my taxable account though. Currently I have the Vanguard Institutional Index Fund which is supposed to track the S&P. Thanks for the tip!

  8. Article Submit says:

    My entire portfolio took a hit as well, i am glad i am only 33 and have a few years before i need to worry. I did find some usefull BusinessI nvesting Articles at article sender though.

  9. Unfortunately, it will take a lot longer to make back the money we lost in the past year or so. For example, if you have 100K in your retirement (for example’s sake) and you lose 50% you are left with 50K. But it will take double the % increase to get back to your original amount. So even though it seems like a good idea to stay in it for the long haul and continue contributions, it makes me wonder about how much good will actually come of it. Thanks for bringing my attention to the Bogleheads Guide, I hadn’t heard of it before but from your description it seems like it’s definitely worth checking out.
    -Jeff

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