401k advice

[misschris]

I have heard many times not to move your investments around untill you are closer to retiring.
I guess I am looking for reassurance/ advice on this.

I am 32 years of age, I have 10% in stable 10% in moderate, 80% in agressive stocks.
And of course right now I am steadily loosing money.

Would you leave it alone or move more of it to stable or moderate?
:shrug7:

[Jiji]

Personally, I think leaving it where it is and never adjusting it is not the best idea. However, I would have probably done mine 15% in stable, 20% in moderate and 65% in aggressive if I were your age. You may be losing money right now - most of us are, but the market will rebound. Remember, there have only been two 5 year periods since the Stock Exchange opened up that it didn't make money.

One option you may want to think about is making sure you have some of your money in a Far East/Pacific Rim fund. This will offset the domestic companies that are being terrorized by the actions of those influenced by the media.

I don't think that by changing funds or changing % every once in a while will hurt you, but I wouldn't do it more than once every few years or I have always been taught not to take it OUT, but as long as you leave it somewhere in there to grow (over the long term period), you will come out ahead.

Dave Ramsey has a great breakdown for how to split your investments between mutual funds. That way, you have some of each.

Kudos to you for being so young and planning for your future.

[MaryMary]

If you put something in the oven you'd probably check on it a couple times before it will be done, right? Does your turkey need basting or to cover very top with foil so it wouldn't burn? :)
You always have to check on your investments, no matter how long you have until retirement. Your choices need to perform up to your expectations, otherwise you'd have to consider rearranging. But every investor need to consider current environment, many 1-st place runners few years ago are bleeding badly now. Depends on your perspective how long current economy slump will last you'd need either to make your investments more defensive or leave as is if you think better times are just around the corner.
Need to add. When picking your investments look at risk/reward ratio, beta and volatility index. You'll know ahead of times what to expect: resistance to market downturns, how wild price swings might be, etc.

[BzyBee DH]

You are right and wrong at the same time!!

How you're right -
Make an asset allocation - (your 10/10/80) - and stick to it. The #1 problem that people have is that they change and panic when it is going bad and sell "bad" funds, then when times are good, they buy in to the "great" funds.

(This means = Buy High and Sell Low = not a good recipe for growth!)

Studies (www.fundadvice) have indicated that funds within the same category (large cap growth, international large blend, etc) will perform similarly. As a matter of fact from the studies, over 90% (this study indicates 98%) of the return relates to the asset allocation - not to the actual fund.

How you're wrong-

(ok, don't like the wrong word, but anyway....)
2 parts -
1 - Many people will gradually reduce the volatility (up & down) of their investments by gradually increasing the amount of bonds in their portfolio. (This does reduce the growth potential, as bonds will not perform as well as stocks in the long run. But, they are somewhat not corrolated to stocks (i.e. when stocks go down, they go up & vice versa - which leads to less volatility). So, not suddenly at retirement, but gradually overtime.


2 - Your asset allocation is not very diversified.
There should be international.
Stable funds are not a good idea for young people.
Don't know what moderate means - (bonds? balanced funds = stock/bonds?)

A general asset allocation is like this -
0-40% bonds, 100-60% stocks. Closer to 0 when young. I never plan to own bonds. But, the maximum generally suggested in bonds is around 40%

Of the Stocks -
20-40% international, 80-60% domestic
I use FundAdvice.com - Home details, and I am doing 40%. I know many like to be closer to 20%

For the domestic stock -
20-75% large cap, balance split between small and mid-cap
Then within each size of company - there is "value", "blend" and "growth"
Historical performance indicates value funds will do better over the long haul, but growth funds are not as volatile.

So here's how I do it - but each person SHOULD choose for them selves

-0% bonds, 100% stock
-40% international stock, 60% domestic
-the 60% domestic = 20% large cap, 20% mid-cap, 20% small-cap
-I split the difference Value and Growth = 10% large cap value, 10% large cap growth, 10% mid-cap value, 10% mid-cap growth, 10% small cap value, 10% small cap growth

I do not plan on buying any bonds, so I will not change portfolio as I age.

I have a fairly large amount of international and small/mid cap compared to most - so i will have more volatility than most - but, in return - I should see more reward. I can handle large up & down swings and not panic. That is my profile.

For a moderate investor (still with no bonds for this example) -
25% international, 50% large cap growth, 10% mid cap blend, 15% small cap value (Blend = split 50/50 between growth and value)


For a very conservative (but still young investor - with no bonds)
25% international, 60% large cap growth, 15% small cap value

If you add in bonds at 10-20%, then reduce proportionally the others.
Gradually increase the bonds to no more than 40% by retirement age.

[fperkins]

I wise friend told me "You haven't lost money until you sell the stock." It helps to think that way when you see your balances plunging. They will go back up, they almost always do. (There are some exceptions, of course.)

[nashla97]

I had the same period of reflection recently, but I ended up keeping mine where it is. I'm around your age and have the largest chunk of $ in aggressive stocks, and I'm losing some money right now. But my asset allocation was chosen carefully based on my age and needs, and I still think it's the right one for me. There is risk there and I'm aware of it, but the distinct advantage of youth (and the reason for having my particular allocation in the first place) is that I can ride these bumps out.

If you're thinking of changing it just as a reaction to the market I would try to keep things as they are (as someone else said, this reaction means you'd probably end up buying high and selling low). If however you think you made the wrong choice with your allocation and would be more comfortable over the long-term with something a bit more conservative, only then would I consider changing it to suit your needs--and sticking with the new allocation for a while.

[MaryMary]

It is not an allocation problem you are having, but possibly wrong industry choices. 10 years ago technology was ruling the roost, not any more, aggressive tech stocks, for example, will not do as well now as back then. While MSFT is a household name and a strong co., for example, I'd rather buy MCD now. For each of them you need to have a fair expectations based on your research and condition of economy. Check on them once so often, get rid of whatever do not perform, the biggest mistake any investor can make is to fall in love or get comfortable with their choices. Investment clean up usually occur by the end of the calendar year to offset your gains. If an employee doesn't perform per company expectations most likely this employee ends up being fired.
"You have not lost your money untill you sell" is not right: you are losing money you can make if you'd make more appropriate choice, plus there is no any guarantee that "it" will go up again and when. Wishful thinking is not your friend, accept current reality and adjust accordingly.
BTW, common belief that bond performance goes in opposite direction with stocks is wrong, bonds total return goes in the same direction as stocks.

[BzyBee DH]

Compare the left column (bonds) with the right column (stocks)

bonds and stocks (total return) are not correlated or negative correlated - (i.e. they do not go up or down together. As you can see in the table, there are many times that when stocks go up, bonds go down & vice versa. Sometimes they move together)

If you look at the bottom of the sheet - you can see the return (reward) and the deviation (risk).

Clearly, overall, bonds reduce the risk of a portfolio - but also the returns.

A way to consider how much bonds to have - look at the worst 36 months (or 60months) - and determine how long you could handle negative return...

Then look at the top of the column for bond %.

http://www.fundadvice.com/images/sto...ard_tables.pdf


here is a link to a longer article about this table -
FundAdvice.com - Risk vs. Reward: What's best for you?

[MaryMary]

Bonds are out of question for pension accounts for 32 yo anyway, unless she is superconservative. By her current allocation she is not.
OP said having stocks, not mutual funds, so I try to keep conversation relevant to what was asked, what might be the reason of her portfolio bleeding out and what can be done.

[misschris]

wow thanks for all of the wealth of information! It gives me a lot to consider and think about.
MaryMary and bzybee Dh why do you think bonds are so bad, or out of the question?