Investment Balancing

ThrillaGorilla

I'm trying to "balance" my 401k a little bit better than it is right now, and I'm looking for some advice. Currently I have my investments spread out across Large/Mid/Small/Foreign/Bonds like 26/26/26/18/4. Each class, with the exception of the bonds, I have separated into two investment choices each, both receiving half of that classes alloted investment each pay period. I've been doing some research and it seems like I have too much invested in my small and mid caps, and probably not enough in my large.

Honestly I am running in circles trying to decide what is a good mix. Does anyone have advice or anecdotes about how they invest? For the record I'm 29, not opposed to risk, and have ~6 figures in the account. I won't be reallocating, just changing my investment. I am not looking to purchase individual stocks, or invest in an IRA at this point, I just want to further pad my 401k (401k contribution is maxed so an IRA/individual stocks is the next step).

Kakodaimonos

In general order of Risk & Return those classes break out like this:

Bonds < Large < Mid < Small < Foreign (maybe).

The foreign really depends on the region. European-based funds are in-between Large and Mid. Brazil, China, India: more risky than small cap.

Another option, which is higher risk/return are commodity funds and real estate funds.

Figure out just how much risk you want to take and allocate appropriately. And remember to rebalance every year or so.

Thanatos

You're down to minutia, here, which is largely going to depend entirely upon how much risk you want to take on. Personally, I don't think you're too heavily-weighted towards small- or mid-cap stocks at all; my 401(k) is something like 40/40/20, small/foreign/big, and I'm 28.

The thing is, if you lose everything in your 401(k) at your age, it's not crippling; but if you hit a home run, that is multiplied out as the years go on, so it's generally speaking a good idea to take on a lot of risk while you can afford it.

VeritasVR

Thanatos wrote: »

You're down to minutia, here, which is largely going to depend entirely upon how much risk you want to take on. Personally, I don't think you're too heavily-weighted towards small- or mid-cap stocks at all; my 401(k) is something like 40/40/20, small/foreign/big, and I'm 28.

The thing is, if you lose everything in your 401(k) at your age, it's not crippling; but if you hit a home run, that is multiplied out as the years go on, so it's generally speaking a good idea to take on a lot of risk while you can afford it.

It's hard to argue against this mindset. I give it my lime endorsement.

Dropping Loads

VeritasVR wrote: »

Thanatos wrote: »

You're down to minutia, here, which is largely going to depend entirely upon how much risk you want to take on. Personally, I don't think you're too heavily-weighted towards small- or mid-cap stocks at all; my 401(k) is something like 40/40/20, small/foreign/big, and I'm 28.

The thing is, if you lose everything in your 401(k) at your age, it's not crippling; but if you hit a home run, that is multiplied out as the years go on, so it's generally speaking a good idea to take on a lot of risk while you can afford it.

It's hard to argue against this mindset. I give it my lime endorsement.

This isn't my thread, but I have trouble understanding this. Isn't this the same as saying it's ok to not start investing until later (i.e. you start at zero at the same point in time)? I always thought the idea is that the amount you have over time was mostly related to how long you'd been investing, which would mean you need to keep it steady in the beginning? Thanks for explaining this.

Thanatos

Dropping Loads wrote: »

VeritasVR wrote: »

Thanatos wrote: »

You're down to minutia, here, which is largely going to depend entirely upon how much risk you want to take on. Personally, I don't think you're too heavily-weighted towards small- or mid-cap stocks at all; my 401(k) is something like 40/40/20, small/foreign/big, and I'm 28.

The thing is, if you lose everything in your 401(k) at your age, it's not crippling; but if you hit a home run, that is multiplied out as the years go on, so it's generally speaking a good idea to take on a lot of risk while you can afford it.

It's hard to argue against this mindset. I give it my lime endorsement.

This isn't my thread, but I have trouble understanding this. Isn't this the same as saying it's ok to not start investing until later (i.e. you start at zero at the same point in time)? I always thought the idea is that the amount you have over time was mostly related to how long you'd been investing, which would mean you need to keep it steady in the beginning? Thanks for explaining this.

Well, there are two different effects going on:

The first is that riskier investments generally pay out big over the long-term but can translate into very low gains or even large losses over the short-term, while lower-risk investments generally pay out less over the long-term, but more in the short-term, and tend not to have the rollercoaster effect that the riskier investments do.

The second effect is the magic of compound interest; if you quadruple your principle in the five years before you retire, that's awesome; you have four times as much. If you quadruple your principle in five years twenty-five years before you retire, you can typically double that three times before your retirement, meaning you've now got thirty-two times as much principle when you retire. If you lose everything in the five years before you retire, you've got no time to make it up, and you've lost forty or fifty years worth of savings; if you lose everything twenty-five years before you retire, you've still got twenty-five years to make it up, and you've probably only lost ten or fifteen years worth of savings. So, not only is it not nearly as bad if things go really poorly, but it's way, way better if things go really well. So, having a lot of time magnifies the benefits of risky investing while mitigating the consequences.

Thanatos

And, honestly, if you're using a well-diversified portfolio--even a risky one--odds are, you're not going to lose it all. You may have down times and up times, but it will be working for you in the long-term.

Dropping Loads

Thanks for the explanation. I've definitley been more of the put-money-in-and-forget-about-it mentality. I should read up on this stuff some more and come back with my own thread later .

Thundyrkatz

Thanatos has some solid advice, you should listen to him.

However, I have a question. What is your goal? It sounds like you have a very well diversified portfolio in general. Are you unsatisfied with your return? If so, is that because it is under performing the market or because it is under performing past markets?

If your return is positive over 0.50% YTD, then you are outperforming the market.

If you are going crazy allocating your portfolio, and it is trailing the market as a whole. You may want to take a look some index funds. They are not sexy, but they generally have very low expenses, and they perform well.