401(k) - Buy What?

[retiringby50]

I just got rehired by my former employer and can contribute up to 20% of my income into 401(k) through Fidelity. With everything down, I figure this would be a good time to get back into the market especially since I don't need the money to spend now, so I do want contribute up to the IRS limit.

Assuming that I am already well diversified among my other 401(k) plans, are there certain types of funds I should consider? Let's assume I don't need this money for a while. For example, I'm trying to figure out whether I should target a large US stock fund vs. small caps, etc. I would probably prefer 1-2 funds rather than diversifying with 5 funds (MM, bond, US, int'l, etc.). Thanks.

 

[2B]

You didn't say what your choices were. My 401k has a bunch of load funds with high management fees. The only funds that don't have loads are a money market fund (0.9% fee) and an S&P 500 index (0.35% fee). My money all goes into the S&P index because it's the only real option.

If you have a low cost index fund, that would probably be your best route. Maintain any portfolio AA outside your 401k. Since you're just starting again, you won't have enough money to worry about for quite a while.

 

[travelover]

What 2B said. Hopefully you have an overall allocation between stocks and bonds. Use the lowest cost fund(s) in the 401(k), then round out your allocation in your other investments. Keep in mind that you don't want bonds or managed stock funds in a taxable account to minimize taxes.

If you are happy with your other investment allocations, just use a target year retirement fund or a balanced fund like Wellington or Wellesley in the 401(k) if the ERs are reasonable.

 

[LOL!]

You should have an asset allocation plan that you are following. You should consider the location of your assets when you fulfill your plan.

There is no reason to be diversified among your other 401(k) plans. It is your overall portfolio that in sum needs to be diversified. That way, you can pick the best options and best locations from among your choices and accounts.

I use my 401(k) mostly for fixed income and occasional rebalancing of my entire portfolio. If you believe this is a good time to get back into the market, perhaps a better way of stating that is that now is a good time to rebalance back to your desired asset allocation.

If you have any fixed income in taxable accounts, then you should move it to tax-advantaged and replace with equiites. Your new 401(k) gives you the opportunity to effect this. Buy fixed income in your 401(k) which will help preserve tax-advantaged space and in your taxable accounts convert fixed income to equities. Thus if equities go down, you can tax loss harvest in taxable while your 401(k) chugs along happily with its bond funds.

If you have no fixed income in taxable, then just follow your overall asset allocation plan with respect to equities (large, small, value, blend, domestic, developed foreign, emerging foreign, REITs, etc.) and fixed income.

For lots more help on this see Bogleheads :: View Forum - Investing - Help with Personal Investments

 

[LOL!]

You might also go follow the advice given to someone with the exact same question and the exact same name as you: http://www.early-retirement.org/forums/f28/what-to-do-for-my-new-401-k-41335.html

Hey, wait a minute! It was you! Were you dissatisfied with the advice you got before?

 

[pinetree64]

My thoughts... My 401K is a small part of my nest egg. My 401K is with Fidelity. We have the idiot choices for the most part - target date and "internal" mutual funds with no details about holdings. At Schwab I include my Fidelity allocation in my overall portfolio and invest accordingly. Most of my allocation tweaking is based on new investment dollars rather than selling and buying. I tweak my investment %'s in my 401K to help me towards my target allocation. Currently I am moving to a more conservative allocation and have high %'s going towards the money market and an inflation protected bond fund choices. I am not a market timer, but I think it is going to get real ugly before they get better.

In summary, figure out the asset allocation for your situation and allocate your percentages to suite your targets.

 

[retiringby50]

You might also go follow the advice given to someone with the exact same question and the exact same name as you: http://www.early-retirement.org/forums/f28/what-to-do-for-my-new-401-k-41335.html

Hey, wait a minute! It was you! Were you dissatisfied with the advice you got before?

LOL - Obviously, I'm losing my mind! Yes, that was me... I had thought about posting (and did it but forgot), so now I'm at it again! In between that time and now, we ended up buying another home, so that took up most of my brain power, so now I'm back to this current question. Thanks for reminding me. I'll go back and read the answers but will probably go w/an indexed fund just to make it easier.

Thanks everyone!

 

[hedy1234]

More indexed funds?

Ok so you say you have a diversified portfolio. Lets assume a moment that is correct. What you do not say is what your time horizon is and what you risk tolerance is.

If you are planning to retire in the next "X" years, what will you do if the market is lower then than now? Have you considered how you might protect yourself if the market is 20% lower then than now?

And oh by the way your house will be worth less and we have high inflation? Not trying to scare you but all things things are possible. If one or more of them comes true will your plan to retire hold up? If not what is your plan to protect yourself?