401K Investment Options Help

[sauza311]

Hey everyone, I'm a 24 year old Manager of Financial Analysis, Planning, and Reporting with an MBA: Finance concentration who is trying to rebalance his 401K for 2008. I'm new to the board and have looked around seeing a plethora of great information. So I thought I would give it a try. This year is crucial as I believe markets are going to struggle mightily dometically. Transaction costs aren't a concern as I'm allowed to switch investment options without any costs a few times a year (thanks to my employer). Anyway, I got my job in June and so far my portfolio is down around 5% (obviously as a youngster I'm in basically all equities). I decided this is the year I want to start getting serious about my investing. I spent most of last year saving.

I currently have:
24% - Principal - Principal LifeTime 2050
22% - Dimensional / Vaughan Nelson - Small Cap Value II
30% - Principal - Mid-Cap Stock Index
24% - Principal - Diversified International

I tried to get rid of the 2nd through 4th contents in 2007 by putting it all for the time being in the target date retirement fund. I somehow screwed up and my prior contributions stayed in these accounts. Company matches are contributed automatically to a target date fund unless otherwise indicated. Following are my options for 2008:

Principal Money Market
Principal Guaranteed Interest Account for 5 years - Currently like 3.46%
Principal Gov. and High Quality Bond
Principal Real Estate U.S. Property
Principal Stock Emphasis Balanced
Principal Lifetime Strategic Income
Principal Lifetime 2010,2020,2030,2040,2050 (5 different options)
American Century LargeCap Growth II
American Centuray LargeCap Value II
Principal Large Cap Stock Index
T. Rowe Price Large-Cap Blend
Columbus Circle Medium Company Growth
Dimensional / Vaughan SmallCap Value II
Goldman Sachs / LA Cap Mgmt Mid-Cap Value I
Mazama / CCI Small Cap Growth III
Principal Mid-Cap Stock Index
Principal Small-Cap Stock Index
Fidelity (Pyramis Global Adv) International
Principal Diversified International

What funds do you think I should choose for top performance in 2008? What kind of asset allocation looks good?
I'm definitely thinking Large Cap Growth looks good right now and International for sure and then some percentage in a Money Market or Bond fund. Maybe add one more. What does everyone think?

Thanks for your help!

[travelover]

Originally Posted by sauza311

...............What funds do you think I should choose for top performance in 2008? What kind of asset allocation looks good?
I'm definitely thinking Large Cap Growth looks good right now and International for sure and then some percentage in a Money Market or Bond fund. Maybe add one more. What does everyone think?

Thanks for your help!

Welcome Sauza. In my opinion, the question is "What should my long term asset allocation be?" Forget 2008 - you are 24 years old - look ahead at the next 20 or more years.

There are some great threads here (see FAQ and best of forums) to guide you to a mix of large, small cap and international funds that you are comfortable with. Pay particular attention to expense ratios - they can eat you up over time.

I also recommend the Bogleheads forum and their new book.

Guide to the Vanguard Diehards Forums

Amazon.com: The Bogleheads' Guide to Investing: Books: Taylor Larimore,Mel Lindauer,Michael LeBoeuf,John C. Bogle

Good luck.

[sauza311]

thanks for the reply! Indeed, I already know a WHOLE lot about investing as I've studied and read many many books on the subject. Thanks for those links though. I will definitely have to check them out. I realize that I need to employ a strategy for retirement. But at this particular time I have a few other ideas. See, I hate the company I work for, but they offer a pretty good 401 K match. 100% of 3% and 50% of next 2% so essentially 5% invested for a full 4% match. And I am vested but don't get the contributions until July or August of this year. My plan is to immediately bounce after that and PROBABLY roll the money into a Roth IRA since I'm so young. Then I will have my Roth IRA cooking (with tons more options) and I can start a new 401 K at my new employer (I won't even be 25 yet! Which I think it plenty of time). Therefore, my goal is to achieve the highest possible return until that day comes. With the more money vested, the more money I earn with a better return. That's why I am asking specifics about the investment choices. Maybe you guys could give me some suggestions on categories expected to do well in 2008 and specific investment options I have that should perform well.

[mickeyd]

And I am vested but don't get the contributions until July or August of this year. My plan is to immediately bounce after that and PROBABLY roll the money into a Roth IRA

With such a short time horizon, you may want to just use the money market option.

[sauza311]

You know I didn't really think about that, but that is a great idea! Let's say the time horizon ends up being 6 months. I guess I'll get the annualized money market return chopped in half? It returned 4.86% last year so half of that isn't too bad. There is a chance though that the time horizon would be longer, say a year or two tops. In that case which of these funds looks good?

[Animorph]

As long as you are rolling over into an IRA, you don't have to worry about staying in a money market fund for the next 6 months. You won't be spending that money in 6 months, it is still long term.

That said, I did get a note when changing funds in my 401k that there was a short-term trading fee of 2% if I switched back out withing 89 days. Luckily I should be able to cover that. But watch out.

What you were in originally wasn't bad for a start. Look at the recommended portfolios at FundAdvice.com - Home for some simple slice-and-dice examples. Given that you are not locked into anything yet, you may want to stay fairly conservative until you think the economy is going to start doing better. Even 15% bonds would not be out of line, even though you like all equities.

Dan

[BigBob]

Originally Posted by sauza311

My plan is to immediately bounce after that and PROBABLY roll the money into a Roth IRA since I'm so young. Then I will have my Roth IRA cooking (with tons more options) and I can start a new 401 K at my new employer (I won't even be 25 yet! Which I think it plenty of time).

If you are eligible to contribute to a Roth IRA right now, I would suggest that you do that. You also have until tax deadline to contribute for 2007. I would contribute to the 401k to get your employer match, then max out a Roth, then any more pile into your 401K.

You have a good start, just looking at investing and saving.

bob

[jIMOh]

I would stay invested for as long as possible. No reason to go to cash now because you might do a rollover in 6 months.

You need to determine a long term asset allocation. My original thought was you are high on mid caps, and small caps % was higher than large caps %.

My allocation (for me) age 34, is
43% large cap domestic
15% mid cap
15% small cap domestic
15% large cap foreign
10% small cap foreign
2% bonds

I sell 1% of large cap every 6 months to bonds until I get to 10% bonds.


Large cap is least volatile (up and down) of any of the asset classes listed. Underweighting this class might not be the best choice, IMO.