Opinions Re: Mom's 401k

[IBWino]

My mother (69, still working) currently has all of her 401k assets in two funds: 40% in a S&P 500 index fund, and the remaining 60% in a S&P 400 Mid-Cap index.

She recently asked for my advice about changing to a more conservative AA (something I strongly support).

Her plan includes a blended Growth and Income fund that has the following AA:
35% S&P 500 Index
10% Russell Small Cap Index
10% MSCI EAFE Index
45% Aggregate Bond Index (modified adjusted duration 3.7 years).

To me, this seems like the best overall choice for her, but I'm not sure about putting everythng into a single fund. In another recent thread on this forum, several people indicated that they would be uncomfortable putting more than 30% of assets into a single fund. However, the four constituent funds listed above are also available in her plan individually, and all of the funds in her plan are managed by the same company, State Street Global Advisors. Therefore, it doesn't seem to me that putting everything into this single fund would be significantly riskier than spreading the assets over several funds to achieve a similar AA. The one downside is that the expense ratio for the Growth and Income fund is 0.9% versus 0.5% for her current funds.

Does this seem like a reasonable choice? Would putting everything into a single fund really be any riskier than a slice-and-dice approach for a similar AA?

FWIW, the plan also includes several Target Retirement funds, but they are all simply blends of the S&P500 index and Aggregate Bond index.

 

[LOL!]

Your fund selections are just fine. Does you mom need 55% in equities? Does she have other assets for retirement? I guess she is never going to retire, right?

 

[IBWino]

Your fund selections are just fine. Does you mom need 55% in equities? Does she have other assets for retirement? I guess she is never going to retire, right?

Frankly, I'm not sure about her retirement plans or other assets. She is still very healthy, active, and has a good job that she enjoys. I suspect that her home and property are a sizable portion of her total assets because she has mentioned downsizing to me several times. Moving from 100% equities to 55% equities is a good start; given the current bond market, I'm hesitant to advise her to reduce more than this.

Regards,
Wino

 

[REWahoo]

I think her planned AA looks fine. I wouldn't worry about having more than 30% in an index fund.

 

[IBWino]

I guess one thing that I didn't make clear is that the AA listed above is for a single fund, similar to Vanguard's Wellesley. Do you think it is risky putting everything into this single fund, as apposed to multiple funds that achieve a similar AA?

 

[REWahoo]

Ah, I get it. Might be best if she did split it up into different funds if that is possible. What other funds are available in her 401k - anything that would allow a similar AA?

 

[LOL!]

I guess one thing that I didn't make clear is that the AA listed above is for a single fund, similar to Vanguard's Wellesley. Do you think it is risky putting everything into this single fund, as apposed to multiple funds that achieve a similar AA?

No, I do not think using a single fund is cause for concern. However, you did say that the expense ratio almost doubles from 0.5% to 0.9%. I would not go for that myself.

You can get free portfolio advice over at
http://www.bogleheads.org/forum/viewtopic.php?t=6212 if you like, but you will have to list all available funds in mom's 401(k) and their expense ratios.

 

[IBWino]

I do have a list of the available funds, and can create the same AA using the same underlying funds that are used in the Growth and Income Fund. By recommending a single fund, I was thinking of simplicity, but I agree that 0.4% is giving up a bit too much for simplicity's sake. I'll do a comparative analysis of the effective expense ratios for a couple of slice-and-dice portfolios and discuss it with her.

Thanks for the replies.

Regards,
Wino