need help rethinking my 401K investments

[steady saver]

I am finding I am not sleeping most nights.

While we are still within our ability to retire according to Firecalc, we're getting closer to an uncomfortable place - DH was set to retire this summer and now we are pulling back on that. We have paper losses of almost 1/3 of our FIDO accounts (includes 401K and individual investments). What helps me sleep now and then is that we have cash to ride out 3-4 years. (Our AA is roughly 70% equities, down from 78%. I let my fear of having to pay taxes on gains in order to rebalance down to 65/35 or 60/40 get in the way. Lesson learned.)

Because of that cash cushion, I felt like we were prepared and that we could sustain a 40% drop. And we can... if I thought it was going to come back up say within the next 3 years. I am just feeling uncertain in general. I know the coronavirus isn't going to last forever but the insults to the economy world-wide seem like they could be longer term and I'm feeling naive right about now.

So, looking over our portfolio I see that our 401K investments are doing worse than my individual stocks which have actually done pretty good overall (I've historically enjoyed investing in individual stocks though I've not bought anything new in a few years...) Rather than sitting in this flip-flop between paralysis and just not looking at the market, I've been studying my FIDO reports and wondering what, if anything I could do/change...I set our 401K investments years ago and, I'm embarrassed to admit, I've not even looked at them in years.

Please give me your thoughts. Here's what we have:

36.10% invested in US Equity Index
25.35% in Blackrock EAFE EQ
14.77% in Midcap Equity
13.32% in US Debt Index
8.70% in FID Value K (FVLKX)
1.75% in our megacorp stock fund...this one is definitely going

We have a lot of options (346) to pick from so we're fortunate about that. Can you guide me in either general areas or even specific investments? I can look them up and see if they're available to us.

Also, we are still on automatic contributions (pre-tax). Would you continue that
or would you save that cash out for individual stock investments? Or something else?

Despite my angst, I'd like to do some investing while things are low (but not at the moment...) and if I can get our 401K investments in a better place, then I'd feel better about dipping my toes in once it seemed that we were on a a bit more stable footing and starting to trend back up.

I appreciate any suggestions that you'd be willing to share.
Many thanks.

 

[Dtail]

For starters what types of fund fees are you paying?
Do you have a Stable Value type fund in the 401k choices? If so what is the yield?

 

[steady saver]

For starters what types of fund fees are you paying?
Do you have a Stable Value type fund in the 401k choices? If so what is the yield?

fund fees:
Blackrock EAFE - .0531%
US Equity Index - .01%
Midcap - .035%
US Debt - .0345%
Fid Valute Class K - .49%

What am I looking for when I search for a Stable Value fund?

 

[steady saver]

BTW, it says these fees are listed under "gross expense ratio." There are no additional shareholder fees in any of my options that I can see.

 

[Dtail]

fund fees:
Blackrock EAFE - .0531%
US Equity Index - .01%
Midcap - .035%
US Debt - .0345%
Fid Valute Class K - .49%

What am I looking for when I search for a Stable Value fund?

Your fees in general are low except the Fidelity FVLKX fund. I would look for a similar index fund to replace it and then can review your overall asset allocation risk.
As for a Stable Value fund, it might be called an GIC or Government Investment Contract as one example.
The SVF would usually be quoted as a stable yield which might be updated every 6 months as an example.

 

[target2019]

Look at your total portfolio rather than one investing space like 401k.
The devil is in the details of all funds and stocks you both have, including cash.

 

[steady saver]

Thank you Dtail and target 2019.

I'll take another look for something similar to a Stable Value fund. So far I see target funds and lots of different bond funds. There's an intermediate govt bond index...a thrift fund, an inflation protected securities fund, mmkt treasure only fund, etc.

As for my total portfolio, that's what I'm looking at. Right now about 71% equities, 22% cash...the rest in mmkt I believe. I can't access that right now. As I said we have approx. 3-3.5 years in cash.

I know none of us has a crystal ball but this feel so different than what we've been through in past markets with long ranging implications in the future for the economy...I'm typically a buy and hold but I don't want to be short sighted here since DH is sitting on the edge of retirement. I'm going through all of the "should'ves" and I can let myself go a bit crazy. Just want to make sure I'm doing what I can here with what we have.

 

[Dtail]

I would ask the Administrator of your 401k if they have a Stable Value choice. Not every plan has one.

 

[copyright1997reloaded]

Where is your 3-4 years of 'cash', i.e. in what kinds of funds/CD's.

One of the good things (now in retrospect) that I have done in the last few years is to sell all LT corporate bond funds and increase individual bank CD's (and always stay under the FDIC/NCUA limit). While I am still working, I also have 5+ years of living expenses in CD's (that is, if I lost my teaching gig TODAY I still have cash for four years - assuming those can stay fairly close to inflation).

The corporate bond funds, such has Vanguard LT Corp Bond (etf is VCLT, mutual fund is VLTCX) have been recently crushed (for a bond fund). For example, VCLT peak price is down about 18% YTD. This is because many "investment grade" bonds in these funds have quickly become non-investment grade because of quickly deteriorating financial conditions. Some funds (I haven't looked at the Vanguard one) have forced sell requirements if the underlying company loses its investment grade rating. So bond asset classes (at least some of them) are starting to correlate WITH equities.

As I type this, the Vanguard ETF is up 4.9% today (likely due to the coordinated central bank action).

I am not trying to scare you out of positions - but it is now apparent (and in reality always was) that planning scenarios need to go beyond simple asset classes (fixed, equity, other) designations.

 

[target2019]

steady saver,
There's many who would comment on specifics, if your willing to list out what you have, along with the allocation pct's.

 

[OldShooter]

... I know none of us has a crystal ball but this feel so different than what we've been through in past markets with long ranging implications in the future for the economy...I'm typically a buy and hold but I don't want to be short sighted here since DH is sitting on the edge of retirement. ...

This is a good time to remember Sir John Templeton's admonition: "The four most expensive words in investing are 'This time its different.' " Every market wobble I have seen since 1987 has been different but all have been the same. Best dealt with by doing absolutely nothing.

Thoughts:

1) A few 401Ks have a per-participant fee on the whole value of the account. Make sure this is not the case for you.

2) Adopting an investment strategy and letting it run for years is very sensible, actually. I tell my Adult-Ed investing class: "Investing is boring. If you're not bored, you're not doing it right."

3) Winning or losing on individual stocks is pretty much a crap shoot unless you have special knowledge that the rest of the market does not have. I would ditch them with consideration of any tax consequences. Certainly I would ditch them if they are a two-digit % of your portfolio. You are looking diversification, not home runs. If it's just a couple of percent that you like to play with, then have fun. But it's not investing; it's speculating.

4) Your allocation, with 3-4 years of cushion is perfect. Based on history anyway.

5) Your tilt towards value and midcap is not unreasonable given the overall market cap dominated by a few technology firms. It's not something I would fool with, but YMMV.

6) Megacorp at 1.75% is immaterial to the portfolio. I would ditch it as part of spring cleaning or, if you like it, buy enough to matter. Professional administrators consider 10-15% in a single security to be an "imprudent concentration" of assets so I would not go too high.

7) Autmatic contributions? Absolutely! You are buying when stocks are on sale. Is there some reason you don't like sales?

8) Overall, I think you'd do fine if you just go back to sleep for a few years. If you want to fuss around the edges of your strategy there's nothing wrong with that either.

For the record, our equity side is 90% in VTWAX with a small value/emerging markets tilt as an experiment.

 

[steady saver]

steady saver,
There's many who would comment on specifics, if your willing to list out what you have, along with the allocation pct's.

I can't access the analysis part of my FIDO account right now. It's "down" because I'm guessing thousands of others are wanting to do the same thing. Not being a techie, I don't keep spreadsheets, etc. I always just tried to keep it simple.
I only have the percentages I've given you within my 401K. I know that what you're asking for would be super helpful but I just don't have it. I was just hoping to figure out, within that part of my portfolio if there's anything glaring that I should be mindful of and change. Or if I was wanting to move into more conservative investments there, what one might suggest. Or if even doing that now is short-sighted.

I so appreciate your willingness to go into the detail with me on the overall portfolio but right now I, unfortunately, don't have detailed numbers on it.

 

[steady saver]

Where is your 3-4 years of 'cash', i.e. in what kinds of funds/CD's.

Cash is 85% cash (savings, checking) and 15% money market.

 

[steady saver]

This is a good time to remember Sir John Templeton's admonition: "The four most expensive words in investing are 'This time its different.' " Every market wobble I have seen since 1987 has been different but all have been the same. Best dealt with by doing absolutely nothing.

Thoughts:

1) A few 401Ks have a per-participant fee on the whole value of the account. Make sure this is not the case for you.

2) Adopting an investment strategy and letting it run for years is very sensible, actually. I tell my Adult-Ed investing class: "Investing is boring. If you're not bored, you're not doing it right."

3) Winning or losing on individual stocks is pretty much a crap shoot unless you have special knowledge that the rest of the market does not have. I would ditch them with consideration of any tax consequences. Certainly I would ditch them if they are a two-digit % of your portfolio. You are looking diversification, not home runs. If it's just a couple of percent that you like to play with, then have fun. But it's not investing; it's speculating.

4) Your allocation, with 3-4 years of cushion is perfect. Based on history anyway.

5) Your tilt towards value and midcap is not unreasonable given the overall market cap dominated by a few technology firms. It's not something I would fool with, but YMMV.

6) Megacorp at 1.75% is immaterial to the portfolio. I would ditch it as part of spring cleaning or, if you like it, buy enough to matter. Professional administrators consider 10-15% in a single security to be an "imprudent concentration" of assets so I would not go too high.

7) Autmatic contributions? Absolutely! You are buying when stocks are on sale. Is there some reason you don't like sales?

8) Overall, I think you'd do fine if you just go back to sleep for a few years. If you want to fuss around the edges of your strategy there's nothing wrong with that either.

For the record, our equity side is 90% in VTWAX with a small value/emerging markets tilt as an experiment.

OldShooter, in respect to #5, is it because midcap and value is more risky? I bought into those years ago when I was loving value stocks. That was what I tended to favor with my "mad money" in individual stocks (though I balanced that with large caps too)

I remember in 2008 I ran my investments by a friend who was a wealth management advisor; at the time and with my horizon she said also said it was reasonable. I'm thinking I'd like to simplify things even more and rethink my investments within my 401K options but perhaps I need to wait until after things settle, whenever that may be. I think my DH would be happy if I would stopped looking at any of it because I've been worrying more than I ever have in the past. But sitting on top of our retirement date makes me more anxious about it than I thought it would. And while I planned with a potential 40% drop cushion, I admit it has thrown me. I was being naive by focusing on trying to be a better manager of the tax hit. I thought I was doing the right thing.

 

[OldShooter]

OldShooter, in respect to #5, is it because midcap and value is more risky? I bought into those years ago when I was loving value stocks. That was what I tended to favor with my "mad money" in individual stocks (though I balanced that with large caps too) ...

Well of course there are no guaranteed answers. Absent this, I strongly tend to go with the academic research. Nobel prize winner Eugene Fama and his research partner Kenneth French basically say that, as investors, our best strategy is to own everything. Hence DW and my VTWAX. But they also have an asset pricing model that shows small caps and value stocks to have been slightly better performers than the overall market. The "Fama/French Three Factor Model." From that some will argue that a portfolio ought to have a small "tilt" achieved by adding a small cap and a value fund. But that is all based on history. If we investors now know that small and value are winners, will we not bid them up to the point that is no longer true?

Be careful too with the word "risky." The academics equate risk with volatility, which is the launching point for all kinds of mathematical games like the "Efficient Frontier." Volatility is important when looking at Sequence of Returns Risk, but for an equity portfolio that is just sitting untouched and growing over a long period, volatility is a don't-care.

For a saver, buying constant dollars every month, the best thing is for the market to collapse and stay down until just before the saver needs to reverse course and start drawing.

... I remember in 2008 I ran my investments by a friend who was a wealth management advisor; at the time and with my horizon she said also said it was reasonable. I'm thinking I'd like to simplify things even more and rethink my investments within my 401K options but perhaps I need to wait until after things settle, whenever that may be. I think my DH would be happy if I would stopped looking at any of it because I've been worrying more than I ever have in the past. But sitting on top of our retirement date makes me more anxious about it than I thought it would. And while I planned with a potential 40% drop cushion, I admit it has thrown me. I was being naive by focusing on trying to be a better manager of the tax hit. I thought I was doing the right thing.

Well, tax considerations aside it does not matter much when you change things within your equity portfolio. Sure, values are down, but the value of what you buy is going to be down too. Here is what I recommend to my Adult-Ed students during times like this:

​

John Bogel's version is: "Don't do something. Just sit there."

Another one I like is the copilot's checklist: "Sit down, shut up, and hang on."

If you want to watch TV to distract yourself from futile market angst or virus angst, this page provides a huge amount of wisdom in mostly small bites: https://famafrench.dimensional.com/videos.aspx The last one, "Q&A with Fama at the Fiduciary Investors Symposium" is my favorite.

 

[steady saver]

Thank you Old Shooter.

That's helpful and the link looks helpful.

I had a good night's sleep night before last, finally, because I was social distancing from the news and my 401k numbers. Last night I read the post about the market going down 89% in 1929 and I couldn't get it out of my head. I finally went to bed at 5:00 this morning and got up around 7:45. I feel responsible for our investments as I'm the one the one with the interest in it and I started to feel like I was being irresponsible for just letting go of it all for now.
Like many here, we've worked hard, LBOM, and are very good at delayed gratification. I want our retirement to have a good cushion so we can move beyond that and actually loosen up a bit. I have to stop thinking about what if I somehow could've seen this coming and preserved what we had and just have some trust that things will go back up sooner than later. That's a challenge when all that I see or hear is about the coronavirus and the tumbling economy. And yet it's human nature to feed into that and let the negativity feed the fear - it almost becomes an addiction in a way.

Thanks for the hand holding...I am going to go deep clean my house. That should take a month or so...

 

[OldShooter]

... Thanks for the hand holding...I am going to go deep clean my house. ...

Good plan. Then find some other good hobby. After a couple of relaxing years, look at your portfolio again.

Nobody can predict the future, not even the charlatans on the internet and on TV. All we can do is base our decisions on what has happened and what has worked in the past. And doing nothing has been the winning strategy.

Don't feel bad. More reading: https://www.bogleheads.org/wiki/Taylor_Larimore's_market_timing_quotes

 

[steady saver]

I appreciate you Old Shooter.