Good news leaves me with decision

[laurence]

My company just added some new Vanguard funds to the 401(k) including Wellington (yay!), which I have been wanting to get in on. My question to all of you, my esteemed (and free) advisors and confidants, is how should I reallocate? What percentage should I put in it (all of it?), and should I sell current holdings or just change future contributions? Here is my current allocation:

DODGE & COX INCOME 4.52%

VANGUARD INSTITUTIONAL INDEX 32.27%

AMERICAN CENT INCOME & GROWTH 19.80%

FIDELITY CONTRAFUND 7.07%

DODGE & COX STOCK 11.27%

AMERICAN CENTURY ULTRA 7.38%

WELLS FARGO SMALL CAP OPPORT 10.68%

J.P. MORGAN INTL EQUITY SELECT 7.01%

Grand Total: 100.00%


These are current balances, obviously, my contribution rate you can round up or down to nearest logical value (i.e. 7% is a 10% contribution rate, just got into it later, for example) I appreciate any advice you have, friends!

 

[wildcat]

Age? Risk tolerance? IMHO you are overdoing it in a few areas.

 

[laurence]

Age: 30

Risk tolerance on a scale of 1 to 10 : 8?

overdoing it? Tell me more.

 

[Zipper]

Kill the mortgage!

 

[wildcat]

Ok for example....Am Century Ultra is in large cap growth US, Dodge & Cox is large cap value US, Am Century G&I is pretty much large cap value US, Fid Contra is pretty much large cap US, Vanguard Inst is large cap US so = apprx 78% of your portfolio & that is a bit much IMHO plus you are paying too much in expenses.  Keepers - Dodge & Cox and Vanguard 500 (plus you are paying all those damn fees for funds that will likely underperfrom the index).  Since you are 30, can handle some risk & need to diversify a bit more I would increase your weight in the small cap & international.  I am a few years away from 30 and I personally would not even consider any MM or bond.

Read some good articles on allocation below
www.tamasset.com (whoops! not viewable)



 

 

[laurence]

Thanks WC, I've got a lot to learn. I chose what I'm in because of their low expenses compared to other choices in the 401(k) at the time. So you have no position in bonds right now?

 

[lazyday]

It might help if you added ER and an indicator of type, such as LG (large growth) MB (mid blend) etc. to the % above.
Is this your whole portfolio?

Have you read Bernstein's Four Pillars already?

 

[laurence]

I have it on order, not read yet, this is just my 401(k), doesn't include my wife's or our IRA, so it's about 40% of our retirement funds. But it's pretty indicative of our total holdings.

 

[wildcat]

L "dubya" -

Well I don't know if you really consider what I have to bonds but I do have the PIMCO Real Return Fund (small portion of my money & a hedge tool).  It is labeled as a "bond" fund but it is also linked to the commodity index.  The fund holds some bonds to mitigate the risk and volatility of commodities.  But I would certainly not keep any money in a straight bond fund and I would certainly not keep any money in an MM for retirement.  You are, like me, too young & if you are in for the long-term be in stocks.  Did you check out that website?  Pretty good ideas & facts on asset allocation. You have plenty of time to learn & the most important thing is that you "get it" at a young age if you know what I mean.

 

[laurence]

Thanks WildCat, yeah, I did check out the website, good reading! I don't want to incur a lot of trading expenses, so I'm going to do some more research over the next weeks/month and then shift my portfolio once I get a better handle on things. I just wish our international funds didn't have such high expense ratios! The Wellington fund has a good return history, despite it's bond holdings, I'm leaning towards having it be the conservative end of my portfolio (switch out of american cent) and build from there, increase small cap and international at the "expense" of contra and ultra. Now that I look a little closer at the prospectuses (prospecti? octopi?) What do you think of:

Wellington: 20%
Vanguard index: 30%
D&C: 10%
small cap opport: 20%
INTL equity select: 20%

I realize I got sucked in by the slick descriptions that made me think I was picking different sectors. Major holdings are totally overlapping-feel foolish for a second, and move on!

 

[wildcat]

I think you know your risk level best but it looks a lot more reasonable to me and you will also lower your expenses.

 

[lazyday]

I'm going to do some more research over the next weeks/month and then shift my portfolio once I get a better handle on things.

Sounds like a very good idea to me. If Bernstein convinces you to slice&dice, you might figure a way to hold the cheap indexes your 401k offers, and then use IRA to hold other asset classes that are expensive in your 401k, such as with the new international vipers.
If you go with slice and dice, you might want to look closely at some of Ben's posts on his portfolio.

I'm still reading myself. Been investing since early 90s but am underread... read Bernstein this year, skimmed Swedroe, and am now reading Gibson's Asset Allocation. Read Bogle's first book years ago. It's shaped many investors' philosophies, but I didn't care for it. Bernstien however is fantastic IMO.
Might be good to check out Bogle too, to decide for yourself.

 

[laurence]

O.K., got and read/read through 4 more books (including pillars) read up your website WC and I feel pretty good about my choices, made the changes today, glad to be better balanced and paying lower fees. Thanks for the contributions, I think I took a big step forward over the last week...