401K Allocation
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Anonymous
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I (35F) am not a risk averse investor.
For the past few years, 100% of my 401k contributions including my employer match has gone into a fund that mimics the SP500. Today, for the first time in two years, I looked at returns for various funds. I noticed Intl Equity, Emerging Markets Equity, and my employer - a large defense contractor - have grossly outperformed the SP500. Their 1-year rate of returns are 32%, 43%, and 42% respectively. Obviously, I’m salty at the gains I could’ve received. I know my employer’s surge is due to the current administration. I know no one here has a crystal ball and I shouldn’t time the market, but I would love some advice on how to reallocate my 401k. I’m thinking: 40% - Company stock 40% - Emerging Markets Equity 10% - Intl 10% - SP500 What are your thoughts? |
Anonymous
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Take my opinion with a grain salt. But if emerging markets keep doing well, we will do everything possible to tank them. The US is not comfortable being #2 in anything.
I wouldn't touch any emerging market etf because trust me -40% is not as impossible as you may think. |
Anonymous
| Thanks! Great point. |
Anonymous
| Same age. I stick to the VOO-tracked fund. We make some other riskier high growth investments in a separate brokerage account. 401Ks aren’t tax advantaged if you lose $. Whereas if my $5K risky investment goes to $0 in my standard account, that’s a loss and deduction for my income. |
Anonymous
| Don’t chase performance and don’t overly concentrate in either your employer or EM, but esp not your employer. Max 5-10%. |
Anonymous
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I think you’re being short sighted. If you’re only going to look at 1 year returns you should also compare the same funds over random 1 year periods in the past. I’m guessing you’ll find many years where the S&P fund comes out ahead.
But, if you’re up for tweaking, I’d look at adding the Intl fund. Maybe 80% S&P and 20% Intl? |
Anonymous
The US would KILL to be #2 in anything. We're not even in the top 10 in most things anymore. What's that line from the newsroom? We lead the world in only a few categories: Number of incarcerated people per capita, number of adults who believe angels are real, and military spending. |
Anonymous
| I would do S&P 500 plus an aged based fund, if you have it. But for those, I choose a year that is 10 years after I plan to retire, so it's more agressive. Agree with a PP about US prospects long term. |
Anonymous
Tell me one country that has as much capital as we do? |
Anonymous
Bonds? I have never made money on emerging markets. Sounds good in concept, but FX can kill the gains. |
Anonymous
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40% in your own company stock is insane. Why? If the company does poorly the stock price and your job will suffer or be at risk. I work for a tech company and my friend never sells his RSUs after they vest so he has 6 figures in one stock. Well now he’s kicking himself since it’s underperforming and down like 30% from all time highs.
Buy some combination of VTI/VXUS or just buy VT (60/40 split) call it a day until you hit 50 something then start moving a % into bonds. Don’t bet huge on a single stock, chances are you don’t know what you’re doing in trying to place bets like that |
Anonymous
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Too much in your own company stock.
What else do you have besides 401k? It's not a good account. Look into negatives of 401k if you haven't yet. I never touched it, not even for a match. Your Roth/regular investment account should outperform with the same holdings. Those high one year rates will be low in some other years. |
Anonymous
I'd be concerned about putting so much into your company stock. Think about it this way -- so much of your financial health depends on your current employer (i.e., paycheck) that they are by default already a huge part of your overall financial "portfolio." If your company does well, you reap the benefit of, well, having a job; maybe getting a raise; maybe getting a bonus. You won't necessarily capture any stock market gains for your company's stock (aside from what sliver of the SP500 it represents) but you do benefit financially when your company does well. If your company does poorly, consider the risk of losing your job while at the same time the company stock might be underperforming. While it's not necessarily correlated, there is certainly a relationship. Therefore, I would definitely consider reducing the % you're allocating to your company's stock -- probably swap that with the SP500 (so 10% company stock, 40% SP500). Right now, it looks like you're chasing past gains out of regret for missing out. But who knows where things will go from here. |
Anonymous
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OP here. Thanks, all.
I posted this last Thursday pre-strike. For those asking why so much in company stock, I work for a top three defense contractor and given this administration’s position on defense, I figured I could benefit from potential gains. I’ve since decided to do away with allocating 40% of my 401k to company stock. Someone asked what other accounts I have. I have an HSA and brokerage account. I don’t contribute to a Roth IRA anymore. My job offers a mega backdoor Roth with an in-plan conversion, so I use that instead. |
Anonymous
The PP won't be able to name one. The market capitalization of the US is four times that of the next highest country, China (as well as the EU countries as a group), and is equal to the market capitalization of the fifteen countries with the highest capitalization after the US. https://en.wikipedia.org/wiki/List_of_countries_by_stock_market_capitalization |