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I have a 401(k). Yay me!

I used to have seven different funds/investments within it. Then I found TMF and after doing some reading decided I should actually look at the funds I was invested in. I pulled the info sheets from the provider (which kindly list Morningstar info) and discovered that two of them were rated a 1 and had not peformed well since their beginning(ick!). I dumped those and now have four funds and a guaranteed interest account, all of which are rated at least a 3.

My question now is, should I dump the guaranteed interest into something more agressive? I'm 32 and figure to be working for quite some time yet and am not averse to the ups and downs of the market.

The mix currently it stands at:

Guaranteed Interest ------ 8.28% -------- Stable
Large Cap Stk Index ------ 23.35% ------- Moderate
Medium Company Blend ----- 28.46% ------- Agressive
Small Company Blend ------ 27.84% ------- Agressive
International Stock ------ 12.07% ------- Dynamic

Should I dump the guaranteed interest account (as it matures each year, so no penalties)?

Should I take the contributions I'm currently making to the GI (only 5%) and put it into oneof the other existing fund? Should I look to put it into a new one?

Thoughts? Comments? Flames?

Thanks,
B
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Well, all I can do is tell you what I would do, but everyone's circumstances are different. I am close to you in age, however, at 34. Being thirty years away from retirement, I would dump the guaranteed interest fund within the 401(k), although I know some will disagree with me. I would have cash invested outside the 401(k), of course (MMF, CD's, etc.) Your other funds look pretty good, but I'm not a complete daredevil; I would allocate more assets to the large-cap index fund. Personally I would want that closer to 60%. These are the solid performers; the "core" of your portfolio. The smaller caps and foreign funds are more of a hedge to me, adding some diversity to my portfolio.

Thanks!
Joe
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Barak0 wrote:
The mix currently it stands at:

Guaranteed Interest ------ 8.28% -------- Stable
Large Cap Stk Index ------ 23.35% ------- Moderate
Medium Company Blend ----- 28.46% ------- Agressive
Small Company Blend ------ 27.84% ------- Agressive
International Stock ------ 12.07% ------- Dynamic


That mix looks great from my viewpoint. The only change I'd make would be to shift my GI money into the Large Cap Stk Index and keep around 6 months of living expenses in a MMF in a taxible account as a rainy day fund.

Good job so far!!
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My question now is, should I dump the guaranteed interest into something more agressive? I'm 32 and figure to be working for quite some time yet and am not averse to the ups and downs of the market.

Yeah, I would dump the guaranteed interest. It's just my opinion, but I also would dump the international fund, since you already have tons of international diversification in your large and mid-cap funds. You've got a long way to go. Unless you are planning on retiring within the next 7 to 10 years, I wouldn't put anthing in guaranteed interest. After all, some of your funds already hold back 4% to 10% in short term paper, so why put another 8% of your money to sleep. Again, this is just an idea, but it allowed me to retire 3 years ago at 49. Of course, the decision is up to you, and it looks like you already have taken control of your destiny, so stick with your gut.

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First, good for you in having a fairly aggressive retirement plan at your age!
Second, when you contribute to it, you are "dollar-cost averaging".
For this technique to work well you need a volatile investment, so that you buy some shares at a relatively low price. The Guaranteed Interest is not volatile at all, so the fact that a contribution is made every payday doesn't help you. Not good for this account.
I'd go heavy on the International and the Small cap blend; with lesser amounts in the large and medium cap stocks. With 30 years to go to retirement, 100% equities is right. If you would like bonds also,
put them in an IRA or somewhere other than an account you contribute to every payday.
In my own deferred compensation account I run 40% international--because it is the most volatile choice and because for the last couple years the US market has been stronger than the international market, and these things swing back and forth. That leaves 60% for US equities which can be divided as you have, but with the emphasis on the small caps.
My suggestions, but your money, your choice. Chris
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Thanks all!

You've pretty much confirmed the ideas I had. The GI account is history as it runs out.

I'm going to ponder where it will go for a bit.

Crosenfield: I hear what you're saying about the INt'l and Small Cap... I looked at my "personalized rate of return" this morning, and the small cap was miles above all the others at 21.52%!!! However, the International was pretty sad looking at 6%. Thems the breaks. :P

B
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Barak0 wrote:
The mix currently it stands at:

Guaranteed Interest ------ 8.28% -------- Stable
Large Cap Stk Index ------ 23.35% ------- Moderate
Medium Company Blend ----- 28.46% ------- Agressive
Small Company Blend ------ 27.84% ------- Agressive
International Stock ------ 12.07% ------- Dynamic

I am also in the process of reallocating, with my back against the April 15th wall. First thing I would check is what is the stock/bond blend of the small and medium cap funds. Some calculators say as little as 0% bonds, some as much as 20% for a young, agressive investor. I am looking at 15%, and I am including in that calculation the average bond portion of blended and balanced funds. You could even subdivide that into short and long term bonds if you want.

For my stocks, I am dividing the remaining 85% to put 20% in international stocks (10% snall/med cap, 10% large cap if I can), about 36% in large cap, and the remaining 24% in small/med cap. Both could be split between growth and value goals. The final 5% will likely go into a high risk emerging market fund.

BTW, as I am getting into direct stock investing, I will be including those accounts as well as my 401K, Roth, non-deferred, and savings positions. This way I diversity my allocation across the entire portfolio, rather than treat individuall accounts independently.
It's a lot of work, but I hope it will pay off in the long run.

DWD
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It's just my opinion, but I also would dump the international fund, since you already have tons of international diversification in your large and mid-cap funds.

Huh? The S&P (assuming that is what is being indexed here) is representative of the U.S. equities market. I would stick with the international fund as part of my portfolio.

Thanks!
Joe
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What other assets do you have outside the 401(k)?

How comfortable are you with looking at your statement and relizing your assets just dropped 30% over the past month?
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What other assets do you have outside the 401(k)?

Essentially, none. Well, that's a lie. I have a home ($150,000) on which I owe ~68,000 and a rental property ($55,000) on which I owe ~30,000. Other than that... nada.

I'm working on an e-fund (I just got Foolish in Feb.) and getting rid of the $3200 in CC debt.

How comfortable are you with looking at your statement and relizing your assets just dropped 30% over the past month?

Heh. Happened last year (ok, a 19% drop, not 30%, but still...) and I didn't change anything. I figure I'll be ok with losses until I'm into my late forties, then I'll probably re-think that position. :)

Thanks,
B

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So, your assets are $200,000 in real estate (one of which provides you with an income, the other of which saves you from having to pay rent to someone else) which you have to pay to maintain, plus your 401(k) balance, which you didn't specify.
Your debts are $98,000 in secured loans and $3200 in unsecured loans. If you needed cash, you would have to borrow from the credit cards, or dip into your home equity.

Does your 401(k) allow loans? Just trying to cover all possibilities.

Since you are still in debt, I think you need to have some low-risk allocation--money market, short-term bond, guaranteed -- among your assets, to stabilize things a bit. Once your E-fund is up to a good size, though, I see little reason to hang onto the "stable" stuff.
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Author: joebedford Date: 4/10/02 3:16 PM Number: 34145
The S&P (assuming that is what is being indexed here) is representative of the U.S. equities market. I would stick with the international fund as part of my portfolio.

The point the the previous poster was getting at is that most large U.S. companies do significant business in foreign countries. This exposes them to all the same forces that foreign companies face which, theoretically, adds the uncorrelated component that you are looking for when diversifying into the rest of the world.

RK

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The reason I see to diversify into international companies id the different regulatory structure that exists in each country. If the regulators are blind to some new earnings scam (as they were in the Enron case), a whole lot of companies domiciled in that country or traded on its exchanges could go belly-up. PIMCO's head dude recently talked about the risk that US companies are overdosing on derivatives (the financial kind) to give them the appearance of an earnings boost (the bill will be due later). In another country, where derivatives are forbidden, that risk doesn't exist.

In other words "Don't make too much of your portfolio subject to the same kinds of risks."

A portfolio made up entirely of US stock and bonds is very dependent on the US economy. A downturn could lead to plunging stock prices and bond defaults.
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I wondered if that was what they were trying to say. Personally, I don't buy the argument. I don't think you can say that US company doing business in foreign country = foreign company doing business in foreign country.

JM2C
Joe


The point the the previous poster was getting at is that most large U.S. companies do significant business in foreign countries. This exposes them to all the same forces that foreign companies face which, theoretically, adds the uncorrelated component that you are looking for when diversifying into the rest of the world.

RK


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Huh? The S&P (assuming that is what is being indexed here) is representative of the U.S. equities market. I would stick with the international fund as part of my portfolio.

Thanks!
Joe

I think I understand the idea, joe. Particularly large cap companies do a lot of business and derive a large portion of their income from overseas operations.


magique
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Author: jrr7 Date: 4/12/02 12:52 PM Number: 34166
The reason I see to diversify into international companies id the different regulatory structure that exists in each country.

I agree with this, and, in fact, this may turn out to be the only advantage of holding an international component.

In the past, the movements of international stocks were nearly uncorellated with the US markets, which decreased the volatility of your portfolio. However, in the last 30 years, as the world has moved more and more toward a single 'world economy', the correlation between individual country markets has increased to the point where this diversification no longer gains you much in portfolio stability.

RK
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