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Well ...

After posting about my consdieration to move a 401(k) to my Rollover IRA at Vanguard (, I started thinking about how my retirement assets are allocated. I had played around with Vanguard's allocation information before, but not in too much depth. Plus, I had not recorded any oustide investments (my two 401(k) accounts outside Vanguard).

Today I entered those outside investments (one at NYLife Investment Management and one at T. Rowe Price) and took a deeper look at the Portfolio Allocation tool on the Vanguard website. I was impressed!

If you have an account at Vanguard, I'd certainly suggest taking a look. Other places probably have similar tools, but I'm not sure how in depth they go. Vanguard's is pretty good.

Here is the current make-up of all of my retirement accounts.

* I am 34 years old
* My compensation is just under $100K
* I currently contribute 5% to my 401(k) and receive a 3% match.
* I intend to maximize my Roth IRA contribution in 2007.
* My total retirement portfolio consists of the following:
* 401(k) w/current employer (held at T. Rowe Price)
* 401(k) w/former employer (held at NYLife)
* Roth IRA (held at Vanguard)
* Rollover IRA (held at Vanguard)
* I currently own the following funds:
CURRENT 401(k)
Oakmark Interational I (OAKIX)
TRP Equity Index 500 (PREIX)
TRP Equity Income (PRFDX)
TRP Small-Cap Value (PRSVX)
TRP Mid-Cap Growth (RPMGX)
FORMER 401(k)
MainStay S&P 500 Index (MSXAX)
Davis NY Venture (NYVTX)
American Funds EuroPacific Growth (RERCX)
American Funds Growth Fund of America (RGACX)
Vanguard Target Retirement 2035 (VTTHX)
Vanguard Target Retirement 2035 (VTTHX)

My portfolio is currently allocated as follows:

U.S. Large-cap Stock - 57.1%
U.S. Mid-cap Stock - 17.1%
U.S. Small-cap Stock - 9.2%
Europe Stock - 8.7%
Pacific Stock - 4.8%
Canada Stock - 0.3%
Emerging Markets Stock - 2.1%
Long-term Bonds - 1.1%
Mid-term Bonds - 2.5%
Short-term Bonds - 3.0%

What do you think of this current allocation? I'm thinking (as I previously posted) of increasing my allocation to U.S. small caps or, perhaps, international. If I move 100% of my former 401(k) to the Vanguard Small Cap Index for example, my allocations would change as follows:

U.S. Large-cap Stock - 32.6% (-24.6)
U.S. Mid-cap Stock - 13.3% (no change)
U.S. Small-cap Stock - 35.6% (+28.5)
Europe Stock - 7.0% (-1.7)
Pacific Stock - 3.3% (-1.5)
Canada Stock - 0.0% (-0.3)
Emerging Markets Stock - 1.7% (-0.4)
Long-term Bonds - 1.1% (no change)
Mid-term Bonds - 2.5% (no change)
Short-term Bonds - 3.0% (no change)

The only aspect I don't like is that this scenario may overweight to U.S. small caps. It also takes nearly 4% away from international.

A second option is to move $10,000 to the Small Cap fund and the rest to VTTHX. This scenario would produce the following allocations:

U.S. Large-cap Stock - 37.0% (-20.2)
U.S. Mid-cap Stock - 19.1% (+1.8)
U.S. Small-cap Stock - 26.8% (+19.7)
Europe Stock - 8.0% (-0.8)
Pacific Stock - 3.8% (-1.0)
Canada Stock - 0.0% (-0.3)
Emerging Markets Stock - 1.9% (-0.1)
Long-term Bonds - 1.3% (+0.2)
Mid-term Bonds - 2.9% (+0.3)
Short-term Bonds - 3.4% (+0.4)

This scenario creates better U.S. stock allocations, but raises my allocation to bonds by nearly 1%.


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No. of Recommendations: 2
To me, your bond allocation is appropriate for your age group. But your international allocation does not make sense to me. If you are serious about diversification, anything less than 20% is far too small.

As it is your international participation is best described as a monitoring position. That is fine if you are hoping to identify good performing funds by monitoring their performance over time. But in the end, either increase or eliminate your international position.

For now equities is the way to go, and your allocation seems reasonable.

If you want to diversify, what about a REIT position?

And are you making any effort to identify and play high growth, high performance opportunities with your portfolio? Is that what you hope your small caps will do for you? If so, you could be more aggressive. At some point, you may want to add carefully selected individual stocks.

What you have is OK. And if you are busy with career and other things, it is fine for now. But my suggestions are intended to get you thinking about where you want your investments to take you in the future.

Keep thinking and planning. Fool on!!
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If you want to diversify, what about a REIT position?

I agree the adding some REITS would eventually be good, but they have had a heck of a run up over the last few years and I would be cautious about putting much in them now, but I guess if I was good at market timing I could quit my day job.

I agree with more International, and the Europe/Pacific/Canada funds might leave out places like Central and South America, Africa, and India. A general international index fund might be a better choice. In your situation I would eventually bump that up to 20% or more.

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One main thought, I'd only put into my 401k to the max of the match. In your case 3%. That 2% would easily allow to max out your IRA. Extra money over that build up an emergency fund and pay off debts. If those are taken care of, openup a taxable account.

FWIW, my allocation is as follows: 70% US (IVV ETF), 20% international (EAFE ETF), and 10% emerging market (EEM ETF).

Personally I don't do bonds nor bond funds. For fixed income I do money market funds. Get just about as much interest as regular bonds but much more liquidity. I wouldn't worry about fixed income until closer to retirement, and then keep 5 years living expenses.

For more ideas on asset allocation, wonder over to the mechanical investing board and look at Sjuggerud Model and Arezi Ratio for starters.

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Long term the dollar has to fall regardless of what the politicians say. In my view you need 20% or maybe 25% foreign. I also favor a large cap bias toward companies that will benefit from a falling dollar i.e. those with large international sales such as Procter & Gamble.

While not an allocation issue, I would suggest rolling your former employer's 401K into your IRA unless those funds are superior to anything you can get yourself. As a person who has had to handle someone else's affairs when they suddenly couldn't - a minimum number of accounts makes sense. Additionally as the total value of your account increases, most places give you additional importance and lower fees.

From my view the target retirement funds are not such a sure bet. As an example if you compare the Vanguard and T Rowe Price funds you will see the allocation portion in fixed income varies in some cases by factor of 2. My gut tells me someone else transitioning my fund allocation is not likely to equal my optimal situation. Do I come from a family where everybody lives to 90 plus? (If yes I sure need more stocks longer then the average person.) Do I have a a heart condition or something else that will shorten my life and likely cause the need for skilled nursing care? Again my needs are different then the average.

At your age, I would not move funds from the small and mid cap area - historically that is the growth. It is important however to stick with well managed funds. I use MSN Investor to look at several variables included Morningstar ratings, return, manager tenure, fund turnover, etc.


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No. of Recommendations: 2
25% small cap will be very volatile. We don't recommend allocations that high.

More importantly the 401K you are leaving at New York LIfe is likely being drained by hidden fees.

Your best bet is to roll that sucker to an IRA.

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Since you did not indicate you are married, I have to ask why only 5% in your 401k? You are being taxed at a rate of 28% on those dollars you are not putting in your 401k, and even higher if you include whatever state and local taxes you may pay.

Do you believe you will be in a 28%+ tax bracket in retirement? Are your 401 fees too high or options too lousy?

The only other comment I have is that I too am overweight foreign currently. Fidelity recently did an indepth study on foreign markets and the risk adjusted returns that makes the next few years look very favorable. Oh, and I also caution against going over 20% in small cap.
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FWIW I often go to this website to see the "model" porfolio's of some of the experts. It may be a bit old but it is useful:

I'm not sure I have much to add:

I'd have a higher international stock exposure at your age -- perhaps 20-40% and slightly lower small caps (even lower than 20%, but you can take the risk at your age). Your international mix shows that you've thought about this and is good. I'd also consider about 5% REITS.

I don't think you need any bonds, but it does give some stability. You should have 3-6 months of emergency funds and these may comprise some of your bonds/CD's. You should learn how to buy treasury bonds and notes yourself if you have the time.

I love Vanguard but think by the questions you are asking that you don't need to seek the target funds. You can make your own decisions.

I also agree that whenever possible you should roll over the old 401k to something like Vanguard. It makes allocation easier, puts you into higher investment levels where you receive breaks in both advice and the even lower cost of Admiral shares, and, if you use Quicken, makes keeping/downloading your fund distributions updated on a monthly basis a snap.

Congratulations on your thought so far!


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