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I'm 47 and thinking about making some retirement-plan changes. I would really appreciate some feedback.

I have an old 401(k)and I'm thinking of direct-rolling it to a discount broker. That transaction would "sell" to cash. Since the market is so high, does it make sense to leave it as cash for a few months to see if a correction occurs? Or is it better to schedule automatic investments into positions now?

I'm also considering how to allocate my assets. Here is one idea:

Target Retirement Date Fund 63%
Large Cap Fund 7%
Mid Cap Fund 7%
Small Cap Fund 7%
Foreign Fund 7%
REIT Fund 2%
Bond Fund 7%

Does this idea seem reasonable for someone my age?
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3Cubs,

Since you are going market to market, I would not leave it all as cash.

Let me put it this way: If someone had told me on January 1st this year that I would make 4X my annual expenses by May 3rd, I would have laughed at it and said, "Sure." However, if we don't get a big dip this afternoon, that will be the case. I have trimmed heavily. I moved a bit over 1 year's worth to interest bearing accounts in the last two weeks.

Starting in January, the "talk" has been increasingly "dip", "correction" or other such.

If this was all new money coming in and you did not have a plan, I would say hold off, make a plan.

I would start implementing your plan at 50%, higher if you choose to. Hold some cash for opportunities, maybe 10% to 20%. Put in the other 30% over 3 to 6 months.

Waiting for a downturn(timing the market) can be a very frustrating wait. Imagine the time you when say to yourself, "I have waited 6 months and the market has run away. I am missing it!" Then you buy and 2 weeks later there it goes down.

When you lay out your portfolio, cover all bases, like you have. When things run up rapidly in one area, I normally take out cash by trimming 5% to 10%. Pre-retirement, that was held for investing at better price points. In retirement, some goes to our expense cash and the rest to investing.

With 15 to 20 years to an assumed retirement point, you have time to let things grow through up and down markets.

Your plan looks fine. My only hesitation, for me personally, would be the 63% in the Target fund. But, this has to fit your comfort level and experience. I like to be in control of my investments. My various attempts with mutual funds and professional management did not go well.

Were you going to use managed funds or ETFs? I started using some ETFs this year for DWs IRA. I want to make something she can manage going forward. My portfolio is on my Fool profile page if you are interested.

Gene
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I have an old 401(k)and I'm thinking of direct-rolling it to a discount broker. That transaction would "sell" to cash. Since the market is so high, does it make sense to leave it as cash for a few months to see if a correction occurs? Or is it better to schedule automatic investments into positions now?


1. IMO, almost always a good idea to roll 401k into IRA

2. whenever I've waited for a 'correction' , it never happened

3. IMO, a reasonable list- lowish risk low maintenance ( another reason to not wait for correction)
m
4. consider piecemeal conversion to Roth

good luck
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Since the market is so high, does it make sense to leave it as cash for a few months to see if a correction occurs? Or is it better to schedule automatic investments into positions now?
How do you know the "market is so high"? A: You don't, you're just repeating what the talking heads are saying.
Your investing performance will suffer as long as you invest according to what the media is saying.
This includes Money Magazine.

I'm also considering how to allocate my assets ... Does this idea seem reasonable for someone my age?
Not quite.

Target Retirement Date Fund are an example of "let's create a cool-sounding fund for the naifs to buy". Not the worst example (Indexed Universal Life is a far worse one), but still in that category.
The fund industry is always coming up with "Once Decision" "Fire-and-Forget" funds. People get sucked in and either lose bigtime or miss out on substantial gains.

Personally, I think that at 47 the appropriate allocation to Bond Fund is 0%. And at this stage of the market, 0% is a good target. When interest rates eventually rise, bond funds are going to get crushed.

The allocations you mentioned sound like what is found in typical Money Magazine-type articles. Midcap's are not needed-- they are essentially redundant. Large & small cap is all you need. But looking at your proposed small percentage allocations brings up the question - why bother? If you are only going to put 2% in some asset class, why bother? That's not enough to make any difference in your total portfolio.

How active do you want to be? "Active" not as in "frantically trading" but as in "actively manage" your investments.
If not at all, then I'd go with more like 75% VTI (Total Stock Market ETF) and 25% CWI (MSCI ACWI ex-US). Or maybe 50% VTI, 20% CWI, and 15% each to smallcaps & REITs.

If you want to be a bit more active -- and want a good shot to retire as a 2%'er or even a 1%'er ....
( http://politicalcalculations.blogspot.com/2013/01/the-distri... )
Start with Faber's classic paper: http://ssrn.com/abstract=962461 and google some of the keywords to find other papers & articles.
You can run that strategy with an effort of about 1-2 hours once a month. But that means EVERY month.

Start here and read every post from the last several years.
http://systematicrelativestrength.com

Then Gary Antonacci's: Risk Premia Harvesting through Dual Momentum
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2042750
This is a pretty tough read, even for an experienced investor. It took me several re-readings before I completely understood it. Or maybe I'm just slow. ;-)
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How do you know the "market is so high"?

Look at it.

The S&P has shot up almost 10% in a little more than 13 years.
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Does this idea seem reasonable for someone my age?

I am making a lot of assumptions, but my feeling is your plan does not make any sense period - age not an issue in my view.

Your distribution of investments looks very much like a list from Money magazine or some other "expert".

Before you discount what I said, ask yourself this question. Is there any difference between a Target fund from Vanguard vs Fidelity vs T Price Rowe. If you look at these funds investment distribution and the risk and projected returns of those investments you will find large differences. Which is best for your situation? Last time I did this I found the non USA investments similar, but some funds where in Europe (a mature market not unlike the USA) and others were in developing markets which have very different issues.

If you are looking out 20 years, I have a serious issue with any Bond fund whose perspective does not allow holding bonds to maturity - Interest rate will rise and when they do bond values will drop. A mutual funds whose governing documents force sale of bonds at some time frame measured beyond 12 months are almost certain to force a loss of principle.

This is a time to have a long hard look at Asset allocation well beyond the idea of bonds and stocks. You need consider at a minimum the effect of change interest rates. The effects of a gradual change in the 10 year bond to the historic average will be very different than a less gradual change to say a couple of percent beyond the historical average. (Ten year rates are close to 30 year mortgage rates which as you know today are low.) Investing for retirement is not about seeing the pile of money increase every year with no down years. It should be about having adequate funds when you retire to live the life style you choose.

Gordon
Atlanta
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I question direct-rolling it to a discount broker. This sounds like there may be two possible problems.

1) You are thinking about trading at a discount brokerage. Don't. It's way to easy to end with a shadow of your assets at the end of the day.
2) You have to be very careful to roll it over into an IRA, not a brokerage account, or you'll be taxed for premature withdrawal.

That said, I rolled over my 401k to an IRA, both at Fidelity, w/o selling anything.
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PolymerMom,

You wrote, 1) You are thinking about trading at a discount brokerage. Don't. It's way to easy to end with a shadow of your assets at the end of the day.

Nonsense. A full service broker is much worse. A mutual fund company is no better and usually offers a much smaller selection. And with a broker, you can buy ETFs instead of open-ended funds. ETFs usually have even lower expense ratios than the mutual fund counterparts. Of course open-ended funds are usually available as well; but given that brokers tend to charge a trade commission for those investments, you might as well use ETFs or just move your funds to the mutual fund company instead.

Also he never said anything about trading. That was your own projection. I hold rollover IRAs at both TD Ameritrade and E*Trade. I don't do much "trading" in them and most of my holdings are in core ETFs. My individual stock picks are intended to by more long-term holdings.

Also, 2) You have to be very careful to roll it over into an IRA, not a brokerage account, or you'll be taxed for premature withdrawal.

You're mixing terms. You most certainly can roll into a brokerage account. Best if the account is titled as a rollover IRA to avoid taxes and penalties though.

You can certainly have a rollover IRA at a brokerage though. What you're trying to avoid is him opening an "Individual" brokerage account, which is a taxable account.

Finally, That said, I rolled over my 401k to an IRA, both at Fidelity, w/o selling anything.

I wonder about that too. I've never met a 401(k) plan where you could roll out the holdings without selling. Except for company stock. I've received stock certificates before, so I wouldn't be surprised if you could roll out a self-direct brokerage option as well. But in general, I think you have to cash-out most 401(k)s when you go to roll them over - they usually don't distribute assets.

Most plans contain special versions of the funds offered by the underlying fund family. Very often they are either institutional shares or some class of load-free shares. If you rolled your funds out of a Fidelity 401(k) into a Fidelity IRA, I suspect there is a good chance that they had to sell the funds at the end of one day and buy similar, non-institutional shares with the proceeds. Admittedly they can make that process pretty seamless and frictionless though.

My current 401(k) is with Fidelity. But it's also been with other providers that offered IRA options. Fidelity is probably the first IRA provider I would actually considering rolling my 401(k) plan into. However, I'm hoping to retire with this company so I'm not sure that will ever be necessary.

- Joel
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Joel,

I've never met a 401(k) plan where you could roll out the holdings without selling.

When the same firm holds both accounts, they will normally offer the roll-over by transferring shares rather than sell/buy.

Gene
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dgett2,

I wrote, I've never met a 401(k) plan where you could roll out the holdings without selling.

To which you replied, When the same firm holds both accounts, they will normally offer the roll-over by transferring shares rather than sell/buy.

That's not been my experience; but I'm sure my experience is not exhaustive. I've had accounts with ING (account servicing was purchased from Aetna Retirement Services, where the plan was started) and John Hancock. They both offered to roll into an IRA. When pressed, they both told me they would have to liquidate and purchase similar shares and that the transfer was not an actual transfer of assets.

I also once had a 401k at Principal(pre-2000s); but they never offered me an option to roll it out. I see that they do offer IRAs now.

I also had a 401k at Scudder in the mid-90's. I don't recall if they even offered me the option to roll into an IRA, though I know they offered IRAs at the time. If you haven't heard of Scudder, they were based out of Boston and were purchased by Deutsche Bank in 2002.

I've also had accounts with three other companies (ADP, JP Morgan & Wells Fargo) in recent years. They have offered rollovers, but I've not cared to ask for specifics. (I haven't rolled the Wells Fargo account yet, so I could still ask them if you'd like another sampling.)

- Joel
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Joel,

The biggest factor in their ability to "directly" transfer shares is the availability of the security.

If they do not have the same security available in both accounts, they can't do it. Fidelity and Vanguard offered "like" securities with no transaction charges. This involved institutional shares in the 401k vs open market shares in the IRA.

An acquaintance that had a brokerage 401k with ETFs and some individual stocks was able to do a transfer of all shares without transaction fees.

What it all boils down to is the fees since there is no long-term/short-term holding period or taxes on the sale. There is risk in price movement if you cash out, transfer and buy. I lost a bunch of value in 2006 from the time the paperwork was submitted until the transaction was made while moving an IRA. I had it go in the opposite direction this past December when I gifted some shares to charity and they went up in value.

The financial institutions want to keep your money at their company and are generally willing to make the move as smooth as possible. If they eat some of their fees in the process, they will make that back in the future.

Gene
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