While I have been meddling with my 401(k) by buying and selling on huge drops and gains, I haven’t actually reviewed my 401(k) for a few years! That is probably way too long, but considering how often I am investing, trading, and generally moving money this is probably a good thing for me. I am going to start from scratch on this project, and as such, first I will review my choices, then rebalance what I currently have invested and then reallocate my future contributions. The past growth, and/or decisions I made (which I don’t think are wrong) are irrelevant.
Reviewing my 401(k) Fund Choices
I have a horrible 401(k); it is filled with over priced fund options, but they are what I have to work with.
|American Funds Euro Pacific Growth Fund||RERCX||1.14%||Foreign Large Growth|
|American Funds Growth Fund of America||RGACX||0.98%||Large Growth|
|Eaton Vance Floating Rate Fund||EVBLX||1.03%||Bank Loan|
|Invesco Real Estate Fund||IARRX||1.50%||Real Estate|
|N. Berman Mid Cap Intrinsic Value Fund||NBREX||1.26%||Mid-Cap Value|
|N. Berman Large Cap Value Fund||NBPBX||1.22%||Large Value|
|OH Active Allocation||OAAAX||1.18%||Blended Equity (70 to 85% Equity)|
|OH Conservative Investor Fund||OACIX||0.97%||Blended Equity (30 to 50% Equity)|
|OH Equity Investor Fund||OAAIX||1.16%||World Stock|
|OH Global Opportunities Fund||OPGIX||1.19%||World Stock|
|OH Global Strategic Income Fund||OPSIX||1.04%||Multisector Bond|
|OH Cash Reserves||CRSXX||0.65%||Prime Money Market|
|OH International Bond Fund||OIBAX||1.04%||World Bond|
|OH Mid Cap Value Fund||QVSCX||1.18%||Mid-Cap Value|
|OH Moderate Investors Fund||OAMIX||1.01%||Blended Equity (50% to 70%)|
|OH Value Fund||CGRWX||0.96%||Large Value|
Ouch! An average expense ratio of 1.09%! How could it possibly cost me .65% to keep money in cash!? According to Forbes, this is double the national average in 2014,
401(k) participants paid an average expense ratio of 0.54% of assets for equity mutual funds in 2014, continuing a long-term downward slide, down 30% from 0.77% in 2000, according to a new Investment Company Institute report. The downward trend is good news for retirement investors because investment fees can erode your retirement nest egg. Still 12% of 401(k) mutual fund assets are invested in high-cost funds, with fees of 1% or more, ICI found. That means there’s plenty of room for employer and investor education surrounding fees.
Okay, enough complaining, it is what it is and I get a generous match from my bosses, so for free money how do I not eat the expense ratio? In fact, it looks like of my entire 401(k) an amazing 46% is from the match! So, with my anger left in this section let’s build a Portfolio.
Rebalancing my Current 401(k) Assets
Since, I am approaching this without regard to what I have done in the past lets build out the asset classes and then I’ll choose the funds. While I generally have a low risk tolerance, I am able to emotionally divest myself of this account. It is actually the only account I don’t check daily. If the market took a 50% haircut tomorrow I know I’d be excited so I could dollar cost average into cheap funds for 60 year old Evan.
First I have to decide how much of each asset class I am interested in. As defined by Investopedia, an asset class is a
group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. Some investment professionals add real estate and commodities, and possibly other types of investments, to the asset class mix.
Considering that I am comfortable taking risk in this account since you shouldn’t touch your retirement accounts I am going to with:
- 85% Equity Funds
- 10% Fixed Income
- 5% Cash
Equity Portion of my 401(k)
Looking at the equity funds as a whole I am going to break it down:
- 40% Large Cap
- 40% Mid/Small Cap
- 20% International Exposure
Fixed Income Portion of my 401(k)
- 50% International Debt
- 50% Domestic Debt
Cash Portion of my 401(k)
The only reason I keep any cash is because I want to be able to throw cash at the market if there is a significant dip.
Allocating Future 401(k) Contributions
Looking at my fund choices and my goal for allocation/balancing I am going to reallocate (and apply future contributions) as followed:
- American Funds Large Cap Growth (RGACX) – 17% (half of my large cap allotment 40% of 85%)
- Oppenhiemer Value Fund (CGRWX) – 17% (half of my large cap allotment 40% of 85%)
- Oppenheimer Mid Cap Value (QVSCX) – 17% (half of my mid cap allotment of 40% of 85%)
- N. Berman Intrinsic Value Mid Cap (NBREX) – 17% (half of my mid cap allotment of 40% of 85%)
- Oppenheimer Global Opportunities Fund (OPGIX) – 17% (20% of 85%)
- Oppenheimer International Bond Fund (OIBAX) – 5%
- Oppenheimer Global Strategic Income Fund (OPSIX) – 5%
- Oppenheimer Cash Reserves (CRSXX) – 5%
Besides the obvious of high expenses any thoughts on how I broke this all down?