Finally Rebalancing and Reallocating my 401(k)

by Evan

The last time I reallocated and rebalanced my 401(k) was in 2010 and even though I have mentioned “rebalancing my 401(k)” as a goal for years, I never did anything about it.  Come to think about it besides discovering (and fixing) the fact that I was leaving money on the table regarding my match, I have largely ignored the account.  The only reason I can think of why I ignore the account is the fact that it is so automatic that I only check it about it once a month when I prepare my net worth statements and even then it is usually done pretty quickly.  That changes today because together we will rebalance and reallocate my account.  I was inspired to do get off my ass and actually act after reading a recent post from Financial Samurai titled “How often should I Rebalance my 401(k)” – thank you for the inspiration.

Rebalancing vs Reallocating an Investment Account

Many people use the terms Rebalance and Reallocate interchangeably, but they are different and I think Investopedia does a good job defining both:

The process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.

Versus

An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.
The three main asset classes – equities, fixed-income, and cash and equivalents – have different levels of risk and return, so each will behave differently over time.
So today we are going to change up the asset percentages and realign the account with that new goal.

My Current 401(K) Allocation

To know where we are going we have to first take a look at where we are.  In response to Sam’s Post I left a comment,

My 401(k) is made up of 10 or so funds. I am very interested in rebalancing, but do you suggest that I alter the percentages that my new money goes into since it is a DCA account? Or that I literally sell and let new money go in the way it has been?

In typical Sam fashion he ignored my question and forced me to think about something from a different angle,

If you have 10 funds, then I think you’ve got too much fee leakage and are over diversified. A fund is already diversified, so having 10 is an over kill.

I’d focus on 5 funds and allocate according to where you find there is most opportunity, not just 20% across the board.

I think Sam hit it on the head my asset allocation wasn’t the problem but rather I had too many overlapping funds and thus were paying expense fees I shouldn’t have been

  • Oppenheimer Value and Neuberger Large Cap Value
  • Oppenheimer Global and American Funds EuroPac Growth
  • N. Berman Mid Cap Intrinsic Value Fund and Oppenheimer Small and Mid Cap Value Fund

So my goal is to Rebalance to 5 or 6 funds with low fees and an appropriate allocation for myself and my risk tolerance which will look like:

  • 40% Large Cap US based
  • 30% Small and Mid Cap
  • 20% International Exposure
  • 5% Bond/income Fund
  • 5% Real Estate Fund

I am not particularly comfortable in my market timing techniques to try anything with this account other than set up the right allocation and let 30 or so years of compounding do its magic.  Do I think I will take a hit in the short term as the world continues to work its problems out? Yes, but for this account only I look at it as a way to get in cheap.

My New 401(k) Allocation

I have the following investment options (with their corresponding expense ratio):

  • Invesco Real Estate Fund (C) – 2.05%
  • Oppenheimer International Bond Fund (A) – 0.98%
  • Neuberger Berman Large Cap Value Fund (Adv) – 1.19%
  • Oppenheimer Small & Mid Cap Value Fund (A) – 1.27%
  • Oppenheimer Global Strategic Income Fund (A) – 1.01%
  • Oppenheimer Portfolio Moderate Inv. Fund (A) – 1.11%
  • Oppenheimer Portfolio Conserv. Inv. Fund (A) – 1.10%
  • Oppenheimer Port. FI Active Alloca. Fund (A) – 1.16%
  • Oppenheimer Portfolio Active Alloca. Fund (A) – 1.25%
  • American Funds EuroPacific Growth Fund (R3) – 1.14%
  • Oppenheimer Cash Reserves (A) – 0.96%
  • American Funds Growth Fund of America (R3) – 0.97%
  • Oppenheimer Value Fund (A) – 1.02%
  • N. Berman Mid Cap Intrinsic Value Fund (Tr) – 1.55%
  • Eaton Vance Floating-Rate Fund (C) – 1.76%
  • Oppenheimer Portfolio Eqty. Investor Fund (A)- 1.25%
  • Oppenheimer Global Opportunities Fund (A) – 1.20%

So I am thinking of going with:

  • American Funds Growth Fund of America – 20%
  • Oppenheimer Value Fund – 20%
  • Oppenheimer Small & Mid Cap Value Fund – 30%
  • Oppenheimer Global – 20%
  • Oppenheimer Strategic Global Strategic Income 5% – This hold 32% US Debt and 46% foreign
  • Real Estate Fund 5% – Only have one option with a terrible expense ratio but I would like some exposure so I am going to suck it up

This will drop 4 funds off my invests and thus reduce the overall fees I am paying.  I am going to put the orders in a couple hours but would love some opinions first!

You may also like

23 comments

Investor Junkie September 19, 2012 - 10:29 am

What are the ticker symbols? They look rather expensive

Reply
Evan September 19, 2012 - 10:38 am

They are VERY expensive which is why I don’t max out my 401(k). I put in a little bit above my match (just as a round number).

As far as symbols there is no one place for me to get them I would have to look them each up (Probably do this on purpose lol). My current holdings are as follows:
IARCX, RERCX, RGACX, NBREX, NBPBX, OPGIX, OPSIX, OIBAX, QVSCX, CGRWX.

I would have to look up the other 10 or so fund choices.

Reply
Investor Junkie September 19, 2012 - 10:03 pm

Can you put them in the article itself. Ticker symbol for each fund.

Reply
Financial Samurai September 19, 2012 - 11:56 am

Hey, my really good buddy is the head of the EuroPac Growth Fund. If he’s not performing to par, let me know and I’ll kick his butt! But, I see you’re going away from it anyway. So no big deal.

Glad you’re taking action! 10 funds is kinda nuts!

Reply
Evan September 19, 2012 - 12:02 pm

Only reason I would be moving away from it is to reduce funds and there is an international fund that covers Euro and Pacific Basin region. Guess I can’t be too mad at him up 13% in the fund since I started investing in it a few years back. I bet it was higher a year or so ago but its all good!

Reply
Darwin's Money September 19, 2012 - 6:22 pm

The number of funds you hold has no relation to the fees you’re paying. If you hold 10 funds or 5 funds all with 1% expense ratio, you’re still paying 1% in expenses regardless. Therefore, # of holdings alone is no reason to decrease number of holdings unless you have a wide spread in fees which you don’t (aside from that horrific RE fund). Frankly, the expense ratios in your plan are horrific – do you work for a large company? They should be able to offer straight index/sector funds with like 1/3 the expenses or less. I would lobby the company to do so.

Next, I wouldn’t invest in any fund at 2% expense ratio. If you really want to hold real estate, I’d take the same 5% allocation (even at $17K per year max, you’re only talking a few hundred bucks a year invested) and just buy a real estate ETF with like a .2% expense ratio in a taxable account (or Roth IRA if you qualify).

Overall, given the choices you have, the mix seems appropriate – very heavy equities with some international in there which is good for your age.

Reply
Evan September 19, 2012 - 6:40 pm

I kind of work for a large company. I am not on the large company’s 401(k) but rather the subsidiary’s 401(k) which is through a PEO so I am pretty sure it wouldn’t get me anywhere.

I think you are about right on that RE etf. I also have some exposure in my Dividend portfolio fund with IYR (.47% expense fee), so I am cutting it out. Thank you! I think I am going to move that 5% over to the income fund.

Appreciate the help!

Reply
Financial Samurai September 20, 2012 - 11:46 am

Great point and math on the fees Darwin. You are absolutely right.

The efficiences come when you buy and sell and also compare funds to each other.

Reply
Evan September 20, 2012 - 11:55 am

I missed that too when you suggested it. There are the 12b-1 fees but those seem to be built into the expense ratio so that doesn’t even matter.

Reply
Investor Junkie September 19, 2012 - 10:16 pm

90% stocks
5% bonds
5% REIT?

Seems a little extreme? For me personally I would go no more than 80/20 but that’s just me.

I didn’t the expense ratios for the first pass but was only going by memory. Expensive isn’t the word.. All managed and over 1% YUCK!. I would at least do up to your matching. Working for a financial firm your options certainly do suck!

For Oppenheimer Global Strategic Income A (OPSIX)

Here’s morningstar’s details on it:

http://quote.morningstar.com/fund/f.aspx?t=OPSIX

Since last reporting it has 77.92% in bond 14.53 in “other”. It has a decent amount of long term maturity, which I don’t like. Ideally I would try to stick to a bond funds within the 1-5 max 5-10 maybe. You don’t mention about your IRA accounts. I would combine them into one big account. Use your IRAs to allocate into better funds say indexed bonds and TIPs.

One other comment related to this fund is it does not follow the barclays US Agg Bond index. This fund is all over the map for a bond fund. In fact had a -16.50% return in 2008. So this fund will offer no protection if we see another recession.

So out of your funds selected I see no funds that will zag when the stock market zigs.

Reply
Financial Samurai September 20, 2012 - 11:46 am

I like the 90% equities! Gotta have some balls!

Reply
Investor Junkie September 20, 2012 - 2:33 pm

It’s really more like 100% based upon the correlation.

Reply
Investor Junkie September 20, 2012 - 3:19 pm

He who has how much in CDs? 🙂

Reply
Financial Samurai September 20, 2012 - 3:27 pm

Comparing apples to oranges again.

I really hope people don’t have the majority of net worth in their 401K! I’m focused on making bets within the 401K, or within the investing portion of one’s net worth.

My 401K is but a small amount of my overall net worth. In fact, I treat it as funny money b/c the gov’t could take it away anytime, and we can’t touch it til 59.5.

Reply
Investor Junkie September 20, 2012 - 3:37 pm

Yes that is true about age. If you think the government takes away partially or fully, I think will have bigger issues to tend to because of that. In addition, with that logic you could even say the same with traditional taxable accounts. What’s the difference? So I don’t see the logic in that comment.

I don’t see how they are unrelated (CDs and retirement account), especially if it’s all for retirement in your case. The CDs are part of your AA no? So therefore you aren’t at 90% AA in stocks.

Investor Junkie September 20, 2012 - 3:50 pm

Let me add though I do believe in asset allocation between taxable and retirement accounts. It’s the smart thing to do since you have much more control of your withdrawal rate.

I think a more posible scenario is government puts more restrictions on new money in retirement accounts, than changing the withdrawal or affecting existing money in 401(k)/403(b).

Evan September 20, 2012 - 12:02 pm

While I do work for a financial firm my benefits comes from the underlying PEO. So all the sales people here have SICK benefits while I am paying an ungodly heath insurance bill to the tune of about 4 digits a month.

My IRA is a separate project:
https://www.myjourneytomillions.com/following-my-tradition-ira-covered-calls/ and https://www.myjourneytomillions.com/articles/a-covered-call-traditional-ira-updatethe-great-the-good-and-the-bad/

(I need to update the pages)

I am still pretty young so the 90% of equities does not particularly scare me b/c so much of my other assets are pure cash (for downpayment purposes). I will have to dial back in terms of safety as the years add up and I also actually buy a new home.

I wish I could do an in service withdrawal and get everything into an IRA but hat is just not allowed.

Reply
Investor Junkie September 20, 2012 - 3:18 pm

Young yes, diversified no. Statistically from everything I’ve seen going over 80% doesn’t really add much to your return, but dramatically increases risk.

Reply
Investor Junkie September 19, 2012 - 10:19 pm

Let me clarify “one big account” Meaning treat it as one big account, not literality merge them.

Also I would recommend using Morningstar’s X-ray tool to see what is your real asset allocation is with the funds selected, but also your allocation country and sector.

Reply
Joe September 20, 2012 - 11:31 am

Sam also made me take a look at my 401k. The problem is I don’t see anything attractive to allocate to. I need to move it to an IRA now that I’m not working there anymore. I’ll call Vanguard next week.

Reply
Financial Samurai September 20, 2012 - 11:47 am

Joe, it’s more the asset allocation process imo, vs. which funds to pick. Everything comes to center over the long run.

Reply
Blinkin September 30, 2012 - 8:22 am

Really good stuff here, especially in the comments. What could I possibly add to this? Rebalancing is one of those things we all think about but probably won’t get around to until we lose loads of money. At that point it’s too late. I recently had a heart attack when I was speaking to a lady …good income… About 300k in her 401k … 100% in her company’s stock.

Reply
Evan October 2, 2012 - 4:58 pm

UGH! I had that exact situation when I first started blogging:

https://www.myjourneytomillions.com/articles/for-most-investors-diversification-is-key/

Reply

Leave a Comment