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!