Reviewing, Rebalancing and Reallocating my 401(k)

by Evan

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.

Investment Ticker Expense Ratio Category
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.

Asset Class

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?

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4 comments

Retire Before Dad February 10, 2017 - 12:40 pm

Those are some pretty bad choices for your 401k. I know how you feel, I have all American Funds. The fees are terrible, and there’s a third party taking a piece too. I’ve been asking my company to change for years. Looks like they finally are soon, but I’ve begged. They’re clueless on why the current one is bad.
-RBD

Reply
Evan February 10, 2017 - 1:35 pm

It is going to be interesting to watch the retirement services landscape over the next few years (I am in the industry). People are already starting to sue over high priced mutual funds since HR or the Owner is supposed to have a fiduciary duty over the plan – this will trickle down.

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timeinthemarketblog February 12, 2017 - 12:48 pm

That’s a pretty bad 401k. What are your other savings because you might want to think about allocation on an overall basis.

I’d have a hard time allocating to bonds or cash when the ER on the bond fund is 1% and 0.65% on cash reserves. I’d probably lean towards full stocks here and maybe just save up until the match here then prioritize a traditional IRA with low ER funds and an HSA if available before returning to the 401k.

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Evan February 15, 2017 - 1:31 pm

Shitty 401(k), right? The reason I have the cash is because if there is a 300 or 400 point day (remember those, feels like we haven’t had one in MONTHS) I will quickly deploy to buy the dip.

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