401k allocation advice

Submitted by Fatindocce t3_zzx938 in personalfinance

Hello, I am a total noob at investing. I have read the faqs, how to select investments for your 401k, how to approximate the stock market, etc. but there are still things that go over my head.

Our company is switching to a new 401k provider (Fidelity) and I wanted to take the opportunity to manage my investments more directly in order to increase my returns (so far I have always invested in a target date return fund).

Given the funds and fees available to me, what would be your suggestion in allocation? I am ~20 years from retirement.

Thank you very much.

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kboogie82 t1_j2e4knz wrote

If you are totally unsure just pick the appropriate "retire" target date fund based on what year you wanna retire.

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Fatindocce OP t1_j2efpc7 wrote

Thank you for your reply. That is what I have been doing so far, and perhaps what I will keep doing. I am pretty embarrassed by my abysmal knowledge about investing.

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UMfan11244 t1_j2eo4kv wrote

I’d put every dime in VINIX and forget about it for 15 years.

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Fatindocce OP t1_j2eyj0c wrote

Thanks for the suggestion, much appreciated!

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SmoothCriminal2018 t1_j2e4cfq wrote

These are your current selections, right? If you’re moving to Vanguard your options are going to change. Fidelity won’t offer you Vanguard funds, and may change out some of the other funds too based on what your company pays for

If you don’t want to do a target date fund and are 20 years out, you could consider something like 80% S&P/20% international, or something like 70% large cap/15% mid cap/15% small cap. Maybe throw a bond fund in there for 10-15% if you’re on the conservative sode

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Fatindocce OP t1_j2ef238 wrote

These are actually the selections from the new account. Thank you for your suggestions.

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DiCatto t1_j2e7ib0 wrote

20 years from retirement ? I'd put most of it in an index fund, or something that closely resembles index.

At my previous job I also had Fidelity, and put everything into Contrafund. It performs pretty much like an index fund, going a little lower in recession, but a little higher in good years. Worked out well for me - as long as I was ready to dismiss it dropping down in recession.

Now that I am about 10 years away from when I'd like to sort of semi-retire, I have turned to a more conservative plan. But Contrafund made me a lot of money over the years.

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mrbrsman t1_j2e64uu wrote

I want to point out that “managing my investments more directly” can actually hurt returns, not help.

I tried to quickly find a link but couldn’t. There was a fidelity study a few years back that analyzed all their 401k participants and found that the best performing participants, were the ones who were deceased (by over a 100 bps).

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Fatindocce OP t1_j2efeu7 wrote

Thank you for your reply. Perhaps I should have worded the post a little better. I am not looking at fiddling with allocations continuously, I just wanted to set it up in a way that hopefully outperforms the target date fund and then leave it alone for the most part.

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Inevitable_Silver_13 t1_j2fq5si wrote

So the thing about the target date fund is that it gets more conservative over time and stays in bonds, cash, and money market funds as you approach retirement. That way if the market crashes a year before you retire you don't lose as much of your retirement savings.

Another thing to mention is it is going to be hard to outperform the target date fund without a lot of micromanaging that you might not have time for.

My plan is to keep most of my money in the target date fund and experiment more with say 10-20% of my account, but I do think you should have most of it in the target date fund, at least until you have a proven strategy which outperforms it.

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Inevitable_Silver_13 t1_j2fpec5 wrote

If you don't want to spend time watching it, put it in the 2040 out 2045 target date fund.

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KeyLime746 t1_j2fs3rg wrote

I'd either use one of the target date funds, or create a three fund portfolio as follows:

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trilliumsummer t1_j2elfo8 wrote

So an option, similar to what I did, is to just throw your money in the target date funds. They’re designed for people without knowledge and set it and forget it financing. Then do some reading, ask some questions, research the other funds, decide if you want to change it. I might have missed out a little in that approach, but I also wasn’t freaking out on fluctuations worrying whether I or the first place I went to get advice was right.

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biffmaniac t1_j2eolfr wrote

There are some great answers here, with different opinions. There is no one "right" answer. The main thing is that you need to be comfortable with your risk level.

Fidelity does their research to put together good options. Your employer selects what they think are good options to make available to you. It is designed to make money, but we can't know what the market is going to do.

My "advice" would be to keep it simple so that you understand it and are comfortable. With 20 years to go, I would dump it all into an SP500 index, but that's me. You'd have some highs and some lows. You'd need to be comfortable with that.

Standard advice would be a fairly aggressive split between stocks and bonds, based on your age/time to retirement. You could follow that on your own, or Target date funds will do that for you. Put it all into a target date fund and forget it.

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Fatindocce OP t1_j2eym64 wrote

Thanks for taking the time to put this comment together. Very helpful.

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Echoes-Pompeii t1_j2ff5vh wrote

I would pick something that mimics the S&P. Vanguard had a fund that did this and it was a low fee. That is your best bet there should be a description that tells you if it mimics the S&P

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