Dong left a comment yesterday about my fortitude in staying 100% in stocks. However, I think I better clarify that.
I am in 100% stock investments via 8 different mutual funds in 2 different accounts and about 5 or 6 stocks for dabbling in active investing and learning about stocks. Let’s just say the latter shows that I’m not a winner. I’d be better giving that over to a chimpanzee with the WSJ and some darts.
But the 8 funds I have go like this:
Account #1 – a 401k Rollover into a private Traditional IRA:
Mid Cap – closed to new investors
Small Cap – closed to new investors
REIT
Account #2 – current 401k:
S&P 500 Index Fund
Large Cap
International
Small Cap Growth
Small Cap Value
I loved the plan administrator of my old 401k which is why I rolled it over out of my old 401 and left the money there in an IRA. Good thing too because I am in two now closed funds, i.e. closed to new investors. This is where I had a bond fund holding but decided that was dumb and sold it off to buy into the Small Cap fund.
I hate the plan administrator of my current 401k. Their website sucks eggs and isn’t really geared towards investing. It’s geared at visiting and leaving. It’s terrible, but I digress. N.B. That I don’t get a lot plan choice here, so don’t start suggesting this kind of fund, or that kind of fund. I probably don’t have options like that available.
Why am I in 5 different funds at my current 401K? Well let’s take a look at each one. I picked these funds over a year ago and this might be a good time to revisit each one and why I am in it.
S&P 500 Index Fund – Always good to have some holdings which are pegged to the broader market indices. I am a firm believer in long term investment and the difficulty of beating the market, hence most of my contributions go here.
Large Cap Fund – I do like to gamble and I think it’s ok for me to put a little money here to see if the fund manager can beat the market. He’s done ok so this investment isn’t doing too badly. Trailing 1 year performance is 15.17%. I think I’ll stay.
International Fund – In reading asset allocation documentation, it seems that I should be diversified into international markets. That sounds good to me, but on closer examination, I’m basically holding European large cap stocks. I guess that’s ok. It’s better than holding only domestic stocks. I would however like to have an emerging market fund as well, but that’s not available to me and I also know that emerging markets are like riding a bull. Extremely volatile. This is about 25% of my present 401k.
Small Cap Funds – Ok, here is where I am hesitant. I am in two different small caps here. I thought I was hedging because one is specifically a growth fund, which did 13.13% in 2006. Not too bad. The other is a value fund, which did 19.5%. But to be truthful, I’m not really sure what is meant by Value vs. Growth. I like to think of it more as smaller companies I have heard of vs. companies I have not. The only way I can differentiate them is by their top ten holdings. The Value fund has Jack in the Box, Airgas, Jones Lang LaSalle. The Growth fund has Pool Corp, Respironics, Mobile Mini Inc. If you are scratching your heads over the last three, don’t worry. So am I. (FWIW, I only know Jones Lang LaSalle because I worked in a building they managed.)
I’m not crazy about the returns on these funds so far this year, but I see that 2005 was a bad year for both funds. While past performance is no indicator of future results, I think it’s still reasonable to stay in both of these funds. The question is do I beef up my International holdings and stop putting money into the large caps? I don’t have a crystal ball here, but let me ask you, do large caps have better growth than small caps? Of course they have the resources to weather a storm better than a smaller company, but I’m all about agressive growth while I am younger and under-funded.
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A little research I did yesterday tells me that you are correct for staying in 100% equities and for ditching the old bond fund in favor of more stocks. You’re young! Check out my findings and thoughts.
We’re in 100% stocks, too. Hey, I’m 27–I can afford to take the hit since I have 40 years until retirement…
My personal opinion is that 25-30% of your total portfolio (both accounts) is about right for international/emerging markets at this time. The only change I’d consider making (if it were me) would be to drop the small cap value in favor of small cap growth. Over the long term it should be outperforming the value fund.
Don’t forget to include your Roth IRA as part of your overall retirement portfolio.
Oh, and I’d consider looking at ETF-equivalents for the mutual funds in the IRA(s). You should be able to find lower costs.
I think it’s fine if you are 100% invested in stocks. You have a long time horizon until age 95 =Þ.
Btw, do you have a Roth IRA as well? I opened one up last year because I wanted to diversify my investment in overseas funds, particularly in emerging markets. So far I’m happy with T.R. Price.