I am finally eligible for my 401k at my job, they have just deposited their match from my first 6 months of working. The 401k is a Non-Prototype account with Fidelity. Basically they just deposit money and I put it where I want it. I am looking at the Fidelity Spartan funds to keep the fees low.
I am looking for advice on my allocation, I want to go with high risk since I am 25, so I am trying to weight it toward small-cap a bit. This is what I am thinking right now:
25% Spartan 500 Index (FUSEX, .10 ER)
35% Extended Market (small and mid-cap) (FSEMX, .10 ER)
30% International Index (FSIIX, .20 ER)
10% US Bond Index (FBIDX, .22 ER)
Help with Fidelity 401k Allocation
Re: Help with Fidelity 401k Allocation
I had a similar allocation for several years, but lately I have found that the S&P Index is lower cost and has been more consistent over a longer period of years. The small and mid caps have hit big for me a few years here and there, but on the whole they seem to have more costs and, at least for my personal 401K choices, the small and mid caps have underperformed the S&P Index funds. Also for me personally, I see no reason to invest in bond funds at this time. I hit on the bond funds in the 2008-2011 time frame, but those who did not sell in a timely manner probably lost more than expected in their bond funds.
Re: Help with Fidelity 401k Allocation
I see. I was thinking about going with no bonds for a few years, I might do that. My plan was to just have them there for rebalancing purposes.
Interesting about the experience you've had with small caps. If the expense ratio was the same, as mine would be, would you recommend utilizing them at my age?
Interesting about the experience you've had with small caps. If the expense ratio was the same, as mine would be, would you recommend utilizing them at my age?
Re: Help with Fidelity 401k Allocation
If the expense ratio was closer to the same, then that would be a positive. I think you have to have them for diversification purposes, but they have much more volatility for me.
I took a closer look at my 401k results after I wrote the post above. Fidelity Growth has been my best performer over the past 10 years (12% annual average). It's not an index fund and does have more volatility, a higher expense ratio, and larger cap stocks, but it has been pretty good for me. It has outperformed the small & midcap funds that I have access to in my 401k quite handily (7% annual average).
I took a closer look at my 401k results after I wrote the post above. Fidelity Growth has been my best performer over the past 10 years (12% annual average). It's not an index fund and does have more volatility, a higher expense ratio, and larger cap stocks, but it has been pretty good for me. It has outperformed the small & midcap funds that I have access to in my 401k quite handily (7% annual average).
Re: Help with Fidelity 401k Allocation
This allocation seems good to me. I'm jealous of how good your 401k options are; I've never had a 401k even close to as good.
Your allocation is basically the same as the Vanguard Target Retirement 2060 allocation (VTTSX) which is 10% bonds, 90% stocks (27% international). The only real difference is Vanguard uses Total Stock Market (VTI/VTSMX) instead of the 500 / small / mid split you do. Personally I prefer Total Stock Market and would look for an equivalent in your Fidelity 401k. However, the correlation between your stock index mix and VTI is probably 99%+ so it hardly matters.
I'd say you're in good company when you come up with the same simple answer that Vanguard does. (The caveat being that you are betting pretty hard on prosperity between now and when you retire.)
Your allocation is basically the same as the Vanguard Target Retirement 2060 allocation (VTTSX) which is 10% bonds, 90% stocks (27% international). The only real difference is Vanguard uses Total Stock Market (VTI/VTSMX) instead of the 500 / small / mid split you do. Personally I prefer Total Stock Market and would look for an equivalent in your Fidelity 401k. However, the correlation between your stock index mix and VTI is probably 99%+ so it hardly matters.
I'd say you're in good company when you come up with the same simple answer that Vanguard does. (The caveat being that you are betting pretty hard on prosperity between now and when you retire.)
Re: Help with Fidelity 401k Allocation
The even better part is that they contribute 15% of my salary without any input from me.akratic wrote: I'm jealous of how good your 401k options are; I've never had a 401k even close to as good.
I appreciate the input in this thread. I think I'll go with the allocation I outlined above, and in a few years if I want to cut back on the risk/volatility I'll switch to a Total Stock Market fund instead of overweighting the small caps.
Re: Help with Fidelity 401k Allocation
If the 15% is not even your personal money that is fantastic. The allocation is the same I used for years.
I just had a small cap fund that went through a few bad years. As an example when the Index Funds were up +16% this year my small cap fund was at -2% and on top of the expense ratio I had to switch it up for my personal situation. Of course there are other years when the Index Funds were down -20% and the small cap fund was up +12%.
I just had a small cap fund that went through a few bad years. As an example when the Index Funds were up +16% this year my small cap fund was at -2% and on top of the expense ratio I had to switch it up for my personal situation. Of course there are other years when the Index Funds were down -20% and the small cap fund was up +12%.
Re: Help with Fidelity 401k Allocation
Well I just put the orders through for the S&P and Extended market funds. I forgot to factor in the minimum investments for the funds, which is $2500 for each one. So I'll slowly be getting into each fund and then I'll finally be able to adjust to allocation after I have at least $2500 in each one.
Re: Help with Fidelity 401k Allocation
It sounds like you already came to a reasonable decision, so maybe this is too late, but here's my two cents. Very few people seem to be able to hold stock-heavy total return portfolios through recessions without capitulating or experiencing undue stress. So in general I think people ought to invest more conservatively. I would do something more like 40/60 stock/bond or *maybe* 50/50. Also IMO slicing and dicing makes things unnecessarily complicated, so if I were doing a Boglehead-style index portfolio I'd just use the three core funds, total US stock, total ex-US stock, and total bond market.
Re: Help with Fidelity 401k Allocation
25% Spartan 500 Index (FUSEX, .10 ER)
35% Extended Market (small and mid-cap) (FSEMX, .10 ER)
30% International Index (FSIIX, .20 ER)
10% US Bond Index (FBIDX, .22 ER)
That's a reasonable allocation. Though, I would suggest it isn't ideal. The Spartan 500 and Spartan International Index will hold extremely similar companies. They will be global behemoths that aren't really country specific. When taken alone this is fine, but when added together you have 55% of your assets in the same asset class and probably 90% of your assets invested in companies that react strongly to the US stock market.
Assuming you are ok with risk and have a long time horizon, I would go with something like this:
20% Spartan 500
25% Extended Market
20% International Index
15-20% Emerging Markets (unsure of your choices here)
10% US Bond Index
5-10% Foreign Bond Index (depending on fund choices)
5-10% Commodities (depending on fund choices)
This is not my allocation at this time. I have less bonds and more emerging markets. I will probably increase my emerging market portfolio going forward, as I like to overweight areas that appear to be down.
You don't have to use the same percentages, as I have listed. However, you should definitely have an emerging market fund(s) in your portfolio. Emerging markets are at least a little more decoupled from the major economies than the International Index. Plus, emerging markets have taken a big hit and now is probably a good time to be adding these positions.
I just bought some MSCI Turkey ETF shares last week. I am eyeing Brazil next and possibly Egypt.
Your emerging market fund or funds should be from both the BRIC's, up and coming countries like Turkey, and countries/areas of the world that are just starting to come alive (sub-Saharan Africa, but not South Africa). You may need more than one fund to accomplish this and you may not find any funds in your 401k focusing at that section of Africa.
You will also have to pay attention to the expense ratio for emerging market funds, as it will be higher. A little higher is probably worth it considering the return should be higher, but it still shouldn't be exorbitant.
35% Extended Market (small and mid-cap) (FSEMX, .10 ER)
30% International Index (FSIIX, .20 ER)
10% US Bond Index (FBIDX, .22 ER)
That's a reasonable allocation. Though, I would suggest it isn't ideal. The Spartan 500 and Spartan International Index will hold extremely similar companies. They will be global behemoths that aren't really country specific. When taken alone this is fine, but when added together you have 55% of your assets in the same asset class and probably 90% of your assets invested in companies that react strongly to the US stock market.
Assuming you are ok with risk and have a long time horizon, I would go with something like this:
20% Spartan 500
25% Extended Market
20% International Index
15-20% Emerging Markets (unsure of your choices here)
10% US Bond Index
5-10% Foreign Bond Index (depending on fund choices)
5-10% Commodities (depending on fund choices)
This is not my allocation at this time. I have less bonds and more emerging markets. I will probably increase my emerging market portfolio going forward, as I like to overweight areas that appear to be down.
You don't have to use the same percentages, as I have listed. However, you should definitely have an emerging market fund(s) in your portfolio. Emerging markets are at least a little more decoupled from the major economies than the International Index. Plus, emerging markets have taken a big hit and now is probably a good time to be adding these positions.
I just bought some MSCI Turkey ETF shares last week. I am eyeing Brazil next and possibly Egypt.
Your emerging market fund or funds should be from both the BRIC's, up and coming countries like Turkey, and countries/areas of the world that are just starting to come alive (sub-Saharan Africa, but not South Africa). You may need more than one fund to accomplish this and you may not find any funds in your 401k focusing at that section of Africa.
You will also have to pay attention to the expense ratio for emerging market funds, as it will be higher. A little higher is probably worth it considering the return should be higher, but it still shouldn't be exorbitant.
Re: Help with Fidelity 401k Allocation
I have the choice of all funds that Fidelity offers, so I could do that, however with $2500 minimums on most funds, it would take me quite a while until I could actually hit that allocation. I could get an even $2500 into each one by the end of the year.Chad wrote: Assuming you are ok with risk and have a long time horizon, I would go with something like this:
20% Spartan 500
25% Extended Market
20% International Index
15-20% Emerging Markets (unsure of your choices here)
10% US Bond Index
5-10% Foreign Bond Index (depending on fund choices)
5-10% Commodities (depending on fund choices)
I do see that there is a Spartan Emerging Markets fund (FPEMX), the composition is:
Emerging Asia
52.91%
Latin America
23.12%
Emerging Europe
10.67%
Africa
8.61%
Developed Markets
4.13%
Middle East
0.56%
I guess I'll have to look over my allocation in 6 months+ when I have more options available.
Re: Help with Fidelity 401k Allocation
With a $2500 minimum you could hold off on the Foreign Bond fund and Commodities fund until everything else is funded (or just not worry about them).
The Spartan Emerging Markets fund looks decent. Nice regional composition. The only downside, and this is a very small one, is that the African investment is almost all in South Africa. This doesn't hit on the growth in the poorer countries of the region. Other than that, it looks like a really good emerging markets fund. Especially, with a rather low expense ratio for this type of fund.
The Spartan Emerging Markets fund looks decent. Nice regional composition. The only downside, and this is a very small one, is that the African investment is almost all in South Africa. This doesn't hit on the growth in the poorer countries of the region. Other than that, it looks like a really good emerging markets fund. Especially, with a rather low expense ratio for this type of fund.