I have a 60% stock, 40% fixed income asset allocation in my employee 401k. Should I?
put all 40% of the fixed income into bonds (Barclay's Capital U.S. Aggregate Bond Index), or should I allocate a portion of my fixed income to a Stable fund?
The reason I ask this is because interest rates are at an all-time low, and I fear losing money if I allocate all 40% of my portfolio to a bond fund, and interest rates rise.
But, on the other hand, if I put, maybe 10%-15% of my portfolio in a Stable fund, I would STILL be losing money because it only yields about 3% a year vs. 6%+ for bonds.
So, I think I have 3 options. Please tell me which would be more prudent in this low interest rate environment we're in:
Option 1
15% Stable fund
25% bond index fund
60% stock index funds
Option 2
10% Stable fund
30% Bond index fund
60% Stock index funds
Option 3
40% Bond index fund
60% Stock index funds
FYI: I am looking to retire early, in about 8-10 years (I'll be 50-52).
My employer does not offer TIPS, IBonds, or any other fixed income option except for a Stable fund.
Final issue before I set and forget my 401k
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jacob
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What is in the "Stable" fund?
What is in the "Stock" fund?
And what is in the "Bond" fund?
("Set and forget" is not prudent unless the market is trending (which it isn't). The current market conditions point towards bonds with a short duration (short term bonds) and defensive stocks (consumer staples, utilities, necessities).)
What is in the "Stock" fund?
And what is in the "Bond" fund?
("Set and forget" is not prudent unless the market is trending (which it isn't). The current market conditions point towards bonds with a short duration (short term bonds) and defensive stocks (consumer staples, utilities, necessities).)
The Stable fund is based on insurance products, and pretty much guarantees you about 3% a year, but this varies.
The bond fund, like I said, tracks Barclay's Capital US Aggregate Bond Index. This would be like Vanguard's Total Bond Market Index Fund (VBMFX), which holds intermediate-term bonds.
If you want a complete list of what I'm currently invested in, here it is:
10% stable value fund
30% bond index fund
25% large-cap index fund (VIIIX)
9% mid-cap index fund (S&P Mid-Cap 400 index)
8% small-cap index fund (Russell 2000 index)
18% international index fund (MSCI All Country World ex- U.S)
The bond fund, like I said, tracks Barclay's Capital US Aggregate Bond Index. This would be like Vanguard's Total Bond Market Index Fund (VBMFX), which holds intermediate-term bonds.
If you want a complete list of what I'm currently invested in, here it is:
10% stable value fund
30% bond index fund
25% large-cap index fund (VIIIX)
9% mid-cap index fund (S&P Mid-Cap 400 index)
8% small-cap index fund (Russell 2000 index)
18% international index fund (MSCI All Country World ex- U.S)
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jacob
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- Posts: 17170
- Joined: Fri Jun 28, 2013 8:38 pm
- Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
- Contact:
20% International
40% Bond (intermediate)
20% Stable
20% Large (if market is not available)
This would be aiming at a decreasing exposure to long-duration issues like stocks (especially small cap). It would also reduce country-risk (in particular you'd benefit from the dollar being less weak than most other currencies). The summary would be to preserve value rather than grow it. This is a pertinent strategy for the current market environment when most stocks suck and bonds will continue to do well until they fail spectacularly (similar to what housing prices did).
However, the portfolio should be considered along with all your other income. For example, you still have a job (a big income component), but you're close to retirement. Hence preservation of what you already have is important.
Usual disclaimers apply. It's practically impossible to make fire&forget plans under market conditions like this.
40% Bond (intermediate)
20% Stable
20% Large (if market is not available)
This would be aiming at a decreasing exposure to long-duration issues like stocks (especially small cap). It would also reduce country-risk (in particular you'd benefit from the dollar being less weak than most other currencies). The summary would be to preserve value rather than grow it. This is a pertinent strategy for the current market environment when most stocks suck and bonds will continue to do well until they fail spectacularly (similar to what housing prices did).
However, the portfolio should be considered along with all your other income. For example, you still have a job (a big income component), but you're close to retirement. Hence preservation of what you already have is important.
Usual disclaimers apply. It's practically impossible to make fire&forget plans under market conditions like this.
20% International
40% Bond (intermediate)
20% Stable
20% Large (if market is not available)
I appreciate the fact that you are not trying to push me into a higher stock allocation like many responders in other forums have. I get nuts telling me to do 90% stocks/10% bonds!
I've looked at your allocation suggestion, and it reminds me of similar allocation models I've seen (Four Core Portfolio?). It seems sensible, but, even if you don't like small caps (and remember, this portfolio would be for decades, not years) why ignore mid-cap stocks?
I can somewhat understand being skittish about international stocks right now, but I'm not into market timing. I think dollar-cost averaging will take care of the kinks along the way.
40% Bond (intermediate)
20% Stable
20% Large (if market is not available)
I appreciate the fact that you are not trying to push me into a higher stock allocation like many responders in other forums have. I get nuts telling me to do 90% stocks/10% bonds!
I've looked at your allocation suggestion, and it reminds me of similar allocation models I've seen (Four Core Portfolio?). It seems sensible, but, even if you don't like small caps (and remember, this portfolio would be for decades, not years) why ignore mid-cap stocks?
I can somewhat understand being skittish about international stocks right now, but I'm not into market timing. I think dollar-cost averaging will take care of the kinks along the way.