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Tell me What to do With my 401(k)

I have been talking about analyzing and re-balancing my 401(k) since May, 2010 and haven’t actually done anything about it since August of 2009! That is ridiculous, for anyone, nevertheless a guy who works in the financial industry and runs this fantastic personal finance blog.  So today, I am going to analyze my 401(k) using MorningStar’s Free X-Ray Portfolio tool and then changing those holdings if needed.

Analyzing my 401(k) Holdings

Let us first take a look my holdings as they were set last August and how future contributions will be put in.

Holding Percentage of Account Current Future Contributions
RERCX – Amer Funds EuroPac Grth R3 5.2% 5.5%
RGACX – Amer Funds Growth Fund R3 24.20% 26%
IARCX – Invesco Real Estate C 4.8% 3.5%
NBPBX – Neuberger Ber Partners Adv 9.9% 10.3%
NBREX – Neuberger Ber Regncy Trust 16% 15%
OPGIX – Oppenheimer Glob Opp A 11% 10%
OPSIX – Oppenheimer Global Strategic Inc A 1.8% 1.5%
OIBAX – Oppenheimer Intl Bond Fund A 2.6% 2.5%
QVSCX – Oppenheimer Sm & Mid Cap Val A 10.1% 10.2%
CGRWX – Oppenheimer Value A 14.4% 15.5%

As you can see a few of my mutual funds have deviated from where we set them a year ago. Why? It is because that particular fund has grown larger in comparison to the others within the portfolio; alternatively, that fund may have decreased in value as compared to the rest of the portfolio.

Well if we take IARCX, my REIT, for example  (which is close to where we are at from my last Re-Balancing) is up 36% this year. It would have been nice to put all contributions into this fund last August, but I didn’t because I prefer a more balanced approach.  This is when I use MorningStar to determine whether I have that balanced approach.

401(k) Review With MorningStar X-Ray

I know that I am young (29 in one week!) and that I have 30 or so years before I can even begin to think about taking money out of my qualified accounts, but I I don’t have a naturally high risk tolerance.

However, knowing that I am unlikely to touch my retirement account (hell, it took me a year to write this post) my goal is/was to create an equity heavy portfolio that is a little bit out of my risk tolerance range, knowing that I won’t change it.

According to MorningStar X-Ray allows you,

Pinpoint your portfolio’s strengths and weaknesses.

At a glance, understand the basic characteristics of your portfolio including its asset allocation, exposure to different investment styles, geographic regions, and sectors. Plus, easily analyze how well your holdings and expenses are adding up to meet your financial goals.


As you can see I have a blend of growth and blend mutual funds with a small position in bonds, real estate and cash.  My Mutual Fund Expense ratio is around 1.19% – not fantastic but not horrible considering I don’t have the choice to use index funds.

Before I tell you what small changes I plan on making, I’d love to hear your ideas.



  1. I’m 25 so I go as aggressive as possible on my 401k. I do mostly company stock (because I think my company stock price is depressed right now and has a lot of long term potential) and then REIT and emerging market. If I want some safe stuff, I do the S&P 500.

    That works for me, but it really depends on your risk tolerance. If you’re happy with what you have, then keep it that way.

    • Kevin, investing so heavily in company stock is scary, even if it does seem like a great deal. (It may be a great deal for a reason.)

      Please be careful…

      • Whoa, I’d never invest the bulk of my money into company stock. I know you’re probably loyal and believe in them, but you gotta look out for yourself, what happens if you lose both your job and the company goes bankrupt?

      • I don’t know Kevin and if he’s an educated investor or a newbie.

        If he’s an newbie, yes. If he reads his company’s SEC statements maybe no.

        Sometimes working for a company gives much better insight than being outside.

          • I did too. It really depends upon the experience of the investor. Reading his profile he sounds kinda wet behind the ears so I would say proper AA then.

            No more than say 20%-30% of total NW. Otherwise it’s gambling.

            • I’m definitely not an expert, but I have been investing for a few years and I know what’s going on. Plus, let’s just say my company has an “implicit guarantee” from the US government that it will never fail. 🙂

              I understand the risks, and I’m willing to accept them. As soon as it hits a certain price, I’m going to rebalance and go back to something more reasonable like 25%

              • There are always alternatives to investing in “company stock.” If you work for Apple, you can invest in Google or Facebook. If you work for Lehman Brothers, there are Goldman Sach and ??
                It is too much risk to put 401k money in company stock. If your company stock is depressed, the other stocks in the same sector are depressed too. Take a look at my 401k history, last post below. 🙂

              • Correction: It is too much risk FOR YOU to invest in company stock. I’m perfectly aware of the risks and am perfectly comfortable with accepting them because I’m comfortable with the potential rewards as well. I appreciate your advice and am sorry for your unfortunate 401k history, but I respectfully disagree.

  2. Interesting. Because my fund is in IRAs and not constrained by the limits of a 403(b) or 401(k) plan, my financial dudes have me invested not only in a similar array of mutual funds, but also in individual stocks and inflation-protected instruments. They’re fairly conservative just now, their client having slammed into the retirement wall. However, what they’re doing is pretty similar: growth equities, bonds, cash. They’re heavily into blue chips, but they also invest in emerging economies, which is where they seem to think the future lies.

    They just dumped Bank of America, which was a little alarming…in explaining why, they remarked that there are “just too many clouds on the horizon for U.S.-based banks.”

    At any rate, right now the strategy is doing quite well. In the past, this group’s strategies have maximized income in good times and minimized losses in bad times. Though a ton of money went down the drain in the crash, it was nothing like what friends lost.

      • Yes. They charge a small percentage of the total amount. Sometimes I wonder if I should have it all in Vanguard funds, but they generally earn more than comparable amounts that I used to keep in VG earned, and their fee much less than the total fund earns.

  3. Since you ask… 🙂

    I like simplicity. You’ve got 10 funds which is more than I like.

    If this was my portfolio I would replace all the American funds with one American fund. Vanguard broad-based index funds would be ideal, but perhaps you don’t have access to those.

    That would cut it down to 6 funds.

    Another philosophy that I follow is to avoid insignificant holdings. Typically if I don’t want to hold a minimum of 5% of something, then I’d rather own zero.

    You have 2 funds that represent 1.8% and 2.6% of your portfolio. I would sell them and put the money into other funds.

    This would get you down to 4 funds.

    Your costs are not very low – again, maybe your choices are limited?


    • Vanguard is not an option in my bucket of funds, nor do I have any low cost index funds. All active mutual funds. Wo while you are 100% right, 1.1% isn’t rock bottom I don’t have the option to choose broad index funds.

      As far as simplicity maybe I could choose only 1 US Growth, but I figure if every active portfolio manager is different why not hedge my choice with the other choice?

      I understand the 5% rule if this was a non-qualified account where I have to track everything, but there is nothing to track in my 401(k) so how would it simplify my life?

      • It would simplify things by having less funds to look at and understand.

        I didn’t say it would simplify things a lot. 🙂

        That’s just how I do it – it’s not necessarily the best way.


        • Considering I haven’t taken a look at the portfolio in a year maybe simplification is exactly what I need lol

  4. I agree that you could reduce the number of funds.

    I would probably increase your small/mid cap and international funds exposure. But, I would have to spend more time on it to know for sure.

    Let us know what you decide.

  5. Hey Evan,

    did you look my my asset allocation. I’m 10 years older but have a 60/40 mix.

    At least for me, even at your age, you don’t have enough bonds. I would be no more than 80/20 mix IMHO. You want some protection even if the market goes boom!

    What about setting up Roth IRA for investments that can’t be done through work?

    I would add some inflation protection also in there. TIPs, commodities, but that’s just me.

    • Interesting. When you compare our portfolios I don’t have enough bonds which makes me riskier but when you take a look at the stock holdings you have 50% out of the country!

      We have a regular IRA for the Wife. It is mixed S&P index and the Aristocrat Index. I actually really like the idea of adding a 3rd holding of TIPs. Thanks! I am going to move on that for hers. We don’t add a lot to it right now (~$2K/yr out of the $5K we can), because we are in operation down payment for bigger home, but I am going to add a third holding if the IRA Broker allows for it.

  6. “but when you take a look at the stock holdings you have 50% out of the country! ”

    I do? Within my 62% I have 52% domestic. Like I also stated in the post we are 27% of the world GDP. The thought process (and a few fund managers are stating this also) is you should be more weighted outside of the US. Like investing in your company stock, too many people are invested within the US borders. Too much short term thinking IMHO. The world does not revolve around the USA.

    Also in the graphic above you might want to remove the estimated annual fee since you can derive things from that.

    • When you use the MorningStar tool it just assumes $1,000 balance if you are using %s. Luckily, I have more than that in my 401(k).

  7. Hey Evan

    Advice? MorningStar x-ray is awesome for looking through your funds and telling you where you are, but where you want to go is a little unclear.

    I think this is true for many people, especially in the case of retirement funds (how should I know what I want in 30 yrs time?) but discussing the strategic or tactical merits of XYZ methodology (more funds? less? income? geographic or industry exposure?) are somewhat irrelevant and possibly destructive outside of some broader picture.

    Figure out what you would like to see and what is reasonable to expect from a portfolio, have the emotional maturity to stick with it over the investment period, and you’ll be golden!

    @moneysmarts / everydaytips: besides simplicity for simplicity sake, why would you cut down on the funds? Assuming one avoids irrelevance (too little per fund to matter) and trading costs are kept low, there is obviously a limitation to how far one wants to go with investing in fewer funds. I generally think people need more asset classes involved, not fewer.

    • Mark, I don’t disagree with you. However, as a true-blue couch potato – I just don’t need many investment products.

  8. Hi Evan

    Couch potato you may be, it is not difficult to build the right portfolio!

    I point I took the liberty of analysing your portfolio and comparing it with an alternative. I based this on your asset allocation (as shown by Morningstar) and, though I am not you, made a number of assumptions based on you being unlikely to touch your fund for many years and not having a high tolerance for risk. I assume 20 years investment horizon.

    I developed an alternative portfolio for you which:
    – has a higher overall return at a lower risk level (more efficient portfolio)
    – has a higher probability of returning better capital growth, rate of return and maintaining purchasing power through the period
    – performed better (lost less) during times of market stress (lower capital drawdowns, VaR)
    – better captures upside movements in equities but protects against downsides
    – (contact me for more and a report)

    The asset allocation is:
    – US Equity 24%
    – Europe Equity 12%
    – Japan Equity 6%
    – Asia ex-Japan Equity 9%
    – Emerging Markets Equity 9%
    – Aggressive Absolute Return 12%
    – Cautious Absolute Return 4%
    – Real Estate 4%
    – Commodities 8%
    – Government Bonds 2%
    – Investment Grade Corporate Bonds 2%
    – High Yield Bonds 2%
    – Emerging Markets Bonds 2%
    – Cash, 4%

    There are a lot of asset classes in there, and one will have to bear in mind the trading costs (our experience is that per fund bite size needs to be around >$10k to really make a difference) but I just wanted to prove the point…

    Also, I’m not American and don’t know the intricacies of 401k rules (I see there are absolute return allocations in there), but again to illustrate this is not hard, converted the above into a possible market portfolio based on 2 different investing methodologies: Morningstar top-rated active managed funds and ETFs. There are shown below, separated by “/”.

    – US Equity: ING Value Choice / iShares S&P500 ETF
    – Europe Equity: Mutual European / iShares MSCI EMU ETF
    – Japan Equity: Henderson Japan Asia Focus / iShares MSCI Japan ETF
    – Asia ex-Japan Equity: Matthews Asian Growth and Income / iShares MSCI All Country Asia ex-Japan ETF
    – Emerging Markets Equity: Oppenheimer Developing Markets / iShares MSCI Emerging Markets ETF
    – Aggressive Absolute Return: Wegener Adaptive Growth / iShares S&P Aggressive Allocation ETF
    – Cautious Absolute Return: Hussman Strategic Total Return / iShares S&P Conservative Allocation ETF
    – Real Estate: ING Global Real Estate / iShares Dow Jones U.S. Real Estate ETF
    – Commodities: Van Eck Global Hard Assets / iShares S&P GSCI Commodity ETF
    – Government Bonds: Putnam US Government Income / iShares Barclays 7-10 Year Treasury Bond ETF
    – Investment Grade Corporate Bonds: PIMCO Total Return / iShares iBoxx $ Investment Grade Corporate Bond ETF
    – High Yield Bonds: UBS PACE High Yield / iShares iBoxx $ High Yield Corporate Bond ETF
    – Emerging Markets Bonds: TCW Emerging Markets Income / iShares JPMorgan USD Emerging Markets Bond ETF
    – Cash: Calvert Ultra-Short Income / DB x-Trackers Sterling Money Market ETF,Pounds; US Dollar Money Market ETF,US Dollars; EONIA ETF,Euro

    Finally, the above took longer to write in the comments box than it did to figure out! Simplicity is good for user interfaces and life decisions. Maximising return and balancing risk is good for investing! 🙂

    • Mark,

      I really appreciate the time you took to respond to this post. I saw that you mentioned you weren’t American – the problem with the 401(K) is that I am given only certain choices when it comes to funds, and none of the ones you gave me were in there.

      The options I have are a lot more expensive, but it is what it is.

      • Hi Evan
        Pleasure! The asset allocation drives the improved performance, the funds are just the market implementation. I wanted to illustrate that the funds are – as you say – what they are, it’s the allocation that matters! 🙂
        I developed the fund portfolio by using a pre-built investing template in Spotlight, but I think it would add value if we developed a template specifically for 401k needs?
        Do you know where I could find info on the actual funds allowed in a 401k? Is there some kind of approved funds list?

        • The funds available to 401(k) holders vary depending on what financial company their employers have decided to use, and what plan the employer has with that financial company.

          So, sorry, no approved funds list :(.

  9. Are you taking all your accounts into consideration when you rebalance? It’s not enough to just look at 401k.
    I would cut down on the number of funds in 401k to make it easier to keep track of.
    You probably want to add emerging market somewhere in your total portfolio. Maybe 5% with your low risk tolerance.

    • Well I don’t have that many other accounts. I have the 401(k), the Wife’s Low Roth IRA (which is split 50/50 S&P Index and Dividend Index Fund), my dividend income machine, and CASH.

      Taking out the Cash (because it is earmarked for a home in a year or so) the 401(k) is the next biggest item I have by A LOT. So yes, I am just focusing on that

  10. Your portfolio is nicely diversified. You should give yourself a pat on the back. I would like to make a point that all of the funds in your portfolio are middle of the road funds. I am an advocate for finding the best mutual funds. You are stuck with what is available in a 401K which leads me to advise most people to roll over their 401K to a self directed IRA when they leave their old employer.


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