Author Topic: 401k Investing Options  (Read 1677 times)

chrispy

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401k Investing Options
« on: September 30, 2016, 04:05:26 PM »
Hi all,

This is my first post and I am excited to learn more from everyone and share some myself with the community here.

I will lead off with the fact that I am 28 and a little over a year ago discovered Buffet and Munger.  Learning about them pushed me towards the idea of value investing and the brilliant concept of their business model.  My background is in engineering so playing with numbers is very fun but my background is not in a field like finance or accounting.

I have investments outside of my employer sponsored 401k that I am content with and were purchased at fair/low valuations (FRFHF, MKL, BRKB).  The main area of investing that makes me uncomfortable at this moment is my 401k due to lack of investment options (funds only).  A month or so ago my company switched 401k providers and now I have the choice of what to put my investments into.  Before this switch I was using a nice S&P500 index and an intermediate term bond index that Buffet or Bogle preach.  I was very content with that.  But now the idea of putting a majority of my money into the S&P is a little concerning due to the high P/E multiples, the continuous decline in projected growth, and the dependence on near zero interest rates.  Seems like very little upside possibility and a large possibility of a decline.  My questions that I would like to bounce off everyone are:

1) Markets can never be timed.  Should I continue with the S&P500 and intermediate bond fund and simply allocate less to equities?
2) Should I move purely into bonds with the idea of getting some return and waiting for the markets to decline?  I will admit that I have trouble understanding the risks bond funds have in this current environment.
3) Should I go to all cash and wait for something big?

This is not a very exciting question when it comes to investing but one I need to settle so I can focus on more interesting topics!

Thanks,
Chris


racemize

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Re: 401k Investing Options
« Reply #1 on: September 30, 2016, 08:30:28 PM »
I spent a good while looking at holding cash vs. not based on various value principles.  Here's the essay I wrote on it:

https://www.dropbox.com/s/zr93pt8tqkij6m8/2014-11-15%20Why%20Hold%20Cash.pdf?dl=0

Jurgis

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Re: 401k Investing Options
« Reply #2 on: September 30, 2016, 09:17:15 PM »
I think it's a good question.

IMO, here's how you do it:
1. Asset allocate all your investable portfolio: how much you put in stocks, how much in bonds, how much in cash.
2. Decide how you split this between accounts.

So you might decide that you put 70% into stocks, 30% into bonds. Then you might decide that you'll split both your normal account and your 401(k) 70/30. Or you could decide that all bonds go into 401(k) and stocks go into normal account. Or vice versa.

At current rates bonds and cash are not that different, so you can play around how much of "bonds" is in cash.

I would not put bond percentage into things like prefs, high yields, since they correlate much more with stocks and you don't want your bond portfolio crashing when your stock portfolio is crashing.

My 401(k) is 80% stocks, 20% bonds, my normal account is a bit higher than that in stocks. At current prices I wouldn't go less than 60% stocks/40% bonds.

All of this is just IMO, others may disagree, make your own decisions, have fun.  8)
« Last Edit: September 30, 2016, 09:19:28 PM by Jurgis »
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rawraw

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Re: 401k Investing Options
« Reply #3 on: October 01, 2016, 09:19:10 AM »
I'd leave your retirement account for dollar cost averaging indexes.  If you turn out to be your own worst enemy for investing (which many of us are), then it is good to limit the damage IMO.   Everything that concerns you about the market is talked about 24/7.  Damodaran's calculated equity risk premiums are still reasonable.

chrispy

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Re: 401k Investing Options
« Reply #4 on: October 02, 2016, 06:48:36 AM »
Thank you all for the input.  Racemize, your essay was very interesting and reinforces what is continually preached about cost averaging and staying in the markets!