Friday, February 16, 2007

Changes in my 401k investment strategy and thoughts on our interim investment strategy

Rather than go with a target retirement date plan as I've been doing with our other investments, I've decided to buy into specific asset classes to help push our asset allocation closer to our target allocation.

For those new to this blog, I have hired a professional investment advisor. We began the investment planning process and have already established a targetted asset allocation. However, with all the life changes ensuing, we decided to pause the investment planning process until our family moves and we have bought a new house. Our interim strategy has been to invest everything in Vanguard's 2025 target retirement plan (VTTVX) as it's bonds to stock ratio most closely resembles are plans target of about 20%.

Unfortunately, not all of our investments can be liquidated and converted into VTTVX. Why?
  1. Most of our business sponsored plans do not provide the mutual fund or any Vanguard mutual fund.
  2. Some of our non-retirement investments cannot be sold until they are 1 year old to avoid paying regular income tax (versus capital gains).
  3. Some of our investments are in the process of rolling over / being transferred.

Our new model for my 401k, which will house about $23,000 plus match this year is as follows:

  • 60% DODGE & COX INTERNATIONAL ST
  • 20% HOTCHKIS AND WILEY SML CP VL I
  • 20% PIMCO TOTAL RETURN FUND

This is a very odd selection of investments for a strong advocate of passively indexed funds, however, our indexed options are quite poor, with high expense ratios. The International index has the same ER as the Dodge & Cox fund. There is no small cap value index. The bond index seems to have the same ER as PIMCO's. I don't expect the money to sit in these funds forever, as I'm skeptical they can beat or even match their indexes forever, then again I will probably not be at the same employer forever, either, giving me a chance to transfer assets into a better plan.

I am tempted to push more of our other 401k plans into similar investment styles to force our asset allocation in the right direction.

Am I making a mistake? Should I put the money into the international index instead? I really don't like Blackstone products, which is my alternative. Should I put the money in a small cap index versus active small cap value?

Regards, makingourway

1 comment:

A visitor said...

Did you check on an "in service withdrawal" that one poster mentioned? We're in a similar--no worse, actually--situation with my wife's employer. No index funds, all the rest with mod-high ERs and 12b fees. I'm trying to find some way to extract the funds and put them somewhere else, while continuing her contributions + match.

On the 25% match: who knows? Maybe you will stay for a few years and keep whatever is vested. At least you get to keep the compounded earnings on their money.