rebalancing 401(K) account

[andviv]

I re balance my 401(K) --for those outside US, retirement acct-- at least twice a year. It is time for me to do it again but with the current situation in the market I am not certain what position to take.

About me, I am in my early 30's, my 401(k) is my "plan to be poor" --i.e. backup plan and I am aggressive in my investments, risk is not something that makes me run scared, usually I see it as opportunities waiting for me.

However I've been having the feeling I should take a more conservative position given the current fluctuations. As I have no really a clue what the managers of the funds are doing these days I feel like I am completely blind and can't see clearly what are my options.

I am posting here some details so you can see my current situation. Please feel free to post your comments/suggestions/questions. Any help is greatly appreciated.

 

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[RAiMA]

The person who would best look after your fund would be yourself with the right education and mindset.

I'm not sure if people are allowed to manage their own 401k, in Australia we are. 401k is called super in oz. I'm just about to take off and manage mine. I'd suggest doing the same if you're able to, but before investing in any particular sector, it's best to invest in your financial education first. After that select a vehicle, simulate the method with no capital (like paper trade, if you're doing shares), then apply it to the real world.

There is a cost to setting up the company structures required to manage your own funds, and the other things you'll have to consider is if there is substantial capital to manage for a particular strategy in the sector you wish to apply.

Benefits of doing this is to be in control off your funds and invest them the way you wish for the maximum returns on the risk you're prepared to take, and you're able to claim certain things like seminars, travel expenses, tax deductables equipment for the purpose of managing your retirement account. Of course, best to get these checked out by your local accountant as the laws may differ in the US.

That's my 2c. Hope that helps.

 

[andviv]

The plan I'm enrolled in does not allow me too many options, other than choosing from a small number of funds available. If I could manage mine directly I'd invest in something I understand better like RE.

Of course I am the one that would best look after my retirement account. And of course I would do better if I had the education at this point. But I don't. That's why I am posting my current fund allocation here, open to everybody to see, to get feedback from those that know more than me in this area. I recognize I am not an expert in the market, I call myself a know-nothing in this section.

You do make excellent points like invest in my financial education, which I've been doing for quite some time now in the area of REI. I know nothing about these types of funds. I can't complaint, last 12-months return was more than 25% with this same allocation, but I suspect that was a plan for a different market and does not apply the same to the current situation.

And now that you mention it, what are your plans for your super plan, if you don't mind sharing?

Thanks for your reply.

 

[RAiMA]

I'll be managing my super on the Australian stock exchange. Going long and trading with options on a low to medium risk strat. Aiming for 5% monthly returns, through researching and analyse of the opportunities at hand.

I'll spread it out into real estate later. Will just take a while cause super managed funds aren't allowed to margin.

 

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[kidgas]

I, personally, like the allocations that you have currently. Of course, no one knows the future but I think that we will continue to see a several year period of inflation if the Fed opens up the credit spigot again by lowering interest rates. Thus, your natural resources will be more costly. Also, the dollar will be hurt improving the relative performance of foreign markets when currency effects are taken into account.

Finally, I think the most important part is that you are young and will do fine as long as you keep contributing to the account and dollar cost average. It will be 30+ years before you tap the 401(k) so you have time. It took the market 25 years to get back to even after the October '29 crash for buy and hold but only 5 years for those that dollar cost averaged.

 

[andviv]

JScott, yes, I did know that one. I'm still with the same company. I did ask them about being able to move my 401(k) now into an IRA but they said they only way was to take my money out when I leave this job.

Kidgas, thanks for your input. I followed a similar logic when making the allocations. What's your take if the fed does not lower the rate but the opposite, if/when they raise it?

RAiMA, based on what you mentioned I take that you are planning to be active with your account. When and how can you get your money out of your acct? here is when you are 65yrs old or before that but paying a penalty. Unless it is a Roth IRA where the gains are tax free after the same 65yrs old but the principal is yours whenever you want it to.

Thanks all for your input.
Anybody else?

 

[kidgas]

If rates go up, it is because the Fed is still concerned about inflation. In this case, the commodities (natural resources) will be going up. Thus, that portion of your portfolio should do OK. Unfortunately, inflation coupled with decreased liquidity through Fed raising will, in my estimation, stimulate a recession. This will likely knock the whole market down. This brings us back to DCA and setting yourself up for the next boom.

If you look up my post on Kondratieff waves, you would want to pick up some bonds at the peak of the interest rate cycle. As rates begin to decline, these bonds become more valuable since they have higher interest rates.

 

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[RAiMA]

RAiMA, based on what you mentioned I take that you are planning to be active with your account. When and how can you get your money out of your acct? here is when you are 65yrs old or before that but paying a penalty. Unless it is a Roth IRA where the gains are tax free after the same 65yrs old but the principal is yours whenever you want it to.

It's the same as the US. I won't be able to withdrawl from the account until I'm 65, but being a self managed super fund within a company structure there is a bit more flexibility than those who don't have one. You just have to be creative at times, like setting up a joint venture with your self managed super fund company, etc.