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23 years old, 40+ year term investment, which funds or at least which categories and what percent should I invest in?

My Fund Options: Transamerica Stable Value Option, Loomis Sayles Bond Ret Opt, Loomis Sayles Investment Grade Bond Ret Opt, JPMorgan Government Securities Ret Opt, Federated Institutional High Yield Bond Ret Opt, Templeton Global Bond Ret Opt, BlackRock Equity Dividend Ret Opt, American Funds Fundamental Investors Ret Opt, Alger Capital Appreciation Ret Opt, RidgeWorth Mid-Cap Value Equity Ret Opt, Fidelity Advisor Leveraged Company Stock Ret Opt, Ivy Mid Cap Growth Ret Opt, Franklin Small Cap Value Ret Opt, Vanguard Small-Cap Index Ret Opt, Pioneer Oak Ridge Small Cap Growth Ret Opt, American Funds SMALLCAP World Ret Opt, Invesco International Growth Ret Opt, MFS International Value Ret Opt, Oakmark International Ret Opt, DFA Emerging Markets Portfolio Ret Opt, Franklin Mutual Financial Services Inv Opt, Van Eck Global Hard Assets Ret Opt, (TAA = Transamerica Asset Allocation), TAA - Conservative Portfolio Ret Opt, TAA - Moderate Portfolio Ret Opt, TAA – Moderate Growth Portfolio Ret Opt, TAA – Growth Portfolio Ret Opt.

Aug 07, 2014 by Joseph from San Juan, San in  |  Flag
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Joseph, you are experiencing the challenge that lots of people face when they get a job and are asked to decide how to invest their 401(k) contributions. You are looking for free advice, and I appreciate that. But giving investment advice to people via the internet is like providing medical advice without talking to the patient first. Successful investing has a very large psychological component. There may be a "perfect" combination of funds for someone like you, but without knowing more about you I would not want to give you advice. I suggest finding and RIA who is willing to work with you after getting got know you better.

Comment   |  Flag   |  Aug 11, 2014 from Suffolk, VA

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Joseph,

You've got a decent list of options there. While I do see Vanguard, DFA, and the words index in your list, that's really a non-issue. Both active and passive investing are viable strategies depending on what research you read.

Generally speaking, you probably have a high risk capacity based on your age - you can afford to take a lot of risk with your retirement funds. You'll have to balance that with your risk tolerance or appetite - the amount of volatility are you comfortable with in the short-term. Try to imagine half of your account value disappearing over the course of the next year. What do you think you'd do?

Once you get your answer, you're closer to determining the answer to "how much and which investment".

All the best,

Jeremy Shafer

View all 10 Comments   |  Flag   |  Aug 08, 2014 from Midland, MI
Michael David Pensinger

You're really young, I would tilt away from large cap in favor of small and micro cap and, as I said before I would shift away from US and towards foreign in the form of international and emerging markets. Here's how I would do it, again, it's not really a right way or wrong way to do it though...

Flag |  Aug 08, 2014 near Lemont, IL
Michael David Pensinger

25% large cap (tilt towards value over growth); 33% small cal (tilt towards value over growth); 5% micro cap if possible; 25% international; 7% emerging markets; 5% global real estate (if possible). Some people like to have a little bit of commodities exposure, I don't put it specifically into my clients' portfolios, because historically their returns aren't much above inflation, plus companies themselves use commodities in their business, so you already have some undefined exposure there.

Flag |  Aug 08, 2014 near Lemont, IL

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I'm guessing these are mutual funds available to you in your 401(k) . If I was 23 years old and had a 4 decade outlook then I would be in 100% stocks. BUT YOU NEED TO MAKE SURE YOU UNDERSTAND THE RISK. If you don't talk to a fee-only financial planner who will help you understand the risk.

i'm scanning over your list of available funds, and without digging into them I'm not seeing Vanguard or DFA or the word 'index' anywhere. If I were you I'd go to your employer and demand low-cost index funds, like those offered by Vanguard, DFA (passive funds not index, per se), Charles Schwab, and Fidelity be made available in your 401(k)plan.

You might find interesting my post titled "Is Your 401(k) Plan Secretly Stealing Your Money?"... https://www.linkedin.com/today/post/article/20140626151143-33301793-is-your-401-k-plan-secretly-stealing-your-money?

Comment   |  Flag   |  Aug 07, 2014 from Lemont, IL

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Joseph, the problem is that you want advice on how to diversify your account. The way to allocate your account is based on primarily your risk tolerance, but also has a variety of other factors. A very important rule for a financial advisor is to ‘know your client’ in order to make suitable recommendations. So you very likely will not get specific advice in a forum such as here.

But, you are very much going in the right direction; you are saving early and are asking questions. Keep asking questions. Pick up a financial magazine in the waiting room at your dentist. Listen to the talking heads on the financial channels. Don’t necessarily take anyone’s advice, but try to understand the issues involved in financial planning. Develop your own understanding and investment style. It’s an ongoing process that won’t take weeks or months; rather it will never end.

So what do you do now? At 23, you probably do not have too much saved yet, so hiring someone for advice for what may be a few thousand dollars or less may not be practical. Your plan has an advisor, and he or she may or may not be willing to provide you investment advice. The CFP® Board has some consumer outreach programs that may be helpful. Their website is https://www.cfp.net/public-policy/consumer-outreach

If you can’t get help there, You need to find out what your risk tolerance is. At 23, one would assume you are growth oriented, but we can’t just assume that. There is probably a risk tolerance questionnaire in the education materials from your 401k or on their website Simple, it won’t take you 10 minutes in total.

I hope this helps

Comment   |  Flag   |  Aug 20, 2014 from Delray Beach, FL

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