As regular readers of this blog know, my wife recently started a new position in a Bay Area tech company. Yesterday it was time to sign up for the new 401K plan. Options, options, options.
My wife's new 401k plan is actually not bad. It offers both a traditional 401k plan and a ROTH 401k option. We chose the traditional option, for a variety of reasons which I will go into at another time.
The plan offers about 15 fund options including, surprisingly, two index options: an S&P index fund and a midcap index fund. The plan even offers a real estate fund, and several international fund options - unfortunately, no index options are available for those two sectors. The only two bond fund options offered as part of the 401k have ridiculously high expense ratios of around 0.85%. To which I can only say: are you kidding me?! For a bond fund? In addition, over the past 12 months, both bond fund offerings substantially under-performed Vangaurd's bond index fund (VBMFX) in which we invest seperately. More cost for lower performance. Don't you just love actively managed funds?
Here is the asset allocation we selected:
Schwab S&P 500 Index: 30%
Dreyfus Mid-Cap Index: 35%
Harbor International Institutional: 25%
Cohen & Steers Realty Shares: 10%
You may notice that this is a fairly aggressive allocation, however I would like to point out a number of facts:
1. We manage our entire portfolio as a single unit, not attempting to optimize each individual account seperately.
2. The portfolio we selected, while aggressive, is well diversified with a sizeable international component, as well as a real estate component that has a lower correlation with the overall market.
3. Since we are both in our mid-thirties, our time horizon for retirement savings is a long one. We can afford to ride out eventual bear markets, and wait for the long term performance advantage of the stock market to kick-in. So, for now our retirment investments are mostly in highly diversified stock funds.