Though I saw it all around
Never thought I could be affected
Thought that we'd be the last to go
It is so strange the way things turn

Wednesday, May 15, 2013

A Benny shaved is a Benny urned

It's been long time coming. Well, not that long, but I've been meaning to do it for a while. I just changed my 401k allocations.

Here I'll remind everyone, I'm not a professional investor, I'm not a financial planner, I'm just some schmuck trying to wade through the crap that is the modern retirement programs. So, before you decided to change your investment strategy, consult one of those professionals, your spouses, beneficiaries, gods, whomever you think you should talk to about these things.

I think I've pointed to This PBS Frontline special on the Retirement Gamble before. If you haven't watched, please do (also note just where the professionals put their own money). For me, it's been something I've been thinking about for years, and most recently when we changed our 401k provider and "they were so helpful in choosing which plans my money should be transferred to" I've been meaning to review it all. Because, you know, Grue forbid that we should pick our own funds and investment strategy. In my previous allocation I chose pretty darn carefully to match how I wanted my money to grow and how much They would suck my money away. I didn't get that chance with the new portfolio. So for a little over the year I've been getting halfway through the process of choosing my own mutual funds and then running out of time.

Well, I just sucked it up and did it.

So, what's my strategy? Well, I choose index funds. I'll note here that most funds "try to match the performance of Jim-Bob's Fortune 1 Million Index" or some such. But I would suggest choosing funds that are actually 1) indexed (that is the fund buys the stocks in the index) and 2) is an index you've heard of (or is in the news often). Also, check the fees listed for each fund. Previous to this change my average fees were 0.65% with a 0.5% management fee on top. Now? Average is 0.05% with a 0.02% management fee. Yeah, you're going to look at yours right now, aren't you?

If you can get it, chose one that's indexed to the Dow Jones Industrials (I have one, but with a former plan, so I can't continue to contribute to it, sad face). I can't recommend this highly enough (as long as the fees are low, and they should be because no one at the investment firm is really doing research or anything). Why? Here's the dirty little secret. The Dow Jones has a handful of actual stock, so you're not diversified over a large base (yes, that's the opposite of what they'll tell you in all the 401k education programs, it's called "contrarian thinking"). And the big one, the Dow Jones is engineered to go up. The DJI is a marketing tool. The people who pick those stocks do so to get people into investing. Yes, stocks can always go down (any stock can lose money). In fact the DJI crashed in the last financial crisis. Did you know it's been hitting all time highs lately? Ever notice how many times you hear that phrase, "The Dow hit an all time high today…"? Ever notice you hear about how the DJI is not reflective of the wider economy? It isn't an accident. Wink, wink.

Unfortunately I don't have that option with my current mix, but I do have one fund that's indexed to the S&P 500. Take a guess where 80% of my contribution is now going? Now, the S&P 500 isn't as good as the DJI. The S&P 500 was created to take a broader pulse of the stock market because investors weren't getting that from the DJI (hint, hint). But, again, look at how much less my fees are and the performance isn't all that "worse" (with the reduction of fees, my guess is it'll actually be better).

The remaining 20% is now going into a bond fund that is doing about 1% worse than the PIMCO (which was the old fund), but, again, the new fund cut my fees by factors of 10.

So that's it. That's Uncle Steve's 401k strategy. Use at your own risk (I'm not a pro… blah, blah, blah).

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