What are good allocation percentages for a young person's 401k?

Question

I'm 23, and unsure of where to put my 401k money.

What percentages should I put into the various types of funds (i.e. Large-Cap Growth, Small-Cap Growth, Large-Cap Value, International funds, bonds, stable value, etc.)?

A co-worker who is a somewhat experienced investor suggets 50% Large-Cap Growth, 25% in the Vanguard 500, and 25% in stable value. That seems a bit conservative to me, considering my youth.

What asset allocation percentages would YOU suggest? And why?

Answer 1

25% in the stable value fund is ridiculous. anyone with that under 50 reallly does not understand investing at all. Large cap growth basically the same as Vanguard 500 (assuming that is S&P500) so duplication. 25% small cap. 25% International 25% Large cap value + 25% Vanguard 500. Still a bit too conservative but much better than his. He has no positive experience at all. Feel free to contact me with exact funds info you have if you want. You NEVER put municipals in a tax free acct(401)as they are already tax free & priced for that. Ignore that in above answer. Can't just make up numbers or copy them from some source.

Answer 2

Investment choices are dependent on the individual's risk tolerence. At 23 and a whole life of earning capability ahead of you, you are more in a position for some risk taking than someone older and closer to retirement age.

Diversification of your investment is important as not all sectors will perform equally and you develop a "security net". Here's a link to the Securities and Exchange Commission that goes into that thought in more detail.

http://www.sec.gov/investor/pubs/assetallocation.htm

You'll want to diversify your investment between Large Cap, Mid Cap, Small Cap, Bonds, Municipals, Foreign Stock and Cash. This link will assist you through the allocation based on your age, risk tolerence, income requirement (withdrawals) and your opinion of the economic outlook:

http://www.ipers.org/sub/calcs/AssetAllocator.html

I entered tha data for someone 23 taking average risk and a neutral outlook for the economy not needing income from their investments until they retire and came up with the following diversification of the portfolio:

Large Cap - 34%
Mid Cap - 22%
Small Cap - 16%
Foreign - 14%
Bonds - 4%
Municipals- 1%
Cash- 9%

You can change the fields of this calculator and find their recommended diversification.

Answer 3

Your investor friend has given you his opinion of a decent long term strategy. If you ask 10 different experienced investors, I am sure you will get 10 different answers.

Here is my answer.

1 20% Vanguard 500
2. 20% large cap developed foreign markets
3. 10% Chinese market fund
4. 10% Indian market fund
5. 20% mid cap
6. 20% small cap

You will find that this is somewhat more aggressive than the previous advice. It is subject to some market risk but it is well diversified more or less and over 20 years should give you a decent return.

Answer 4

you're able to be as conservative as you like in each thing yet your economic destiny. you're on the terrific time on your existence to make your destiny bright. you have have been given 40 years of compounding earlier to you. you have gotten years the place you may lose 50% or greater..... and that's fantastic!!!! i've got had a minimum of three. I hung on and function achieved critically greater helpful than maximum of my friends. For the 1st 2 many years.... do no longer do any bond money. (to boot, bond money will crash if inflation comes back). Your terrific money in this team are; Janus strengthen & income Fund 25% fidelity Adviser distant places Fund 20% Invesco Small Cap 15% super Cap strengthen Index 20% Franklin strengthen Allocation Fund 20% you may play with the opportunities.

Answer 5

Your 23 put it all in the Vanguard 500. It has a super low cost ratio and should beat 12% most years with a down year every 5. Remember only but up to you rmatch in your 401k. The rest should go in to a Roth IRA so when you retire you have some tax free cash

Answer 6

That sounds like a good spread for a younger person. Just remember that no matter how agressive you decide to distribute, you should always keep about 25% in the safe or guaranteed fund.