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Tinkering with 401(k)s

October 21st, 2015 at 09:16 am

NT and I both have 401(k)s through our jobs. For both of them, after watching the Frontline documentary on retirement plan costs, I went in and switched from a target-date fund to a customized mix of the lowest-cost options.

NT's job doesn't offer any really cheap options; the best prices are in the .9% to 1.1% range. I picked from each type of investment and did 20% in each of five options. Mine, when I initially switched a year or two ago, actually had three Vanguard funds available, so I did something like a 40%-40%-20% blend.

When you have your own mix, of course, there's no automatic rebalancing. I hadn't really thought much about going in and rebalancing myself, until the guy from our 401(k) provider did a talk in our office. Most of what he said was either nonsense or stuff I already knew, but he did bring up the fact that rebalancing is a way to follow the common wisdom of selling high and buying low.

Well, I'd been mulling that off and on for the past couple weeks, and finally I decided to see if I could figure out how to rebalance our portfolios myself.

When I went into mine, I was pleased to see we now have FIVE Vanguard funds available. So first I changed my future contributions to divide more evenly among five funds vs. three. I did smaller amounts to the two that had grown the least over the past 10 years and larger amounts to the three better-performing ones.

Then I discovered that there's a button you can press to have them move funds around to make your current holdings match your allocations. Sweet!

Then I discovered ANOTHER function that lets you enroll in automatic quarterly rebalancing even if you don't have a target-date fund. Even sweeter!

So now I have greater diversity in my work 401(k) AND I have automatic rebalancing set up so I can sell high and buy low without even doing anything.

I'm working on NT's now. He still doesn't have any cheap options, and I discovered he still had about $6 in a target-date fund which prevented me from rebalancing. But I set up a transfer of the remaining funds out of that target-date fund, and as soon as that's done I should be able to rebalance his, and maybe even set it up for automatic rebalancing in the future!

4 Responses to “Tinkering with 401(k)s”

  1. AnotherReader Says:

    I'm not sure why you added more to your winners. The idea of rebalancing is to set your desired asset allocation and periodically adjust your portfolio to your desired allocation. That generally means you sell some of the best performers and buy the weakest to get to your desired allocation. Or at least you direct larger amounts of upcoming investments of new money to the weaker performers.

    In your shoes, I would decide on an allocation and then use the Vanguard funds to achieve that allocation. Any holes in your portfolio can then be addressed by your IRA selections.

  2. ceejay74 Says:

    I never wanted to only have three holdings in my 401(k), so I was happy to have more Vanguard options. Also, one of my current holdings was nowhere near as successful over the past 10 years as my two new ones, so I think it'll be a good move to add these ones. I don't plan on moving things around any more, beyond automatic rebalancing.

  3. snafu Says:

    Brilliant, so many people don't know what they're holding in their retirement accounts or it's current value. They don't pay attention to the all important [MER] cost that is silently paid nor do they check allocation which is even more important as they age. I don't see automatic allocation as part of our plan, but as I became more comfortable making serious financial decisions I've gotten more aggressive and less conservative. It had been paying off...just now less than I desire.

  4. FrugalTexan75 Says:

    Good job! I find it kind of fun to go in to my plans and play around with the percentages. Smile

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