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401k Allocation

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  • 401k Allocation

    Looking for some advice/critiques on my thought process of changing my new 401k contributions into a new index fund.

    Currently in my 401k I invest all contributions into an SP 500 index fund (VIIIX), in my IRAs I invest in VT. With growth stocks getting absolutely hammered lately, I have been considering switching my 401k contributions from the SP index fund to the vanguard growth index fund (VIGIX). My thinking is over my long term investing horizon (25+ years), growth is selling at more of a discount right now. There is some overlap between the two funds. Am I overthinking this and should continue with my current strategy or does this thought sound reasonable?
    I am ok with taking a haircut in the short term if rates keep getting hiked and growth continues to suffer, with the thinking that I will be DCAing into a sale on growth stocks.
    Thanks in advance.

  • #2
    Pick a strategy you can stick with long term. Rebalance roughly annually. Don’t change your asset allocation willy nilly based on recent underperformance or overperformance.


    • #3
      Agree with Hank. A growth strategy may or may not outperform the S&P 500. It is hard to say. But I recommend that you create an investor policy for yourself, which will allow you to both think through your long term goals as well as the investment plans to meet them. That will then reinforce your commitment to the plan.

      You Need an Investor Policy Statement | White Coat Investor

      How to Write Finance & Investment Personal Statement [Examples] | White Coat Investor


      • #4
        If you want a personal opinion, and that is worth what you are paying for it, I would invest in the US total stock market index.


        • #5
          What happens in 2/5/10 years when value stocks have been “getting absolutely hammered lately” and you are overexposed to growth?

          What you’re proposing is not long-term investing, it’s short-term market timing, and it rarely works out well in the long term.

          Just keep your S&P or TSM and ride it for the next couple decades. Ignore the noise.


          • #6
            Agree with the previous posts. Look at the top 10 holdings for VIIIX and VIGIX, they are almost the same. Since the S&P 500 is cap-weighted you are already over-exposed to growth. I have had the same temptations as you have but when I have acted on them in the past I almost always look back and regret not just sticking to the plan. As has been said many times on this site, the particulars of your plan have much less of an impact than sticking with whatever plan you choose. Changing your plan in response to events or trends is a recipe for underperformance.


            • #7
              Originally posted by 99mkw View Post
              Agree with the previous posts. Look at the top 10 holdings for VIIIX and VIGIX, they are almost the same. Since the S&P 500 is cap-weighted you are already over-exposed to growth.
              Just a small clarification on the meaning of "overexposed."

              If you have growth > value, that does not necessarily make you overexposed.

              The market weighing of those factors determines your over/underexposure, not the percentage of growth compared to value.

              It's a relative comparison, not an absolute comparison.

              So in your example, holding the S&P, you are not overexposed to growth--despite having a higher absolute percentage in growth compared to value--because you are exposed to same degree as the market itself.


              • #8
                Thanks all for the replies. Sometimes I think I am smarter than I actually am, it’s nice to be reminded that is not true lol. I appreciate all the advice. I will be staying put with my current investment lineup.