I’m trying to get into the habit of adjusting where my 401(k) money goes each month since my 401(k) company allows me to do this easily online. My options are:
- Vanguard Retirement Savings Trust (stable value)
- Vanguard 500 Index Fund Investor Shares
- Vanguard Total International Stock Index Fund Investor Shares
My employer match goes into something that I just count in my allocation to US Stocks.
My first priority is the ratio between fixed income investments and stocks, with the ratio between US and international stocks being second.
So far this year:
- In July, since I had made such a huge addition to stocks by buying the Total International Admiral shares fund in my taxable account, I ended up putting 100% of my 401(k) contribution to the stable value fund. This put the split at 24%/31.5%/44.5% (Stable value/US Stocks/International stocks).
- In August, there was a bit of a stock market gain, so I ended up putting 49% of my 401(k) contribution to the stable value fund and the rest to the S&P 500 fund. The split was now 24%/32.2%/43.8%, so a slight improvement over last month.
- In September, I saw a lot of stock dividends post to my investment accounts, which threw off the distribution a bit. I re-did the calculation and determined that I should put 47% of my 401(k) contribution to the stable value fund and the rest to the S&P 500 fund, so I just left the contribution split from August since it was so close. The split was now 24%/32.7%/43.3%.
- In October, my stocks went down a bit. I re-did the calculation again and it suggested I put only 28% of my 401(k) contribution into the stable value fund this month and the remaining 72% into the S&P 500 fund. I updated it this time around since that was quite a difference from August’s calculation. The split was now 24.3%/33.2%/42.5% (it looks like I updated my spreadsheet since I updated my 401(k) contribution allocation with Vanguard…), so we’re definitely trending towards the target of 24%/38%/38%.
I understand that this isn’t an exact science, but I generally try to do the calculation in the last few days of the month so that it’s as close to my contribution posting as possible.
You might also wonder why I’m adjusting with new money each month instead of flat out exchanging some shares of Total International for S&P 500 in my 401(k) since it’s so far off target. Well, my investment policy statement says to only re-balance with new money, ever. I implemented that policy so that I wouldn’t be tempted to try new strategies or different things by rearranging my money into different funds and it’s working quite well so far. Other than moving my employer match funds into the S&P 500 index fund, I haven’t exchanged any funds since December of 2011 and I think it’s much better this way. I need to protect myself from my fidgeting mind!