I participate in my company’s 401k because the match from my employer is too good to pass up. If it wasn’t for the match, I would not participate because the investment choices are truly terrible. I spend thirty minutes every other week looking at my portfolio, deciding where to place the next investment, and rebalancing. While doing those items is fine, the amount of time is high because the investable funds are not diverse enough for my investment desires.
As we end 2013, the account is constructed as in the table on the right. The percentage distribution is okay, but the funds are not. I would like to see more than just one international fund. It would be quite nice to see a Euro fund, an Asia fund, and an emerging market fund. The Russell 2000 fund has been slowly moving out of the portfolio. The index has seen a sharp rise in 2013 while the fundamentals do not support that rise. The end of year trailing P/E is now at 60. The S&P 500 fund is the largest holding in the account. I do not like investing in a price based fund for the reasons I put in the previous post regarding my nephew’s ESA. Unfortunately, there isn’t an alternative. The final fund, the stable value fund, is a cash equivalent. That started the year at 40%, dropped to nearly zero, and moved back up to 18% in the last month of the year. The return of that fund is nearly zero so investing in the fund means the remaining funds need to have a risk of capital loss.
I have kept the usual baseline of 8% and the benchmark is the S&P 500. As I have mentioned before, the S&P 500 returned 29.6% during 2013. The 401k portfolio returned 23.6%. This is higher than I expected given my investment philosophy of minimizing losses while not participating in all of the gains. Yet the R2 is 0.898, again much higher than I would like.
The portfolio is now sixteen years old. The 8% baseline has compounded to 236.1%. The portfolio has returned 129.2%. While that is a significant underperformance, it is above the 67.8% return of the S&P 500 benchmark. For 2014, I am forecasting the cash equivalent fund to significantly increase its weighting while the Russell 2000 and the S&P 500 holdings decline. I also expect the S&P 500 return to be below the 8% baseline. For the portfolio, I expect the return to be closer to the S&P 500 benchmark than the 8% baseline.