beliavsky[at]aol.com wrote:

- quote -

However, I think it's worth noting that Peter Lynch advocates staying
100% in equities all the time. He does advocate shifting assets to
small-caps vs. other categories based on market conditions, though.

-Will

Tad Borek wrote:

- quote -

Even if the expected returns on small cap or mid cap indices are not
higher than for large cap indices, one might choose to overweight
small-cap or mid-cap stocks relative to pure cap weighting if doing so
lowers the volatility of the portfolio. Based on some superficial
analysis, I suspect it does. Tad and I disagree about the importance of
volatilities and correlations for asset allocation.

Matthew Johnson wrote:
- quote -

I do, especially when investing new money. It is common sense to think
about whether something is fairly valued before you buy it, just as a
housewife does in the grocery store.

"Market timing" is politically incorrect, but even famous investors who
criticize it, such as Warren Buffett and Peter Lynch, have been
aggressive market timers are certain points in their careers. I think
research (some of which I have cited in this newsgroup in the past)
shows that stock market returns are partly predictable based using
information such as price/earnings ratios.

"Elle" <elle_navorski[at]nospam.earthlink.net> wrote

- quote -

If this doesn't sound like timing, nothing does.

I think Mattew has a plan and should stick to it. I'd like to see the
foreign allocation more like 30%-40% but that's a personal thing. If he adds
more when the market is weak and less when it's strong he'll do just fine.

Matthew Johnson wrote:
- quote -

I would suggest that you allocate across industry categories such as
energy, semiconductors, and home builders.

--
Ron

"Matthew Johnson" <mrjohns2[at]sbcglobal.net> wrote
- quote -

I'd say yes and no.

My point above was more that I feel the bond allocation that many tools give
is higher than the one you propose in anticipation of some flat markets at
some point. Now in particular seems to me to promise such a market.

Regardless, I didn't know that the allocation plan you posted was strictly
for a 401(k) and so a bond ladder within it is out of the question.

I will assume you have rejected for now using a Roth IRA for some of your
retirement savings. If not, you might want to ask about whether putting all
you can into a 401(k) is optimal plannng.

Matthew Johnson wrote:

- quote -

I guess I'd ask, do you have faith in the web tool - do you know what
it's basing the recommendations on? There's no right or wrong really,
just different opinions on what mixes are likely to provide acceptable
returns within the ranges you'd like to see. If this came through
"Financial Engines" you could read through their site to see how it
suggests allocations for you, there's a lot of info there, or used to be
last time I looked at it.

FWIW, that's a much heavier weighting towards smaller stocks than the
broad market. So this would make sense if you believe that
smaller-company stocks are likely to do better than large-company stocks
(or the tool thinks that, and you believe in the tool's methodology).
That's the basic point - once you deviate from the "market portfolio"
(that total-market fund) for your US stocks it should be for a reason,
otherwise, the default decision is to just buy the total market fund for
that part of your portfolio.

A 15% allocation to foreign stocks is in what I'd call a "common" range
- neither aggressive in choosing foreign stocks, nor neglecting them.
Some people go a lot higher (esp, these days, if they think the US
dollar is going to fall) and some people "just don't like them". Over
the very long term their returns have been fairly similar to US stocks
but they have helped smooth out returns along the way.

There's no weighting towards value stocks, which some people, like me,
believe are likely to provide slightly higher long-term returns. OK if
you don't believe that of course, but I see better arguments for leaning
towards value stocks than small-company stocks. There's a ton of
discussion out there on this, the "value vs. growth" issue.

The low allocation to bonds & cash suggests you typed in some aggressive
numbers for riskiness. And the "2%" number suggests what to me is a
false precision in whatever tool spat out these numbers. You usually
need to make larger changes than that for it to register. Not the end of
the world but if this is going to be transferred out to an IRA someday
you might not like having, you know, a $216.82 bond fund position to
deal with - especially if there are charges for liquidating.

In your other post you mentioned that this is a 401k...the specific
funds available in your plan can influence your allocations. If for
example the foreign fund is lousy you might not include that, especially
if you can do so through an IRA (if you also have an IRA).


- quote -

Your total-stock fund probably tracks one of the indices below, and the
data won't be too different from each - though definitions of
small/mid/large vary from one index publisher to the next:

Russell 3000
http://www.russell.com/us/indexes/us/methodology.asp
The link on the right, "competing indexes comparison," pulls up nice
one-pager that should give you a good idea of the division into
small-mid-large, as measured by different indices - you'll see there's
overlap among them.

Wilshire 5000
http://www.wilshire.com/Indexes/Broa...teristics.html
This site isn't quite as user-friendly as Russell's in its presentation
of data, but in theory the index is a little more inclusive than the
Russell 3000. Not noticeably so, though.

-Tad

Elle wrote:
- quote -

Yes.

- quote -

Do many people adjust their allocation based on the outlook? If so,
isn't that trying to time the market?

- quote -

Since this is in a 401k, I don't have the option to do a bond ladder.

- quote -

I will check it out. Thanks.

Re bond percent: You do mean investment grade bonds, don't you? Can you
explain why the % you have is so low (to me)? I think stocks are somewhat
overvalued, and investors are still skittish, so I anticipate a somewhat
flat stock market for the next several years. A bond ladder may yield more
than stocks with their reinvested dividends of only 2-3% or so. I should
think you'd want 5 to 15% in IG bonds.

Re mutual fund market cap breakdown: Type in the mutual fund symbol in the
window at the top of www.morningstar.com , then click on "Portfolio" on the
left. At the top will be the market cap breakdown of the fund.

I am now making sure that I have a good asset allocation. I have a plan
of the following based on some web tools...

Large Cap 30%
Mid Cap 28%
Small Cap 22%
Foreign 15%
Bonds 2%
Cash 3%

I am 28 years old. Married. Kids in the next 2 years. Own our own home.

a) What do you think of the breakdown? Do you need more data? To give
an opinion?

b) How do I break down a total stock market fund into the small, large,
mid categories? What are the %s of each?


Thanks,


Matt