This past Monday (November 4, 2013), I started a new job at an old employer. I thought I was done with the field of finance, but I guess it was not done with me. I am in their legal department, however, so my future consists of my past experience and current position, and my future is now.
Back in October 2000, I got hired by AEtna Financial Services (AFS) through a colleague I had befriended while at SIMMERS Capital Management working as a financial adviser. If you have ever seen the movie Boiler Room, then my job as a financial adviser was like that premise without the illegal activity. Conversely, AFS It was a nice job in a call center for which my qualifications, e.g. Series 6 and Series 63 licenses, applied. Less than a year into the job, AFS was bought by ING (International Netherlands Group) as part of their aggressive placement in the United States financial market. Sometime after the completion of the ING Aetna Financial Services merger, ING announced that they were closing the Phoenix location, which I learned about minutes after parking my car and grumbling, "I wish I worked closer to home."
ING treated us very well during the transition, including a handsome severance packet and a retention (incentive) bonus. Employees were released in three different time frames, and I was selected to stay through the final round, so my incentive bonus was very high (albeit, my work load tripled immediately after the first round employees left). Additionally, ING coordinated with The Vanguard Group to interview the employees, so Vanguard hired me before I even left ING.
During my first tenure with ING, I was not very involved with my retirement plan, but I was pleased to learn that the 6% match has remained in tact. Needless to say, one of my top priorities the first week has been getting my hands on the investment options and setting up a 6% deferral. I have good choices within the plan, and the website had useful tools to simplify investing for the uninitiated or those who are not actively involved with their 401(k). Most importantly, it had a set of Target Retirement funds, which I highly endorse the use of as a default investment for anyone who is not financially savvy. Even I would consider using the option in the ING plan depending on how fees affect my performance.
The option exists to roll my old 401(k) over to my new plan; however, I am not considering it because the investment options are more robust at my old plan. Often times, this choice may be less of an option and more of a *very good* idea, especially if the account balance in a previous 401(k) is below a specified amount (varies by plan) where they can cash out of your account. At that point, you can roll over the balance to a new 401(k) or a traditional IRA, or to a checking account where you will owe an early withdrawal penalty. Truthfully, there are not many good reasons for an old 401(k). The best alternative would be to roll an old 401(k) into a traditional IRA. The strongest reason is that the assets inside a 401(k) are owned by the employer, so you may need to acquire a signature from a past employer in order to withdrawal the assets. Additionally, your investment choices in an IRA are generally superior to most 401(k) plans.
In fact, my investment in the PRIMECAP Fund in my 401(k) has been the main reason I kept this portfolio where it is (plus, I like having that portion of my retirement segregated to rebalance periodically), which was what brought me here today. It is time to rebalance again! The markets have hit new all-time highs this week (which seems to be oddly in sync with my breaking up with a particular girl; since we broke up in March 2013 before the market set new highs). I expect my stock funds will be where my money will be pulled this quarter, which is a good thing because, even if the market continues to rise, it will retract eventually, and it is good to periodically draw earnings from these funds to place them in lagging funds.
That strategy is both how rebalancing works, and why it works. Since I endorsed Target Retirement funds earlier in this article, I will reiterate the purpose of these funds is to rebalance your investment daily, as well as modify your allocation to become less aggressive as you near retirement. Conversely, keeping old 401(k) accounts open to rebalance while starting new 401(k) accounts can get confusing. I may share my experiences with it as that plays out in the near future as I attempt it between my old employer and new employer. My investment strategy and allocations are largely mirroring each other despite the vastly different investment options.
Vanguard Explorer Fund 25.2% / -0.2% / 25%
Vanguard High-Yield Corporate Fund 4.9% / 0.1% / 5%
Vanguard Total Stock Market Fund 24.9% / 0.1% / 25%
Vanguard PRIMECAP Fund 25.5% / -0.5% / 25%
Vanguard Total Bond Market Fund 9.5% / 0.5% / 10%
Vanguard Total Int'l Stock Fund 10% / x / 10%
Unfortunately, Vanguard.com was down for maintenance when I wrote this article, so I was unaware what moves would be taking place. When I got the information, I learned that the Vanguard Total Stock Market Fund.was lagging behind the Vanguard Explorer Fund and the Vanguard PRIMECAP Fund. Although all three funds have gone up in the past three months, the Explorer fund is an aggressive stock fund, so its performance is usually more pronounced than the market, i.e. when the markets are up, this fund is up higher and when the markets are down, this fund is down more. Conversely, the PRIMECAP fund is actively managed, which means they have a team of professionals selecting stocks in order to beat the market returns. Actively managed funds often get a bad wrap because (A) their goal to outperform the benchmark requires investing in undervalued stocks, which as often as not have just turned bad and do not recover, and (B) higher returns are often erased by the funds' fees before investors ever capture a benefit from them. Both reasons are strong enough to warrant moving out excess returns (that is, returns above my target allocation) as soon as possible.
This entry effectively concludes another fiscal year for me. My next change will be in February 2014, which will not only be a new calendar year but also, because I started this blog in February 2009, it will begin a new year for me. I hope to find time to share my thoughts on projecting the 2014 markets in the next month or two, but it is somewhat obvious: "what goes up, must come down."
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