Yes, it would be smart to have a portion of your funds in U.S. stocks and foreign stocks. Within the stock allocations you would want to include large, midsize, and small capitalization stocks. If there are other options such as real estate investment trust funds or commodity type funds then you would want to place a small portion in these.
Within the fixed income sector you would want some in corporate (both high quality and high yield or junk bonds) and government bonds and international bonds if this is an option. You would also want to diversify among these funds with some in intermediate term maturity bonds and some in long term maturities.
A general rule of thumb is to subtract your age from 100 and that difference as a percentage should be in stocks (100 - 30 = 70%).
As your plan might not offer funds with all of these investment objectives, you may not be able to allocate your assets among all of the sectors that I have suggested.
Thanks for the info. Can I just ask a follow up question -
The only options listed in my 401K option is US Stock funds, Foreign funds, Cash equivelant and Balanced funds. While I know I should increase my stock funds, I have money in my cash equivelant (14.46%), which I believe is too much. What exactly is cash equivelant and I know you cannot give me advice, per se, however can you confirm I am on the right path in my thought process.
Cash equivalent would either be a money market mutual fund or a stable value fund. If it is a stable value fund then the income yield would probably be 2.5% - 3%. If it is a money market fund then the yield is probably .2%. Either fund strive to maintains a constant share price so you very little risk of losing money on these types of funds.
Depending on your risk tolerance (how much overall portfolio volatility you feel comfortable with) and based on your age, you may want to allocate 45% to US stock funds, 20% to foreign funds, 10% to balanced funds, and 25% to bond funds. If bond funds are not an option, then if the cash equivalent is a stable value fund (not a money market) then that fund could be used instead.
However, if the volatility of the portfolio concerns you greatly (you have trouble sleeping when there significant declines), then the portion in stocks should be decreased and fixed income investments should be increased.
Financial Advisor
EA, QPA, CHFC, CEBS, CLU - 29 years experience providing financial advice
Thank you.
I am having trouble sleeping; however, it is not because of my investments so I will definitely take your advice! Being new to the whole investment world I want to do what is best for me, present and future wise.
Wish my luck.
Lisa