When investing in 401k how much % is wise to go in bonds, small cap, large cap, & international stocks?
The allocation should be based on your age and your ability to tolerate risk. Assuming you have 25 to 30 years to retirement and you are willing to take moderate risk the allocation is usually about 60% stocks and 40% fixed income (bonds, cd’s money market funds). Many 401k plans offer target allocation (they keep the % allocated to stocks and bonds the same) or target date funds (the gradually shift the allocation away from stocks as you get closer to the target date). These funds usually allocate between large and small us stock and international stock as well as a varity of bonds or money market funds. These would be best for you until you get more experience. You usually can find out your risk tolerance by going to web sites such as money magazine, Vanguard, Fidelity, or T.Rowe Price funds. All have risk – international and small cap are more risky than large caps and bonds are considered less risky than stocks – the shorter the term of the bond fund the better. Money maket and cd’
It’s all about how much risk you’re willing to take. As a general rule, they are considered to be ranked in this order (lowest to highest) in terms of risk: bonds, large cap, small cap, and international. Personally, I’m hoping to retire in about 20 years and I have about 80% in the most volatile markets I can find (those with the highest risk also have the highest potential for return.) I put 19% in some stable mutual funds and about 1% in bonds (as a last ditch stop gap in the event that all the rest of it goes crazy.) Not many people have that kind of tolerance for risk, though. I know I’ve made and lost a couple of fortunes playing these games. That’s the nature of the beast.
