Quick and fast 401k investment allocation strategy
My very first disclaimer for this post is this – if it’s quick and fast, it’s probably not that good. That assessment would be truthful, but as I wade through all the benefits signup at a new position in a new company, I am looking for all the shortcuts I can. This trick is one I learned from a hardware engineer two jobs ago, at Entek in Cincinnati, Ohio.
His super secret method for quickly allocating his initial 401k investments was… drumroll please… an easy-to-remember math trick. Think about these four numbers 40, 30, 20, 10. They are descending in order, four values, multiples of ten, but most importantly, they add up to 100.
So for your initial 401k allocation, look at the risk levels for all your investment choices, whether they are mutual funds, bond funds, or stock. Then, depending on your age and aversion for risk, select four investment choices in descending order of risk. If you are “young,” say under the age of 30, and have many years to save for retirement, put 40% of your investments in a high risk investment. Then put 30% in the next highest risk, 20% in the next highest risk, and 10% in a bond fund. As your account grows, check the allocations and re-allocate if needed, and as you age, change the risk level of the highest percentage amounts you have invested. Here’s an example:
- 40% high risk (but only choose funds that invest in things you want to have in your portfolio)
- 30% moderate risk (or whatever risk level will let you sleep at night)
- 20% moderate risk (or whatever risk level will let you sleep at night)
- 10% bond fund (or something similar that is low risk)
Yes, it is a pretty silly method for allocating 401k investements, and of course returns are not guaranteed, but it allows you to make that snap decision on investments to get the account set up, and then re-allocate later.
Anne Gentle is the author of 
There’s a company in Canada that (for our equivalent of the 401K) has funds for different retirement years. You just pick the appropriate year, and they do the allocation for you. You can choose to be more or less risky than your typical age group by choosing a different retirement year.
Yes, I’ve seen those for US-based 401k plans as well, and I know people who use those funds for easy and fast setup. The only caution is to make sure the fee structure isn’t higher than setting up a similar investment mixture yourself. Cost and turnover are two items that I am wary of when choosing funds. Thanks for the tip, it’s yet another way to do a fast account set up.
This is a really great idea. With something like 25 years to retirement, I opened a 401k, which, at the suggestion of a family member (who’s actually a professional financial planner), I mostly parked in bonds, until such time as I was ready to sit down and think through what I really wanted to do… really dumb, cost me about a 15-20% gain that first year. (Not that much money, I suppose, in the end, but probably ~2K, which could in turn have grown that much more over ensuing years…) It was most of a year before I got around to actually allocating the money– which I promptly mostly put in stocks, given my time horizon.
I’m rather wishing that that first year I’d either done something like what you suggest, or just picked one of the funds where you pick a target retirement date and let Fidelity manage the funds. That’s really probably the best thing to do until such time as you’re ready to plan out something more specific. I intend to pass that advice along to a few younger people of my acquaintance…