Picking investments in your 401k or IRA can be nerve-wracking. Nobody wants to get it wrong. Fear of making a mistake can lead you to the most heinous investing act: procrastination. Here’s one way to pick investments in your 401k:
Asset Allocation
Asset Allocation is picking a mix of investments in different asset classes like bonds, stocks, and cash.  It “aims to balance risk and reward...” according to Investopedia.
They key is to choose an allocation that you won’t sell when markets go down. Here are several asset allocations that I use to help clients choose their investment mix:
100% equity

This is for the not-so-faint at heart investor. On average 100% equity portfolios lost 51% during the Great Recession of 2008. That’s equivalent to $51,000 out of $100,000. Here’s the breakdown:

  • 61% Large Cap
  • 14% Small Cap
  • 17% International Developed
  • 8% International Emerging
91% equity

Not as risky as all equity, but not exactly a stroll through the park either. This portfolio lost 45% during the Great Recession of 2008. That’s equivalent to $45,000 out of $100,000. Here’s the breakdown:

  • 5% Short Term Bonds/Cash
  • 4% Intermediate-Term Bonds
  • 56% Large Cap
  • 13% Small Cap
  • 15% International Developed
  • 7% International Emerging
82% equity
These guys lost 39% during the Great Recession of 2008. That’s equivalent to $39,000 out of $100,000. This is a good portfolio mix when there’s a couple and one spouse is all equity and the other wants to hit the brakes and go 60/40 stock to bonds. It’s also a portfolio I use often when someone is young but doesn’t like volatility. Here’s the breakdown:
  • 10% Short Term Bonds/Cash
  • 8% Intermediate-Term Bonds
  • 51% Large Cap
  • 13% Small Cap
  • 12% International Developed
  • 6% International Emerging
72% equity
This portfolio lost 33% during the Great Recession of 2008. Equivalent to $33,000 out of $100,000. I use this one when someone has accumulated a fair amount of money and is starting to worry about losing it. Here’s the breakdown:
  • 19% Short Term Bonds/Cash
  • 9% Intermediate-Term Bonds
  • 46% Large Cap
  • 9% Small Cap
  • 12% International Developed
  • 5% International Emerging
61% equity
This is the typical retiree portfolio. It lost on average 26% during the Great Recession of 2008. Equivalent to $26,000 out of $100,000. It’s also the portfolio the infamous 4% rule comes from. I use this one a lot. Maybe the most for retirees that have a good amount saved, but still want it to grow or maintain. Here’s the breakdown:
  • 26% Short Term Bonds/Cash
  • 14% Intermediate-Term Bonds
  • 39% Large Cap
  • 8% Small Cap
  • 10% International Developed
  • 4% International Emerging
54% equity
Now we’re getting into the preservation phase of portfolios. This portfolio only lost 21% during the Great Recession of 2008. That’s equivalent to $21,000 out of $100,000. Here’s the breakdown:
  • 30% Short Term Bonds/Cash
  • 16% Intermediate-Term Bonds
  • 37% Large Cap
  • 6% Small Cap
  • 11% International Developed
45% equity
These guys lost 15% during the Great Recession of 2008. That’s equivalent to $15,000 out of $100,000. Here’s the breakdown:
  • 10% Short Term Bonds/Cash
  • 8% Intermediate-Term Bonds
  • 51% Large Cap
  • 13% Small Cap
  • 12% International Developed
38% equity 
This portfolio lost 10% during the Great Recession of 2008. Equivalent to $10,000 out of $100,000. This is typical for clients with wealth that don’t need growth, and are looking to preserve their nest egg. They don’t want for money. They want for reduced volatility. Here’s the breakdown:
  • 19% Short Term Bonds/Cash
  • 9% Intermediate-Term Bonds
  • 46% Large Cap
  • 9% Small Cap
  • 12% International Developed
28% equity
This is the typical retiree portfolio. It lost on average 4% during the Great Recession of 2008. Equivalent to $4,000 out of $100,000. Or, only $40,000 on a $10,000,000 million portfolio. It’s for the big guys that just want to keep what they have. Here’s the breakdown:
  • 26% Short Term Bonds/Cash
  • 14% Intermediate-Term Bonds
  • 39% Large Cap
  • 8% Small Cap
  • 10% International Developed
Of course, past performance is not indicative of future performance, and there are no guarantees when investing. Eventually, all of these portfolios rebounded.  And remember that 2008 was the worst market year in 60 years. Hopefully, it’ll take another 60 years before we see it again.
Takeaway
Picking investments in your 401k is tough. Nobody wants to make a mistake. They key is to pick a portfolio that you’re comfortable with, and rebalance periodically, or when you feel the need to make a change. But don’t wait. And don’t invest without a strategy.
For more information on choosing a portfolio, check out Risk Versus Reward.
Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.