Balancing 401k and Roth IRA?

Question

Thanks to everyone who responded to my previous question "How should I allocate my 401k?"

I'm thinking of trying this tactic: since my 401k options seem rather poor, and my Roth IRA investments are all "Class A" American Funds:

ABNDX Bond Fund of America

ANCFX Fundamental Investors Fund

ANWPX New Perspective Fund

SMCWX SmallCap World Fund

CAIBX Capital Income Builder Fund

AGTHX Growth Fund of America

AIVSX Investment Company of America Fund

...where they overlap, I will drop the poorer 401k choices for the better Roth IRA funds, and put most of the 401k into its stable value/money market option.

What do you think? Does this sound like a decent strategy?

Answer 1

Unless you are near retirement, reconsider your stable value allocation.  Real inflation is at ~4% with core inflation at ~2.3%.  The average money market is returning ~2.25%.  So your just breaking even.  Even a subpar stock or bond fund will offer you a better return long term.  Also remember that your dividends and capital gains are tax free inside a 401k.  Make sure you factor this in when evaluating funds.

Answer 2

Why not a traditional IRA versus a Roth? You are contributing after tax dollars to the Roth vs. traditional, resulting in less investment potential. Plus, my guess is your income will be lower at retirement than now or the near future.

Stay away from the money markets if at all possible.

Answer 3

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