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July 12, 2012


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A written plan sounds like a good idea. I have a plan, but it's not written down and I probably should do that. Along with asset allocation, people should figure out their risk tolerance. It's important to know what you can handle.

You definitely need to know the risk tolerance that you can handle before buying anything.
My son's 401K has 26 funds available. For the last 3 months, this is what the best and the worst did.

Worst - Janus Worldwide fund --- ANN= -27.43% - Volatility 8.11
Best - Pimco Total Return fund - ANN= +11.96% - Volatility 0.23

To obtain a good performance while keeping volatility within your comfort level it is essential that you have the tools and data to be able to rank the funds available to you and make changes when deemed necessary.

Notice there is 35 times greater volatility in the worst performer as well as the fact that it lost money rather than making money. You would have to be ignorant to have held the worst fund for the last 3 months.

I have never believed in over diversification. The most I have ever had in his 401K is two funds, for the last few months he has only owned the top performer.

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