Now that I’m settled into my new job in California, I’m rolling over my 401(k) and looking at my asset allocation.  Ooh, how interesting!  Next week: statistics for advanced accounting.  I’m going to outline my strategy here and invite critical discussion from my savvy readers.

I think of investments in four categories:

• Cash
• Bond
• Domestic Stock
• International Stock

It’s possible to subdivide each category, such as Small-Cap vs. Large-Cap stocks.  But I don’t hold any theories on the different performances of such subdivisions so I’m lumping them together for the purposes of this discussion.

I have a separate IRA supporting Highrock’s mortgage.  To keep things simple, I am leaving it there, where it earns 5%, tax-deferred.  That counts as the Cash portion of my retirement portfolio, leaving me to balance my 401(k) across the remaining 3 categories.

I’m going to omit Bond funds from my portfolio entirely.  In my opinion, the expected return on those funds doesn’t justify the increased risk from recent and continuing mortgage-based bond defaults.  That leaves only Domestic and International Stock funds.

I believe in index funds.  The majority of actively-managed mutual funds underperform their benchmark index, while charging higher maintenance fees.  Why pay more for less?  Along those lines, my other key metric is to minimize the expense ratio.  So that leaves me looking for one Domestic index fund, and one International index fund.  Fortunately, my 401(k) administration website allows me to run searches and dump the results to a spreadsheet.  So I found the following funds which matched my criteria:

Domestic: VTSMX, tracking MSCI US Broad Market Index, 0.15% expense ratio
International: GIXIX, tracking MSCI_EAFE, 0.37% expense ratio

I’m simply going 50% into each for both current funds and future allocation.  Are there any problems with my logic or assumptions?  For your own 401(k), do you pursue more sophisticated strategies, or less?

“Anyone under 30 who isn’t a liberal has no heart.
 Anyone over 30 who isn’t a conservative has no brains.”

To a liberal, the greatest sin is being selfish.  By not sharing with the less-fortunate, you are going against the fundamental moral principle of fairness and the The Golden Rule.

To a conservative, the greatest sin is being stupid.  Without being smart and realistic about money, you can find yourself without the basic necessities of life.

Maybe that’s a false dichotomy.  Most of us feel a bit of both: we want to be both wise with our money, yet generous also.  Time to bust out the 2×2 matrix!  On one axis: smarts.  On the other: generosity.  If you have neither, you are just selfish and stupid — typical Disney villain sidekick.  If you have smarts but no generosity, then you are a Scrooge, or a “conservative” as painted by the liberals.  If you have generosity, but no smarts, you and your money are soon parted (“to a good cause!” you may exclaim).  And finally, if you have both, you’re golden.

I have a few thoughts on why it’s so hard to be both.  Basically, money is like The Dark Side.  The more you get, the more likely you will be consumed by it, leaving no room for generosity in your soul.  To accumulate money generally means working hard for it (the whole “money doesn’t grow on trees” thing), and your identity becomes more wrapped up in the making and having of money.  The Gospels say, “where your treasure is, there your heart will be also.”  I used to think that meant: “give your money to a cause, and you will care more about it.”  Now instead I believe it means “where you spend effort, is where you define worth.”  If I practice piano hours every day, I think of myself as a pianist.  If I play WoW for hours each day, I think of myself as a gamer.  And in both cases I value the skill or achievements I have built for myself.  It’s hard not to feel contempt or condescension for those who have not put in the same hours and effort.  Back to the idea of money, the better I am at making it, the more I believe that *I* deserve it, and the less I believe that others deserve it.  In some cases, there is truth to that.  If you and your brother both have the same background, and you work hard to make a lot of money, and he goes all prodigal in Sin City, it’s hard to take him seriously when wants a loan to buy a new Hummer.  On the other hand, the villager in Haiti isn’t in that situation — with no education, capital, or infrastructure, he can’t get ahead no matter how hard he works.

My other thought on money is a development of an analogy that Gary and I used in our Economic Discipleship class: money is like a radioactive element — if you accumulate critical mass, it will kill you.  Now I think money is more organic, like the plant Audrey in Little Shop of Horrors: the more you have, the more time it takes to maintain and grow it.  It’s a self-perpetuating cycle that again, takes mindshare and blocks out your sense of generosity.

That’s all I have for now.  Does anyone else have any ideas on how to deal with your dual inner natures — to keep your shrewd snake from corrupting your innocent dove?