My 401(K): What's Next To Buy, And Why

Includes: HDV, REM, XLU
by: J.D. Welch

It's hard to believe it's already been two months since I last made a purchase in my 401K, but maybe it's because of the "February Effect" of it being a somewhat shortened period. Regardless, the time has passed, the funds have been withheld from my paycheck and accumulated, and it was time once again to decide where to allocate those funds across the three ETFs that I currently still hold in my 401K account.

Once again I've decided not to add to the number of positions in my 401K, but to keep things simple and continue to add to what I already have. As a recap, here are the three ETFs and one mutual fund that I currently hold in my 401(k):

  • iShares High Dividend Equity Fund (NYSEARCA:HDV)
  • iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEARCA:REM)
  • Utilities Select Sector SPDR (NYSEARCA:XLU)
  • Yacktman Focused Service Class (MUTF:YAFFX)

As a refresher, what happens to new money coming into my 401(NYSE:K) account from payroll withholdings is that I have Fidelity put 25% into YAFFX, and the other 75% goes into a cash account waiting for me to redistribute it to one or more of the three ETFs.

Here's how things looked back at the beginning of February when I last reported on this account:

And here's how things looked as I write this:

Wow, a very nice improvement in the overall % Gain and 1 Year Return across the board. That's not too surprising, given how the market overall has been performing, but its welcome news, nonetheless. Of course, with the increase in the values of these positions, their Yields have dropped as well, but that's to be expected; I can live with that.

One bit of good new as well is the improvement in the Marco Polo XTF Rating of all three ETFs. I was a bit concerned last time I looked at these Ratings at how low they had slipped, so I'm glad to see that they've come back up, even though they're not up to the same levels as when I first invested in these ETFs less than a year ago.

Since I brought the percent allocation of all three ETFs to about the same level vis-à-vis each other with the large February purchase (which included money withheld from my annual bonus), I decided that I would allocate this period's funds to the position that had the lowest percentage allocation between them. This time, XLU was the lucky winner, and got a 30.52% boost to the number of shares that I now hold, using up all but $3.04 of the available funds.

Also, besides my dire prediction last time about possibly not being able to increase my withholding for my 401K, things have worked out better than I expected, and I got a bit more of an increase to my salary than I'd pessimistically anticipated, so I bumped up my withholding by 1% to 6%. It's not the 2% per year increase that I had hoped to automatically implement until I gradually reach the maximum that I can withhold in a year, but its progress towards that goal all the same.

This increase will take effect with my next paycheck, which I'll get mid-month this month. That, plus the modest bump in my gross pay which kicks in at the same time, will help accelerate my retirement savings in this account. Perhaps I'll be able to get to a point soon where I can purchase a fourth ETF for my fledgling 401K (although it's more likely that I'll wait until next February and use the big lump sum that I should realize from the withholding from whatever bonus I get next year (if any) to initiate a fourth ETF position).

Thanks for all the suggestions that some of you offered last month for possible new positions. I've got them all recorded, and just need to find the time to do some research and narrow them down to a wishlist that I can arm myself with for that point in time in the future when I am ready to expand the number of positions in my 401K account. If you have any other, or new suggestions, please feel free to pass them along to all of us in the Comments below.

I'll report again in two months and let you know which of the other two ETFs, HDV and REM, will be the recipient of that period's withholding. At this point in time they are virtually even in terms of their percentage allocation of the total balance of the account, being separated by just 0.05%, so it remains to be seen whether the high dividend consumer goods and other dividend champions, challengers and contenders in HDV will outpace the mREITs held in REM between now and then. Stay tuned!

Disclosure: I am long HDV, REM, XLU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.