#577: Q&A: The Efficient Frontier Was Flawless Until Human Resources Joined In

      Kelsey is enthusiastic about investing along the efficient frontier, but the limited fund options in her employer-sponsored 401k make it feel unattainable. What’s the best approach to address this challenge?

      Molly realized that her rollover from a 401k to a traditional IRA had not been invested in mutual funds and remained in a money market fund. By calculating her net worth manually, she uncovered this mistake and shares her story with us.

      Former financial planner Joe Saul-Sehy and I discuss this in today’s episode.

      Enjoy!

      P.S. If you have a question, feel free to leave it here.

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      Kelsey inquires (at 01:56 minutes): How can you navigate the efficient frontier when you're limited by the fund options provided by your employer? My employer-sponsored 401ks have a restricted selection of funds that don’t perfectly match my preferred asset allocation.

      I've established my ideal allocation based on the efficient frontier and my risk tolerance, aiming for a combination of large-cap growth, mid-cap growth, mid-cap value, and small-cap growth index funds.

      However, this is where the complications arise:

      My previous 401k has a Fidelity small-cap growth fund (FOCSX), but not the small-cap growth index fund I would like (FECGX). It also features some Fidelity index funds and an S&P 500 fund, but lacks specific options for large or mid-cap growth or value.

      My current 401k only presents two equity choices: a total stock market fund and an S&P 600 fund.

      Together, my 401ks constitute around one-third of my portfolio. My husband and I also possess Roth IRAs, HSAs, and a taxable brokerage account. Should I invest in the less-desirable small-cap growth fund (FOCSX) in my old 401k and use our other accounts to complete the asset allocation?

      Or should I choose the total stock market fund in the 401k and adjust my asset allocation—essentially going back to the efficient frontier with the stipulation that 35 percent of my portfolio is in a total stock market fund?

      For additional context, I have not rolled over my old 401k into a traditional IRA because I execute a backdoor Roth IRA every year.

      Molly shares (at 49:28 minutes): I was listening to your episode on 52 adjustments to implement in the new year. The second suggestion is to calculate your net worth a couple of times a year. I want to emphasize another reason this is beneficial. It allows you to catch small mistakes you may not have noticed.

      For instance, I have several retirement accounts from my employment and a Roth IRA. I only discovered while reviewing my net worth last year that when I rolled over funds from an old employer’s 401k into a traditional IRA, the money had not been invested in mutual funds; it remained in a money market fund.

      So, I needed to allocate that correctly. Somehow, I missed that step until I completed the net worth statement and realized it hadn’t been addressed. This is just another reason to perform this check manually once or twice a year—you never know what discrepancies you might uncover that otherwise went unnoticed.

      Resources Mentioned:

      Watch this episode on YouTube

      Episode featuring Paul Merriman

      #570: The Compound Effect of 52 Tiny Financial Changes – Afford Anything

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