Diversification Across 401(k) Portfolios

The latest Yahoo Finance article on retirement, courtesy of TheStreet, is one in which they discuss managing two 401(k)s when both members of a marriage are working. The article itself is merely an extension on the discussion of one’s own diversification in a single 401(k) but I think there are some points that it could’ve made but didn’t.

Here are some points it did make that are worth noting:

  • Some 401(k)s have better funds for different things. For example, a small cap fund in one 401(k) may have a better expense ratio than the small cap fund in the other 401(k).
  • One 401(k) may offer options not available in another fund, such as emerging market funds. This would allow you to have some diversification by way of emerging markets through one 401(k) and then balancing that out in the other 401(k).
  • If your total retirement contributions won’t max out both 401(k), max out the one that’s more beneficial to your family. Go for the ones with better employer contributions, better funds, etc.

Some points that it missed:

  • Having two funds makes management much easier, you can have one account focus on one asset type (preferably the one with better fees) and then re-balance with the other. For example, put all of the funds in one 401(k) into large cap equities and then use the other 401(k) to go international and emerging markets.
  • Two accounts means greater discussion, talking about retirement and money is always a good thing.


MoneyNing did a fine job on the Carnival of Personal Finance this week and My Retirement Blog was included with our post Retirement fund or emergency fund?