would these choices work in 401k?

[johnny555]

Hello all,
I'd like to set up a permanent portfolio in my 401k and am interested to know if the options available would be acceptable.  From what I've read the Spartan 500 Index is good.  Would the bond and short term options be ok?  thanks for your time.

stock
- Spartan 500 Index - Investor Class (FUSEX)

bond
- Fidelity Total Bond Fund (FTBFX)

short term
- Fidelity U.S. Government Reserves (FGRXX)
- Vanguard Federal Money Market Fund Investor Shares (VMFXX)

[Pkg Man]

The 500 Index is perfect.  But the bond fund is listed as an intermediate fund which will not posses the power of long term Treasuries, and it likely contains corporate bonds, so it is a no-go.  I would suggest buying 30-year Treasuries or TLT outside the 401K, within an IRA if possible.

The fidelity US Gov't Reserves has a large percentage of agency debt and repurchase agreements, which is far from ideal.

Holdings (FGRXX)
Composition by Instrument (%) as of 07/30/2010  
U.S. Treasury Bills & Coupons 4.45
Agency Fixed 11.3
Agency Floater 23.39
Repurchase Agreements  49.61

As far as the Vanguard fund, it too is imperfect.

Distribution by issuer (% of fund) as of 08/31/2010
Federal Money Mkt Fund
Bankers Acceptances 0.0%
Certificates of Deposit 0.0%
Commercial Paper 0.0%
Other 0.0%
Repurchase Agreements  9.6%
U.S. Govt. Obligations 77.2%
U.S. Treasury Bills 13.2%
Yankee/Foreign 0.0%
Total 100.0%

I recently asked the same question about my fund choice for the cash piece, as it too is not the standard recommended.  If those funds were my only option, I would still use them for a portion of the cash, perhaps splitting equally between the two.  I would then obtain some T-bills or a MM fund that invests in T-bills outside the 401K, again in an IRA if possible, to true it up a bit.  You should also consider series I and EE bonds, which can defer taxes until maturity.

[foglifter]

A similar question was recently asked by another board member, you might want to have a look here.

It appears to be almost a uniform solution for most people to use their 401(k) accounts to invest in a broad US equity index fund (which majority of plans offer) and a money-market or short-term bond fund as a cash portion of their PP. The other 2 buckets - LTT and gold - in most cases can only be held in an IRA or a taxable account. In case of gold fully physical possession or split between the bullion and ETFs can be used. 

As always in investing, the approach can be tilted depending on each investor's specific situation. For example, I split my bonds position between FTBFX in 401(k) and EDV in my IRA - this allows me to some extent "imitate" TLT while freeing precious IRA space for some other things.

[Pkg Man]

Good point foglifter.  I keep forgetting about EDV and how it can help in cases like these.

[johnny555]

Thanks for the replies and recommendations.  I do have a Vanguard Roth IRA and will look into the EDV option.  Thanks again for the suggestions.