401k Allocation Advice for Newb

VFIAX ~50%
FLMVX ~20%
RRREX ~10%
RERGX ~20%

Just spitballing.

Bonds suck right now, given your time horizon.

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The purpose of bonds is equity risk diversification.

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I know.

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With quarterly rebalancing, a portfolio with bonds will best one without.

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No. It won't. It will improve your sharpe ratio significantly, but it won't improve your expected return. Historical results do not predict future returns. Especially when bonds are yielding virtually nothing.

This also depends on how expensive everything is - probably the American funds choice will have higher costs than the generic Vanguard 500. Expense ratios in 401ks can be screwy though.

I don't think you know how to calculate expected return.

i get what you are saying, believe me, I do. However, that is not going to increase your expected return. You're talking like you only rebalance at the perfect time, which isn't true. You buy things on their way down and see them on their way up. Not just buy low and sell high.

You are preaching the words of modern portfolio theory. A theory that was good at its time and is still not a bad approach, but a theory that was killed by a man named Ray Dalio.

Now, I'm not saying my advice is in accordance with PMPT, but PMPT does suggest that liking for dislocation in risk to return is the best way to manage a semi active global portfolio.

Expected return of a portfolio is equal to the weighted value of each of the prortfolio's expected return.

My comment about dalio was not that he hated the risk in bonds (that was the part I was admitting I was backwards on), but that he encouraged people to think outside of the old world to find the right asset allocation, even if it meant taking on leverage to juice low expected return assets with good risk. I have levered myself in certain fixed income, but I have done it mostly because the cost to borrow is even more insanely low than the expected return of good risk assets.

Unfortunately, the world is different in retirement accounts, so you can only go affect asset allocation.

After all that rambling, let me ask you this one question: if having a portfolio of bonds and stocks out performs one with only stocks, why wouldn't you lever yourself up to short the S&P and go long a portfolio of S&P stocks mixed with bonds? Why wouldn't every hedge fund in the world do this if it was so simple? The answer is: it's not. Which was my original point. There is no such thing as a perpetual motion machine that can guarrantee higher returns. All you can do is hope to maximize your returns at a given risk level.