401K Rollover

I was an employee of Sun Microsystems until June 2006 and retained my Sun 401K plan, which was managed by J.P. Morgan, until June 2, 2010. I decided to roll over my 401K to an IRA rollover account managed by Charles Schwab for the following reasons:

1) Sun’s 401K plan was transferring to the Oracle 401K managed by Fidelity. A “Blackout Period” would be in effect from June 15 to the week of July 5, 2010. In light of a very unstable market environment, financial crisis on-going in Europe and the unstable political environment in Korea, the Middle East, etc., I did not want to lose the ability to manage my account for at least three weeks.

2) I already have a large amount of assets in an IRA rollover account managed by Fidelity and I wanted to diversify my IRA investment companies.

3) I would have a lot more investment options with my IRA rollover account than the Oracle 401K account.

I closed out my Sun 401K account at the close of business June 2, 2010. I told the customer representative at J.P. Morgan to have the check written to Charles Schwab For the Benefit Of (FBO) myself. The check would be sent to me by way of Federal Express (I had to pay $25 to receive the check 5 days sooner than US mail). The DOW and S&P was 10,250 and 1,098 at the close of business June 2, 2010. I received the check sent via FedEx on Saturday, June 5 and I deposited the check at Charles Schwab Monday, June 7. Since the check was written to Charles Schwab I would have immediate access to the funds.

I have decided to invest my new IRA rollover in the following allocation strategy for the next 3 to 6 months except for the cash (with this allocation I will have participation in worldwide stock markets):

1) Cash (future investments) – 18%
2) US stock market index – 58%
3) International non US market index– 12%
4) Emerging market index – 12%

I will use the following Exchange Traded Funds (ETFs) (see blog - BRIC ETFs and ETFs vs Mutual Funds):

· US stock market index - Vanguard Total Stock Market ETF (VTI)

· International non US market index – Vanguard FTSE All-World ex-U.S. ETF (VEU)

· Emerging market index - Vanguard’s MSCI Emerging Markets ETF (VWO)



Vanguard is a very low cost provider of ETF and mutual funds (expense ratio) because of their cost-conscious investment techniques. This helps the bottom line performance of your investment. These ETFs are large by net assets value which will lower the bid / ask spreads (important when you sell the fund). They also have large trade volumes, which serves to keep the price of the ETF very close to the Net Asset Value (NAV) and give the ETF more liquidity. The following are the yields of the ETFs (as of June 12):

· Vanguard Total Stock Market ETF (VTI) - 2.03%

· Vanguard FTSE All-World ex-U.S. ETF (VEU) - 2.21%

· Vanguard’s MSCI Emerging Markets ETF (VWO) - 1.42%

As of today (June 13, 2010) this is a plan - I have not yet bought these ETFs. Please chime in with comments on when you think I should buy these ETFs or if I should consider a different allocation strategy.


© 2010 Paul Cusick

Paul