Asset Allocation question

Call Vanguard. *They'll* be very helpful. They have very efficient, low fee broad index funds so you can get all the diversity you'd want. They have excellent low-fee bond funds. Many investors get their entire stock/ bond portfolio completely taken care of with two funds. At your age I'd by almost completely in stocks. You could plunk all your money in VTI, and anyone arguing against that would have to convince you that they know how to beat the market. Over the long term about 85% of the best professionals (fund managers) fail to perform as well as the market, so don't think you can gild the lilly by getting X% small cap, Y% large cap, Z% knit cap etc. like you know better. VTI covers the waterfront. Once you get more conservative, (retire age - 10?) you can start shifting some into a bond fund. Vanguard's GNMA fund's bonds all have the U.S.'s full treasury backing and it is also low-cost and has performed excellently forever... A ROTH is a *good idea*. You can put in $4000 now for 2006, and $4000 in January for 2007.

You could plunk all your money in VTI, and

Is VTI the Vanguard Target Retirement Fund? Do you know anything about the Life Strategy funds? Also what is the GNMA fund? I couldn't find it.

Look to see in Vanguard has an "assett builder" program which allows for less initial investments IF you add to the account each month.

T Rowe Price has a program like this and I opened my account with $50 in 5 different mutual funds.

If looking at only two funds,

if you choose index funds I would consider

S&P 500 index or Total stock market index and either Small Cap Index (aggressive)- choose only if you chose S&P index above; International Index (more aggressive) OR Bond Index (less aggressive)

if you choose managed funds, I personally like Windsor II (large cap/ dividend type) and I'm sure you could find a mid cap, small cap or other fund for your other choice.

I believe that is the Vanguard Total Stock Market Index Fund. A GNMA fund is a bond fund that invests in Ginnie Mae (General National Mortgage Association) bonds.

$8700 is a nice start, and probably one core fund would be good, certainly not more than 2 funds. Vanguard is the originator of index funds and have very good selections. An S&P 500 fund would be an excellent core holding. After you have grown that to $10-15000, you may want to add another fund. Choosing a Life Strategy fund might be another way to invest those funds.

I have invested in some of their Life Strategy Funds. They are a "Fund of Funds" meaning they are a wrapper for several funds. For instance, the LifeStrategy Growth Fund has the Total Stock Market Fund, an International Index fund, and the Asset Allocation Fund. The Total Stock Market and International are index funds, while the Asset Allocation Fund is a managed fund. One of the things I like about these funds is that you don't have to worry about rebalancing your portfolio. All you need to do is decide how aggressive you want to be. I'm personally not a fan of any of the Target Retirement Funds - Vanguard or any other company. With the Target funds they decide how aggressive you should be, and I prefer to keep that decision for myself.

Elizabeth Richardson

One of the things I like about these funds is that you don't have to

I agree - I think that is how I'm feeling about the Target funds as well. But this is one question I have. If i were to choose a particular Life Strategy Fund, then switch to another one in the future due to a change in my financial situation, and since this is a Roth IRA we are talking about, would there be tax implications and if so what?

What if I were to switch multifund portfolios in the future (ex switch from a Vanguard Target Retirement Fund to a Life Strategy Fund due to a change in my financial situation)? Since it would be a Roth IRA, would there be tax implications?

As with a regular IRA, or 401(k), there are no tax consequences trading within the account.

Not a problem. You just transfer the money within your Roth to another fund. I've done that and Vanguard makes everything really simple.

Elizabeth Richardson