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Need some guidance as a young investor.

I am 26, fairly new to investing and have some questions. I have been spending some time reading the basics of investing. I started my first job and I have a Roth IRA, a taxable account with Fidelity. I have an SRA (supplemental retirement annuity) with TIAA-CREF and will open up

401K with Vanguard in 2008 as that is when I'll be eligible to contribute. I will be maxing out Roth/401k contributions. Plus, I will be investing about 10-15K per year in my taxable account per year.

Given my timeframe and doing some reading, I came with the following asset allocation:

75 % stocks 50 % US - 25% small-cap, 30% large growth, 40% large value 50 % foreign (ex US) - 60% developed, 40% emerging markets 10 % REITs 15 % US govt. bonds - 50% intermediate grade, 30% short term, 20% TIPS

  1. Is this a reasonable asset allocation given my time frame (30+ years)? Or is something way off and I should correct?

  2. The next question is about which funds to invest in. I am looking at purchasing mostly ETFs as they are low-expense ratio index funds. I know which funds to get for some asset classes, but need some recommendations of mutual funds/ETFs I can research for others.

Foreign: Developed: Vanguad Total Market ex-US Index Fund (VEU is the ETF) Emerging: Vanguard Emerging Markets (VWO)

US: Vanguard Total Index Fund (VTI) I'm not sure about small-cap ETFs

REITs: Any ideas of funds for this category? Since real-estate is very down right, is this a good opportunity to buy or should I wait 6 more months or so?

Bond: iShares Lehman 1 to 3 Year Treasury Bond Fund (SHY) iShares Lehman TIPS Bond Fund (TIP) Any ideas for intermediate grade bond fund?

Also should I put the bond/REIT ETFs in the tax-deferred accounts if they are tax-inefficient (i.e., high dividends?).

My current portfolio is the following (somewhat in a disarray) and clearly it needs some work to get it to the above, desired form

Taxable account: Fidelity International Growth Discovery (FIGRX) Fidelity Blue chip value fund (FBVCX) Fidelity Select Medical Equipment (FSMEX) Fidelity Natural Gas (FSNGX) Vanguard Emerging Markets (VWO) Wachovia Corp (WB)

Roth Fidelity Freedom Fund 2040

I appreciate any pointers/advice you can offer. Thanks for your time.

Reply to
pallav
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"pallav" wrote

snip for brevity

snip for brevity

Some weekend experiment with the free online asset allocation tools at

formatting link
. Which is best? It's a case of "five will get you ten" and luck. The more important point is to diversify. You seem to understand the value of diversifying already. In your shoes, I would hold only funds (mutual funds or ETFs; in your taxable account or any account) that are index funds with low expense ratios. Vanguard is the place to be. I am a two-decade plus Fidelity customer but every time I check their funds I just find so little (a handful of index mutual funds; no Fidelity ETFs) with low expense ratios. I bought my first Vanguard ETF (specifically, its small cap value ETF, VBR) a week or so ago, after comparing VBR carefully with the half-dozen or so other small cap value ETFs now available. VBR does not have all I'd like (it's 37% medium caps, the highest of any "small cap" value fund), but the expense ratio, the relatively small turnover (pretty much irrelevant for an IRA position), and the long, outstanding reputation of Vanguard sold me on it.

Vanguard's REIT fund VNQ is one of two funds I currently am considering. In your shoes, I would buy now. Since you will have a Vanguard account, you should consider Vanguard mutual funds, too. Just watch the required minimums with Vanguard's mutual funds.

Do not try to "time the market." Should the market dive, bear in mind this means little for the long run in the big picture yada, and your reinvested dividends will pick up shares at bargain prices. The compounding effect of reinvesting dividends is staggering.

Keep in mind you may want to buy a house at some point in the next ten years. You may want to stash away some dough in a conservative vehicle (CD ladder; money market funds) for a home down payment.

Reply to
Elle

Good for you to be able and willing to do this now.

A tool that I found interesting was the IFA assessment quiz:

That walks you through a bunch of questions, then recommends one of their portfolios. You can also just go look at the portfolios.

Now, their implementation is almost entirely Dimensional Funds, which individuals can't buy (and you usually need a pretty large portfolio to work with one of their registered advisors). However, you can review the asset allocations they recommend to get ideas on sector weighting.

Another useful site for me was the Altruista one (another that would like to manage your money for a fee). They compare options in many of the asset categories. Again DFA funds aren't an option for the individual investors, but they also discuss many other ETFs and mutual funds.

Brian

Reply to
Default User

Thank you all very much for the advice, the list of the funds, and the links to the websites. They have been very useful. After doing more analysis and reading upon those links, and looking into Vanguard's vs DFA funds (the list was very helpful), I have come up with the following plan.

401k - tax-deferred (with Vanguard so low-cost mutual funds) Vanguard Total Stock Market Index Fund (VTSMX) Vanguard Small Cap Fund (is it necessary one has VTSMX?) Vanguard REIT (VGSIX) Vanguard Total Bond Market Index (VBMFX) Vanguard TIPS (VIPSX)

Roth - tax-free (with Fidelity so go for ETFs) Vanguard Emerging Markets (VWO) Vanguard FTSE All World -ex US Index Fund (VFWIX/VEU)

Taxable (with Fidelity) Stick with the funds listed in my previous post or sell some of the volatile ones (i.e. gas) and put it in FIGRX or health care.

I think this would be quite manageable for me unless somebody has ideas to reduce it further.

Finally, one last question i have is about the 'total market index'. Since it comprises of entire stock market, is there any way to figure out the asset allocations? i.e. how much is large-cap, mid-cap, small- cap? I've been looking at their website but it just gives the sector breakdowns.

Thank you again.

kind regards

Reply to
pallav

"pallav" wrote snip for brevity personal allocation choices

snip

Go to

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. In the "Quotes" window, type in VTSMX (or VTI). On the left, click on "Portfolio." The market cap breakdown of the fund(s) will appear. It's about

8% small and micro cap.
Reply to
Elle

Index Fund (VTSMX)

73% large and mega cap 19% mid cap 8% small and micro cap

If you think you want more small cap or mid cap, maybe look at extended market index (wilshire 4500 index) as opposed to total market index (wilshire 5000 index).

Wilshire 4500 is the same as wilshire 5000, except the wilshire 4500 excluded the 500 companies in the S&P 500.

Reply to
jIM

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