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CNN Money article
Interesting article, especially for those of you like me who don't like to overcomplicate investments.
Basically, they recommend only having 7 basic investments:
*A blue-chip U.S.-stock fund
*A blue-chip foreign-stock fund
*A small-company fund
*A value fund
*A high-quality bond fund
*An inflation-protected bond fund
*A money-market fund
Any opinions on this?
Message edited by: ReidWings on 2008-05-13 14:31:13 CDT
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This is basically what they go over and over over at diehards.org forum. Proper asset allocation with low cost mutual funds or ETF's and letting it sit and ride.
There is nothing necessarily wrong with this advice or with the funds they recommend. As always, however, the devil is in the details -- how exactly to allocate your money among the funds, how to maintain the discipline and resist the temptation that some people have to sell when the market is down and to buy when it's up, etc...
Overall, if you are struggling with these decisions or are just acquiring basic knowledge about the markets (which is essentially the target audience for the types of articles quoted in the OP), you will often be better off investing in a low cost target fund and then letting the people running it make all those decisions for you. For small investors target funds also come with additional benefits, such as one low qualifying minimum rather than having to satisfy multiple minimum investments that may be associated with various funds and/or having to pay higher fees as a result.
If you are going to do passive management; you do not even need 7. One target date fund - that already invests in all the categories; and one money market (or savings account) for emergency funds is all that is needed.
article says nothing earth shattering --- despite what they say --- you don't need 7 different mutual funds ---- that is a feel good thing the industry promotes --- you feel good that you have created this diversified strategy because you are the one tweeking your allocations --- they have to sell ads --- whatever
Where the heck are the pork belly futures ?????????????????????????????????????????????????
jimbocobb said:Where the heck are the pork belly futures ?????????????????????????????????????????????????
I'm highly leveraged in concentrated OJ myself.
For a money magazine article, this was surprisingly good, although you probably wouldn't want 3/7ths of your money in bonds, so you'd need a reasonable asset allocation. The problem was that as usual, it recommended high cost funds, as this is what makes up Money magazine's advertising base. Instead you would want low cost funds and/or ETFs.
Also "foreign" is a bit of a catch-all for a pretty big planet, but for a "simplified" portfolio its fine I guess. REITs really need to be in here somewhere though.
But what's good about this article is that it implicitly discredits currently "hot" investment areas that individual investors have no place in, such as commodities, emerging markets, etc.
If you're far away from retirement, having almost half of your money in bonds is not a good idea. I have my money in ETFs tracking the US stocks, foreign stocks, developing markets, commodoties, and REITs.
tyates99 said:For a money magazine article, this was surprisingly good, although you probably wouldn't want 3/7ths of your money in bonds, so you'd need a reasonable asset allocation. The problem was that as usual, it recommended high cost funds, as this is what makes up Money magazine's advertising base. Instead you would want low cost funds and/or ETFs.
Also "foreign" is a bit of a catch-all for a pretty big planet, but for a "simplified" portfolio its fine I guess. REITs really need to be in here somewhere though.
But what's good about this article is that it implicitly discredits currently "hot" investment areas that individual investors have no place in, such as commodities, emerging markets, etc.
tyates99 said:The problem was that as usual, it recommended high cost funds, as this is what makes up Money magazine's advertising base. Instead you would want low cost funds and/or ETFs.Did you look at the funds that it recommended? They are actually some of the lowest cost funds available out there for small retail investors. FSMKX has a 10bps expense ratio; VGTSX is at 27bps; PRNHX is at 79bps; VIVAX is at 20bps; VBMFX is at 19bps; and VIPSX is at 20bps.
Those expense ratios are good... I must have misread.
Commodities in a retirement portfolio: I know a lot of people are jumping on board this idea. This is a lesson that people are going to have to learn the hard way I guess.
laltopi said:If you are going to do passive management; you do not even need 7. One target date fund - that already invests in all the categories; and one money market (or savings account) for emergency funds is all that is needed.
IMO those target date retirement funds (or at least Vanguard's) are too concentrated in US stocks, although otherwise they are awesome investment products.
ppatin said:laltopi said:If you are going to do passive management; you do not even need 7. One target date fund - that already invests in all the categories; and one money market (or savings account) for emergency funds is all that is needed.
IMO those target date retirement funds (or at least Vanguard's) are too concentrated in US stocks, although otherwise they are awesome investment products.I agree. As an example, you can see the allocations for a target 2035 fund (VTTHX) here:
http://quicktake.morningstar.com/fundnet/Holdings.aspx?Country=USA&Symbol=VTTHX&fdtab=portfolio
The fund holds ~70% domestic stock, so it makes sense to adjust the allocation manually by purchasing more shares of VEURX, VPACX, and VEIEX (Euro, Pacific, and Emerging Markets) outside the fund.
jayK said:ppatin said:laltopi said:If you are going to do passive management; you do not even need 7. One target date fund - that already invests in all the categories; and one money market (or savings account) for emergency funds is all that is needed.
IMO those target date retirement funds (or at least Vanguard's) are too concentrated in US stocks, although otherwise they are awesome investment products.I agree. As an example, you can see the allocations for a target 2035 fund (VTTHX) here:
http://quicktake.morningstar.com/fundnet/Holdings.aspx?Country=USA&Symbol=VTTHX&fdtab=portfolio
The fund holds ~70% domestic stock, so it makes sense to adjust the allocation manually by purchasing more shares of VEURX, VPACX, and VEIEX (Euro, Pacific, and Emerging Markets) outside the fund.The aggregate of the Euro, Pacific and Emerging Markets allocation in this target fund is about 18%, which for quite a few people is sufficiently aggressive and sufficiently diversified. In fact, considering the roughly 10% bond allocation that's in this target fund, I would think that people buying it may not actually want to get all that aggressive with international stocks.
jayK said:ppatin said:laltopi said:If you are going to do passive management; you do not even need 7. One target date fund - that already invests in all the categories; and one money market (or savings account) for emergency funds is all that is needed.
IMO those target date retirement funds (or at least Vanguard's) are too concentrated in US stocks, although otherwise they are awesome investment products.I agree. As an example, you can see the allocations for a target 2035 fund (VTTHX) here:
http://quicktake.morningstar.com/fundnet/Holdings.aspx?Country=USA&Symbol=VTTHX&fdtab=portfolio
The fund holds ~70% domestic stock, so it makes sense to adjust the allocation manually by purchasing more shares of VEURX, VPACX, and VEIEX (Euro, Pacific, and Emerging Markets) outside the fund.
To keep things simple you could add VEU (whole world ex-US) instead.
NukeMedDude said:This is basically what they go over and over over at diehards.org forum. Proper asset allocation with low cost mutual funds or ETF's and letting it sit and ride.
any advice or links on how to put together a basic low cost etf / index fund portfolio for someone around 30 ? i read a lot of the diehard threads and still can't seem to get a clear picture...
clyde_frog said:NukeMedDude said:This is basically what they go over and over over at diehards.org forum. Proper asset allocation with low cost mutual funds or ETF's and letting it sit and ride.
any advice or links on how to put together a basic low cost etf / index fund portfolio for someone around 30 ? i read a lot of the diehard threads and still can't seem to get a clear picture...
My advice would be to go to your local library and check out a copy of "ETFs for Dummies." I thought it was an excellent book.
Message edited by: ppatin on 2008-05-15 15:08:55 CDT
ppatin said:clyde_frog said:NukeMedDude said:This is basically what they go over and over over at diehards.org forum. Proper asset allocation with low cost mutual funds or ETF's and letting it sit and ride.
any advice or links on how to put together a basic low cost etf / index fund portfolio for someone around 30 ? i read a lot of the diehard threads and still can't seem to get a clear picture...
My advice would be to go to your local library and check out a copy of "ETFs for Dummies." I thought it was an excellent book.
I used this article and the series it comes from as a guide to set up my retirement investments. Also click previous and next article links at bottom for further discussion. I think his advice to avoid QQQQ and DIAmonds and so forth makes a lot of sense.
I'm a little older than you, but my allocation is quite aggressive for my age, and so may be of some interest. Here's how I break it down: (and some of these percentages are a little squirrely just because of what I had room for in which accounts and the way some things have grown since last reallocation, but anyway):
percentage/ticker/what it is
13 % individual stocks of my choosing, about half small caps, half midcaps, things I pick because I believe they will massively outperform but usually lose me money. Oh well.
5% RWR, REIT index ETF
9% EEM, Emerging markets ETF
7% EFA, europe and asia established markets ETF
25% VFINX, Vanguard S&P 500 index fund (held in work retirement account)
15% IJH, U.S. midcap stock index ETF
16% IWM, Russell 2000 smallcap index ETF
8%, AAG, aggregate bond index ETF
2%, $$$, cash awaiting investment (mostly scraps from dividends across a few brokerage accounts)
Interesting thread; good idea.
Cheers and good luck.
Message edited by: VanceWade on 2008-05-15 15:48:18 CDT
clyde_frog said:NukeMedDude said:This is basically what they go over and over over at diehards.org forum. Proper asset allocation with low cost mutual funds or ETF's and letting it sit and ride.
any advice or links on how to put together a basic low cost etf / index fund portfolio for someone around 30 ? i read a lot of the diehard threads and still can't seem to get a clear picture...
Honestly, I'm 30 years old and use target date fund for my IRA. Then I put excess investment cash into Roth 403b, and then rest into taxable stocks and mutual funds.
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