14k in Roth IRA. Now what.

[disneysteve]

My alternative suggestion: The S&P 500 index fund (VFINX) & a bond index fund (VBISX) have the lowest correlation, therefore they result in lower volatility, so I'd recommend those two plus an int'l index fund (VTRIX).

I couldn't argue with that. And I totally agree to do it through Vanguard directly, not any other firm.

[frito833]

Thanks for the help guys!! Here's the exchange I just made.

500 Index Fund Inv (VFINX) ------------ $3,000.00
International Value Fund (VTRIX) ------ $3,000.00
Small-Cap Value Index (VISVX) --------- $3,000.00
Short-Term Bond Index Inv(VBISX) ---- $5,000.00


I've set up deposit from my checking to Short-Term Bond Index Inv (VBISX).

[Beppington]

Thanks for the help guys!! Here's the exchange I just made.

500 Index Fund Inv (VFINX) ------------ $3,000.00
International Value Fund (VTRIX) ------ $3,000.00
Small-Cap Value Index (VISVX) --------- $3,000.00
Short-Term Bond Index Inv(VBISX) ---- $5,000.00


I've set up deposit from my checking to Short-Term Bond Index Inv (VBISX).

Very good. I see you decided on 35.7% in bonds. Nothing wrong with that but it is pretty conservative for a young person. My target is just 10% (age 41). It seems to be consensus that young people hold the lowest amount, and you hold more & more as you age, until maybe 50% in retirement. So, I have a moving formula that increases my bond fund percentage a little all the time until retirement.

Again, though, one of the main keys is to decide on firm allocation percentages for each fund & stick to them, so you don't find yourself trying to guess whether you should be putting more into Int'l this pay period because you heard good things about India.

[jIM_Ohio]

I started my "starter portfolio" through Vanguard with this fund, VGHEX, on March 2009 with the intention of diversifying into other asset classes but really don't know what to do. The asset allocation I'm going for is the Sound Advice Vanguard aggressive buy and hold. Link is here, FundAdvice.com - VANGUARD TAX-DEFERRED PORTFOLIOS

My question is should I just keep my VHGEX fund till I get up to 27k, 9 funds at 3k minimum to buy, and diversify, or should I just go ahead and buy the funds incrementally. If I do buy incrementally, which ones should I buy in what order? I'm also open to other asset allocations you may suggest through Vanguard.

I read enough responses to know that the fund listed is not in the "portfolio" you referred to.

I believe a ways back on my blog I documented "building" a portfolio, and will outline a few concepts for you here. In general everyone goes through these steps when investing.

1) starting out
means you are committed to setting money aside (paying yourself first) and learning about asset allocation. I believe you are here right now.

deposits are usually a large percentage of account balance (for example one deposit might be 10-50% of your account balance).

2) accumulation
means the money you put in is buying shares you expect to grow considerably. Like double in value 3-6 times over your lifetime.

deposits are a large percentage of account balance and growth. For example a $5000 annual deposit is probably higher than the money earned from growth.

3) Growth
means the money you put in means less than the money already invested. The deposit might double 1-2X in your lifetime.

The annual growth of the portfolio is larger (on average) than the deposits you put in. For example a 400k portfolio earning a 10% annual return makes you $40,000. Your annual deposit of $5000 is much less than the 40k you earned.

4) stability
means the portfolio grows enough each year to meet the spending needs for you in retirement. You probably cannot deposit anymore (because deposits require earned income) and the goal of the portfolio is to supply income and not decrease in value.

For example if you need 50k income each year, and you have 1.5 Million earning 4%. You have a portfolio earning 60k when you only need 50k, so the portfolio keeping a stable value, so you always have the 50k income, is the priority.

5) Draw down.
means you sell shares to earn income. This would be needed if you saved too little, the portfolio does not generate enough dividends or interest, or you lived long enough that you exceed the stability range of your portfolio.

For example if you need 50k in income each year and have 1.2 M earning 4%, your portfolio generates 48k of the income you need, you need to sell shares to generate the other 2k in income.

----------
I point out above, because if you are in categories 1 or 2, the allocation of your porfolio at any given time can be thrown out of rebalance easily, until you hit a critical mass. For example a 50% return on emerging markets stocks in phase 1 or 2 means something different than getting same 50% return in phases 3-4-5.

So my advice is start simple. Choose a core fund- something like an equity income fund, a broad index fund or similar, and get 3k-5k into that one fund (meet your minimum).

Then the next year, add 5k to another fund with Roth deposits (like a foreign large cap fund) then the third year add in a small cap fund and grow portfolio by one fund each year. Within 7 years you will have 7 funds, and probably be in phase 2 with a somewhat reasonable portfolio.

When I see a target allocation like this

Vanguard 500 Index (VFINX)
LCB
10.00% 6.00%
4.00%
Vanguard Value Index (VIVAX) LCV 10.00% 6.00% 4.00%
Vanguard Small Cap Index (NAESX) SCB 10.00% 6.00% 4.00%
Vanguard Small Cap Value Index (VISVX) SCV 10.00% 6.00% 4.00%
Vanguard REIT Index
(VGSIX) REIT 10.00% 6.00% 4.00%
Vanguard Developed Markets Index (VDMIX) Int'l LCB
10.00% 6.00% 4.00%
Vanguard International Value (VTRIX) Int'l LCV 20.00%
12.00%
8.00%
Vanguard FTSE All-World ex-US Small-Cap Index* (VFSVX) Int'l SCB 10.00% 6.00% 4.00%
Vanguard Emerging Market Index** (VEIEX) EM 10.00% 6.00% 4.00%
Vanguard Short-Term Treasuries
(VFISX) ST Bond
0.00% 12.00% 18.00%
Vanguard Intermediate-Term US Treasuries
(VFITX) IT Bond
0.00% 20.00% 30.00%
Vanguard Inflation-Protected Securities
(VIPSX) TIPS 0.00% 8.00% 12.00%

I would think there is significant overlap and duplication which suggests portfolio could be built more efficiently (less time) by eliminating one of the small cap indexed, combining bond funds, using only one REIT fund, and finding other efficiencies if needed.

[Beppington]

Wow that's a lot of funds. Must be a lot of needless overlap. KISS - Keep It Simple Stupid!

However, if someone for really wanted, for whatever reason, to set all those as his portfolio & again stick to firm allocation percentages for each, I see no reason it shouldn't work fine ... as long as you have enough $ to meet the minimums required to avoid any low balance fees.

[Scanner]

I use this formula:

$0-15K 1 mutual fund/ETF
15-50K 2 mutual funds/ETF's
50-100K 3 mutual funds/ETF's
100-500K 4 mutual funds/ETF's
500K+ 5 mutual funds/ETF's

Or you can go with a Target Fund like BA suggested.

I would like to follow this but with my current income, it would take me 20+ yrs to get 5+ mutual funds/ETFs

Right. . .which is why I think at 14K, you only need 1 mutual fund, maybe 2.

It has to do with what, in my opinion, is a sensible paper loss you can take at any one time.

Let's say you have a really crappy year and you take a 50% loss one year. . .what do you lose? $7000.

To me (I don't know about you), that's not a hell of a lot of money.

But if you have $100,000 and you take a 50% loss, that's a $50,000 paper loss.

To me ( I don't know about you), but that's a lot of money. To others, that is chump change. I don't want to risk a paper loss of 50%. . .I'd rather mitigate it with a loss of 30%. . .so I'd like to spread it around some more between different asset classes.

So, I feel compelled to diversify more as I ascend the amount of assets in my retirement portfolio. My portfolio then is probably much more volatile than the next guys but I think it's been better on overall gains.

I am in the "3 mutual fund" category right now.

But. . .I will say this - my advice tends to be contrarian here and I like to disclose that. I think what you did was very sensible and I really find no fault in it. We are all allowed to tweak to our preferences and beleifs.