14k in Roth IRA. Now what.

[frito833]

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.

[Broken Arrow]

Is this for retirement? If so, why not just Target Retirement? If not, what is the goal and time frame?

[Beppington]

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.

Wow, you lucked out: March '09 was the bottom! (as well as any "bottom" can be defined anyway). Some of my own March 9, '09 investments at Vanguard have doubled!

I'm not real sure I understand your question, but if you only put $ into the VHGEX fund, while you will get the benefits of dollar-cost averaging, you'll miss the benefits of buy-low/ sell-hi by investing in at least 2 funds and each pay period putting a larger amount into the laggard. This achieves far less volatility, and pays off really big over time. I invest into a set of 9 Vanguard funds* and do just that. I have established allocation percentages for each, & each time I have $ to invest I allocate it in whatever amounts are needed to re-balance as close as possible to my original allocation plan.

The lower volatility is the main benefit, but it also gives you a little more hands-on feel to your investments, keeps you interested & engaged, probably more committed, lets you feel like you're staying involved & making choices even though you're really not, & you get to make more buys more often, which is just kinda fun to me Of course if you prefer to ignore your investments & focus on other things in life, maybe buying into only VHGEX is the best thing for you.

* I can post the specific funds & precentages if you care to know, but I actually got them from a book, so you could just read that instead if you really want to understand "why", not just "what".

[Jessica_A]

frito833 ,

Congrats on buying in March

Beppington's advice is good. I'm personally fan of buying on dips so the incremental appoach woud work for me personally. But then again you may miss out on buying low selling high. Thats a trade off you'll have to live with.

This may help you also:

rothirarules.net/roth-ira-investments.htm

rothirarules.net/roth-ira-withdrawal.htm

rothirarules.net

I started my "starter portfolio" through Vanguard with this fund, 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

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.

[frito833]

Is this for retirement? If so, why not just Target Retirement? If not, what is the goal and time frame?

This is for retirement and the time frame is 35 years. I've considered target date funds, but want a more hands on approach and would like to get a better return using the portfolio laid out on Fund Advice.

[disneysteve]

This is for retirement and the time frame is 35 years. I've considered target date funds, but want a more hands on approach and would like to get a better return using the portfolio laid out on Fund Advice.

I'm curious why you started with VGHEX since that isn't part of the portfolio you are trying to build.

You've got enough now to spread out over 3 funds, so I'd do that. As you accumulate enough for a 4th, then a 5th and so on, you can expand.

[Scanner]

I am not sure why you chose a tax-advantaged fund for a tax-sheltered account like your Roth.

You usually choose funds like that when you are in a taxable account.

PS: Never mind. . .the link suggests that this an allocation to follow in a tax-advantaged account, not a tax-advantage fund.

Anyway, I think at 14K, one mutual fund is actually just fine. 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.

[frito833]

Wow, you lucked out: March '09 was the bottom! (as well as any "bottom" can be defined anyway). Some of my own March 9, '09 investments at Vanguard have doubled!

I'm not real sure I understand your question, but if you only put $ into the VHGEX fund, while you will get the benefits of dollar-cost averaging, you'll miss the benefits of buy-low/ sell-hi by investing in at least 2 funds and each pay period putting a larger amount into the laggard. This achieves far less volatility, and pays off really big over time. I invest into a set of 9 Vanguard funds* and do just that. I have established allocation percentages for each, & each time I have $ to invest I allocate it in whatever amounts are needed to re-balance as close as possible to my original allocation plan.

The lower volatility is the main benefit, but it also gives you a little more hands-on feel to your investments, keeps you interested & engaged, probably more committed, lets you feel like you're staying involved & making choices even though you're really not, & you get to make more buys more often, which is just kinda fun to me Of course if you prefer to ignore your investments & focus on other things in life, maybe buying into only VHGEX is the best thing for you.

* I can post the specific funds & precentages if you care to know, but I actually got them from a book, so you could just read that instead if you really want to understand "why", not just "what".

Please, I would really appreciate the specific funds with percentages and which book you got it from. I'm more of a hands on person and believe in buy and hold for long term. VHGEX actually got me a 35% return so far but believe I can get more return with less risk by buying several different asset classes. If I did have the extra 5 grand on March 09, I'd max out my IRA that month but couldn't pass up a car my family sold me for 75% off which I paid for in cash .

[southerndoc]

Check out the Gone Fishin' Portfolio. You can probably Google it to find the allocation, but the book is pretty decent in giving you a few tips on saving money, etc.

I opened a SEP-IRA with Vanguard recently because I've became more of a fan of low-cost mutual funds that are index funds. When I opened my account, I was told the $3,000 IRA minimum per fund is waived for IRA accounts at Vanguard. I was allowed to purchase some funds with as little as $250 investment. Funds listed as having higher IRA minimums will still require you to meet that minimum. Apparently the IRA minimums of $3,000 are primarily for outside institutions.

I'm trying to figure out now whether to move all my mutual funds at Schwab over to Vanguard. Schwab has some low cost funds too, but I'm not as impressed with them. My individual stocks will remain at Schwab since trading stocks at Vanguard is pretty cumbersome from what I've been told (and they charge a lot per trade).

[frito833]

I'm curious why you started with VGHEX since that isn't part of the portfolio you are trying to build.

You've got enough now to spread out over 3 funds, so I'd do that. As you accumulate enough for a 4th, then a 5th and so on, you can expand.

Because I thought this was a mix of all the asset classes but leans towards large cap with no small and mid. Think I'll follow your advice DS but lost which ones to buy first or if it even matters.

[frito833]

I am not sure why you chose a tax-advantaged fund for a tax-sheltered account like your Roth.

You usually choose funds like that when you are in a taxable account.

PS: Never mind. . .the link suggests that this an allocation to follow in a tax-advantaged account, not a tax-advantage fund.

Anyway, I think at 14K, one mutual fund is actually just fine. 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

[frito833]

Check out the Gone Fishin' Portfolio. You can probably Google it to find the allocation, but the book is pretty decent in giving you a few tips on saving money, etc.

I opened a SEP-IRA with Vanguard recently because I've became more of a fan of low-cost mutual funds that are index funds. When I opened my account, I was told the $3,000 IRA minimum per fund is waived for IRA accounts at Vanguard. I was allowed to purchase some funds with as little as $250 investment. Funds listed as having higher IRA minimums will still require you to meet that minimum. Apparently the IRA minimums of $3,000 are primarily for outside institutions.

I'm trying to figure out now whether to move all my mutual funds at Schwab over to Vanguard. Schwab has some low cost funds too, but I'm not as impressed with them. My individual stocks will remain at Schwab since trading stocks at Vanguard is pretty cumbersome from what I've been told (and they charge a lot per trade).

If this is true, I'll diversify to 9 funds right now if I could. Reason I chose Vanguard is they have the lowest expense ratios in the industry and every person I talked to that has Vanguard are very happy. I'll take a look at the Gone-fishin portfolio and book. Thx doc.

[Beppington]

Please, I would really appreciate the specific funds with percentages and which book you got it from. I'm more of a hands on person and believe in buy and hold for long term. VHGEX actually got me a 35% return so far but believe I can get more return with less risk by buying several different asset classes. If I did have the extra 5 grand on March 09, I'd max out my IRA that month but couldn't pass up a car my family sold me for 75% off which I paid for in cash .

First, the portfolio I'm talking about doesn't deal with traditional "asset classes" such as "energy", "retail", etc. It suggests you buy only index mutual funds, including Large Cap, Small Cap, International & a bond fund.

If you're still interested ... The book is called "Retire Early Sleep Well" (by Steven R. Davis), which is exactly what I want to be able to do!

And, I was fed up with my "guess & pick" investment strategy, which was of course all over the map. I was tired of thinking "D@mn, if only I had bought this, sold that, sold this sooner*, held that longer", etc. & then started looking for a better way, when I found Davis' book. You can get it at Amazon: Amazon.com: Retire Early Sleep Well: A practical guide to modern portfolio theory, asset allocation and retirement planning in plain english, Second Edition (9780979303807): Steven R. Davis: Books

I have no connection to Davis or his book; I'm just a thoroughly impressed & satisfied reader of it. It's a very short, concise book, easy to read & understand, even for me. I read the book in early '05 & very soon after converted all my holdings into the portfolio of Vanguard index funds he lays out. It just made sense to me, & his research is very convincing. I haven't regretted a single transaction yet, & doubt seriously I ever will. And, just to confirm my thoughts, I hired a paid financial planner to analyze not only my entire financial situation but also Davis' portfolio, which I was by then following fully. They told me the portfolio is fundamentally very sound; but they did have a minor suggested tweak: Davis has you buy no mid-cap index funds, & explains why, but my financial planner thought I should have some; to me a very small difference in schools of thought.

I know I offered to post Davis' suggested Vanguard portfolio, but it occurred to me that it's copywritten info I shouldn't be giving away.

* My Microsoft holding doubled from $5,200 to $11,000: Yay!! ... But I had no idea what to do with it: Hmmm? "Ride it higher"? Sell some? Sell it all?? Buy more?? And, in fact, I wouldn't have a clue what to do in that same situation today either. I ended up doing nothing, which meant "hopefully ride it higher." But instead it dropped back to almost exactly what I bought it at, when I sold it all & converted to the Vanguard portfolio.

[disneysteve]

Because I thought this was a mix of all the asset classes but leans towards large cap with no small and mid. Think I'll follow your advice DS but lost which ones to buy first or if it even matters.

If you want to start with 3 funds on your list, I'd probably do the 500 index, Small Cap index and Developed Markets index. For the 4th fund, I'd probably add the bond exposure with the Inflation-Protected fund.

Can't give you any high-falootin academic reason for that order, but I think it would be a reasonable way to go. Others may disagree or have alternate suggestions.

[Beppington]

If you want to start with 3 funds on your list, I'd probably do the 500 index, Small Cap index and Developed Markets index. For the 4th fund, I'd probably add the bond exposure with the Inflation-Protected fund.

Can't give you any high-falootin academic reason for that order, but I think it would be a reasonable way to go. Others may disagree or have alternate suggestions.

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). The Davis book doesn't really put a preference on the recommended funds, it just emphasizes low correlation in order to achieve lower volatility.

With just these three funds, if you'll pick an allocation percentage for each & stick to it no matter what, you'll do about as good as you can without gambling.

By the way, if you're not already doing so, you should do this directly at Vanguard rather than at some other financial firm; they notoriously figure out some way to charge you more than it will cost you at Vanguard, aka they're the middle man.