Young Investor's Questions

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Young Investor's Questions

Postby JEugeneA » Sun Dec 30, 2012 2:27 pm

After reading The Little Book of Common Sense Investing, I've been researching the best ways to index invest nearly non-stop the past two weeks.
See, I'm not quite 23 years old, and I figure learning about index funds is quite a blessing at my relatively young age. Not in a huge rush to invest, because once I start, I wan't to be able to let my investments sit without doing much more than investing more into them according to specific allocation methods.

Here are a few questions that have provoked my thoughts today. Any form of insight would be appreciated!
________________________________________________________________________________________________________________________________

1. To me, Vanguard seems to be a less worrisome company, yet Fidelity sure does have some attractive index funds based on ER and investment minimums. I'd rather not invest in more than one company, seeing I'm taking a seemingly "lazy" approach to long term investing (aside from the recent research binge). My question would be which company would you trust more for a young index fund interested investor?

2. As I learn more about the importance of asset allocation, the more I think about the convenience of investing in a fund that offers a U.S. stock index fund, an international stock index fund, as well as a bond index fund. That brought me to the Fidelity Four-In-One (FFNOX) fund.
Is the advantage as obvious as it seems to invest due to the low total ER of (FFNOX) over investing in all the funds that make this 4-in-1 separately? I'm assuming there has to be a catch to the 4-in-1 such as hidden fees or tax disadvantages.

3. Should I even be worrying much about asset allocation at my age, or should I just get my feet wet with a basic U.S. stock index to start?
Last edited by JEugeneA on Sun Dec 30, 2012 7:08 pm, edited 1 time in total.
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Re: Young Investor's Questions

Postby pennstater2005 » Sun Dec 30, 2012 2:43 pm

Welcome to the forum!

Congratulations on starting at such a young age and for reading a good investing book. As far as your questions…..

1. I think comparing Vanguard to Fidelity is like comparing apples to apples. Not much of a difference. Both are good funds with low expense ratios. I personally use Vanguard for no other reason then that was the one I stumbled upon first that had a good index fund selection with low expense ratios.

2. Once again both companies offer a nice selection. Vanguard has the Target Date Retirement funds which have a minimum initial investment of only a $1000. Fidelity also has target date funds although I'm not as sure about the expense ratios. Within each target date fund from Vanguard is US stocks, International Stocks, and Bond funds all with certain percentages based on your desired asset allocation.

3. You definitely want to be concerned with your asset allocation. At such a young age depending on your risk tolerance, i.e ability to lose money when the markets are down, I think you can have a greater allocation of stocks than bonds. Maybe 80/20 or 90/10 if you have a greater risk tolerance.

You've got some thinking to do. Read the wiki here and take a look at the 3 fund portfolio. Keep asking questions :D
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Re: Young Investor's Questions

Postby sometimesinvestor » Sun Dec 30, 2012 2:54 pm

Given your age 15% bonds is reasonable and ffnox a good one stop fund
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Re: Young Investor's Questions

Postby ruralavalon » Sun Dec 30, 2012 6:39 pm

welcome to the forum :) .

Congratulations on starting out right.

1. Both Vanguard and Fidelity are good. I prefer Vanguard for the larger array of good low cost funds offered. At Fidelity the relatively few Spartan funds are the only ones with very low costs. If you want Fidelity, Fidelity Four-in-One Index Fund(FFNOX) is a good choice for you.

2. Other funds which mix the 3 basic asset types are Vanguard's Lifestrategy funds, like--
Vanguard LifeStrategy Growth Fund (VASGX), 80/20 stocks/bonds, with ~ 30% stocks in int'l.
https://personal.vanguard.com/us/funds/ ... IntExt=INT .

OR one of the Vanguard Target Retirement funds (lower Initial minimum investment);

OR Vanguard STAR Fund (VGSTX) (lower initial minimum investment), 60/40 stocks/bonds, with ~ 30% stocks in int'l.
https://personal.vanguard.com/us/funds/ ... IntExt=INT .


3. Yes do allocate some to bonds, even at your age 20% would be good.
Last edited by ruralavalon on Sun Dec 30, 2012 6:53 pm, edited 1 time in total.
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Re: Young Investor's Questions

Postby livesoft » Sun Dec 30, 2012 6:53 pm

It's never too late to consider the tax consequences as well. Thus FFNOX or a target retirement fund might not be the one you would want to use if you are using a taxable account to do your investing.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Young Investor's Questions

Postby JEugeneA » Sun Dec 30, 2012 6:55 pm

Very helpful insight everyone! 8-)

Vanguard's Life Strategy or Target Retirement are two I had yet to check out.

I'd say the allocation distribution and expense ratio are more attractive for LifeStrategy Growth vs. TR2055.

The minimum investment for TR2055 however is only $1,000 vs. $3,000 for LSG.

Fidelity 4-in-1 still seems like a fair option as well, with a slightly higher ER.

...this must be due to having BOTH 500 & extended maket index funds instead of ONLY total stock market index fund.

Would there be any advantage to this combo to help override the disadvantage of higher ER?
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Re: Young Investor's Questions

Postby nedsaid » Mon Dec 31, 2012 10:39 am

Yes, you should be interested in asset allocation at your age.

In 1987, I had one stock mutual fund and on the day of the stock market crash was probably worth maybe $2,000. When the crash happened, I lost several hundred dollars but it seemed like all the money in the world. It seems silly now as a portfolio can fluctuate by thousands in one day!! The point is that my risk tolerance wasn't as high as I thought.

At your age, you should be mostly invested in stocks. Probably 80/20 stocks/bonds or 75/25 is appropriate for someone your age.
Last edited by nedsaid on Tue Jan 01, 2013 7:48 pm, edited 1 time in total.
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Re: Young Investor's Questions

Postby pennstater2005 » Mon Dec 31, 2012 2:10 pm

JEugeneA wrote:Very helpful insight everyone! 8-)

Vanguard's Life Strategy or Target Retirement are two I had yet to check out.

I'd say the allocation distribution and expense ratio are more attractive for LifeStrategy Growth vs. TR2055.

The minimum investment for TR2055 however is only $1,000 vs. $3,000 for LSG.

Fidelity 4-in-1 still seems like a fair option as well, with a slightly higher ER.

...this must be due to having BOTH 500 & extended maket index funds instead of ONLY total stock market index fund.

Would there be any advantage to this combo to help override the disadvantage of higher ER?


It sounds like you're expecting some outperformance to help with the slightly higher ER. Only time will tell that. Stick with a simple portfolio using tax efficiency when able and stay the course. You read a great book by Jack Bogle so you are already on the right path.
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Re: Young Investor's Questions

Postby ruralavalon » Mon Dec 31, 2012 4:35 pm

JEugeneA wrote:
...this must be due to having BOTH 500 & extended maket index funds instead of ONLY total stock market index fund.

Would there be any advantage to this combo to help override the disadvantage of higher ER?

No, there is no such advantage. The S&P 500 plus Extended Market holds exactly the same stocks as the Total Market, and so will perform the same.
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