What index funds would be best for diversifying my current portfolio?

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zayd13
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What index funds would be best for diversifying my current portfolio?

Post by zayd13 » Mon Jul 11, 2016 8:20 pm

Hello,

I'm trying to decide whether it would make sense to invest in additional taxable index funds to further diversify my portfolio.Currently, the only taxable investment that I own is the VTSMX index fund.As I'm getting older and more comfortable with investing, I would liketo further diversify my portfolio. I'm considering maybe getting either an REIT index fund, or an international stock index fund (or both). I'm 27 so my risk tolerance at the moment is relatively high (3.5/5 - a little above moderate).

What are your thoughts? Or would you suggest bonds instead?

(ps: I don't have any debt, I have an emergency fund with 4 months' expenses, and a Roth IRA that I started maxing out last year with just a target date fund in it [VFFVX]).

lack_ey
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Re: What index funds would be best for diversifying my current portfolio?

Post by lack_ey » Mon Jul 11, 2016 8:35 pm

Bonds and international stocks.

Cash is basically zero-duration fixed income. Generally, taking some extra risk over cash by going to bonds and thus taking on some term risk, maybe some credit risk, has historically been rewarded to some degree on average. But if you're getting ~1% on a savings account or even 0%, it's not like a relatively safe bond fund like Vanguard Total Bond adds anything earth-shatteringly different. The current SEC yield on investor shares is 1.84%.

International stocks gets you exposure to companies you don't already have in total stock.

Though really, you have both bonds and international stocks in the target date fund in the Roth.

REITs are part of total stock, which you already have. You could have more, based on a number of justifications that could be made, but you could also take an overweighting of... well, there are a lot of choices.

Not much of a big deal what you choose now unless you're sitting on a big pile of money at 27. Future income and savings rate matter a whole lot more. Of course, if you want to know more and figure these things out now, that's very well and good.

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Re: What index funds would be best for diversifying my current portfolio?

Post by pkcrafter » Mon Jul 11, 2016 8:39 pm

Here's some Wiki info on tax efficiency and fund placement. Scroll down to Step No. 1 and look at the tax efficiency chart.

https://www.bogleheads.org/wiki/Tax-eff ... _placement


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Watty
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Re: What index funds would be best for diversifying my current portfolio?

Post by Watty » Mon Jul 11, 2016 9:00 pm

zayd13 wrote: I'm considering maybe getting either an REIT index fund, or an international stock index fund (or both).


The international would be better since it is more tax efficient.

The REIT might not be necessary if you own, or likely will own, a house or condo(There is no hurry!) and that would give you a lot a real estate exposure.

You might want to consider what this money will likely be used for. If it will likely be used for something like a house down payment or for paying for your next car then both the the REIT and the international stocks would be too agressive.

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Taylor Larimore
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The Three-Fund Portfolio

Post by Taylor Larimore » Mon Jul 11, 2016 9:15 pm

zayd13 wrote:Hello,

I'm trying to decide whether it would make sense to invest in additional taxable index funds to further diversify my portfolio.Currently, the only taxable investment that I own is the VTSMX index fund.As I'm getting older and more comfortable with investing, I would liketo further diversify my portfolio. I'm considering maybe getting either an REIT index fund, or an international stock index fund (or both). I'm 27 so my risk tolerance at the moment is relatively high (3.5/5 - a little above moderate).

What are your thoughts? Or would you suggest bonds instead?

(ps: I don't have any debt, I have an emergency fund with 4 months' expenses, and a Roth IRA that I started maxing out last year with just a target date fund in it [VFFVX]).

zayd13:

Bill Bernstein answers your question in his wonderful booklet, "If You Can?" He recommends The Three-Fund Portfolio. This is the link:

https://www.etf.com/docs/IfYouCan.pdf

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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ruralavalon
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Re: What index funds would be best for diversifying my current portfolio?

Post by ruralavalon » Tue Jul 12, 2016 8:59 am

zayd13 wrote:Hello,

I'm trying to decide whether it would make sense to invest in additional taxable index funds to further diversify my portfolio.Currently, the only taxable investment that I own is the VTSMX index fund.As I'm getting older and more comfortable with investing, I would liketo further diversify my portfolio. I'm considering maybe getting either an REIT index fund, or an international stock index fund (or both). I'm 27 so my risk tolerance at the moment is relatively high (3.5/5 - a little above moderate).

What are your thoughts? Or would you suggest bonds instead?

(ps: I don't have any debt, I have an emergency fund with 4 months' expenses, and a Roth IRA that I started maxing out last year with just a target date fund in it [VFFVX]).

What other accounts and investments do you have, besides this taxable account?

Bonds are not tax-efficient, so ordinarily should not be held in a taxable account. REITs are very tax-INefficient so should not be held in a taxable account.

In your taxable account you could consider Vanguard Total International Stock Market Index Fund.

But it's best to coordinate the investments in all of your accounts, and not just consider the taxable account by itself.

Do you have other accounts, like a 401k or an IRA? If so what investments do you have in the other accounts, and how large is each of your investments?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

zayd13
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Re: The Three-Fund Portfolio

Post by zayd13 » Tue Jul 12, 2016 5:01 pm

Taylor Larimore wrote:
zayd13 wrote:Hello,

I'm trying to decide whether it would make sense to invest in additional taxable index funds to further diversify my portfolio.Currently, the only taxable investment that I own is the VTSMX index fund.As I'm getting older and more comfortable with investing, I would liketo further diversify my portfolio. I'm considering maybe getting either an REIT index fund, or an international stock index fund (or both). I'm 27 so my risk tolerance at the moment is relatively high (3.5/5 - a little above moderate).

What are your thoughts? Or would you suggest bonds instead?

(ps: I don't have any debt, I have an emergency fund with 4 months' expenses, and a Roth IRA that I started maxing out last year with just a target date fund in it [VFFVX]).

zayd13:

Bill Bernstein answers your question in his wonderful booklet, "If You Can?" He recommends The Three-Fund Portfolio. This is the link:

https://www.etf.com/docs/IfYouCan.pdf

Best wishes.
Taylor




Thanks for passing this along!

zayd13
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Re: What index funds would be best for diversifying my current portfolio?

Post by zayd13 » Tue Jul 12, 2016 5:06 pm

Watty wrote:
zayd13 wrote: I'm considering maybe getting either an REIT index fund, or an international stock index fund (or both).


The international would be better since it is more tax efficient.

The REIT might not be necessary if you own, or likely will own, a house or condo(There is no hurry!) and that would give you a lot a real estate exposure.

You might want to consider what this money will likely be used for. If it will likely be used for something like a house down payment or for paying for your next car then both the the REIT and the international stocks would be too agressive.



What do you think about getting international ETF's as opposed to the mutual fund version if I do not have the minimum purchase price?

I just want the money to grow, I do not plan on using it for a specific investment - especially not one that I will need to access over the next 5 years like for a house, wedding or car.

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Rick Ferri
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Re: What index funds would be best for diversifying my current portfolio?

Post by Rick Ferri » Tue Jul 12, 2016 5:18 pm

Try my CORE-4 portfolios!

Rick Ferri's Core 4

:beer
The views expressed by Rick Ferri are strictly his own as a private investor and author and do not reflect the views of any entity or other persons.

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Re: What index funds would be best for diversifying my current portfolio?

Post by asset_chaos » Tue Jul 12, 2016 10:50 pm

You need to move towards a portfolio that will make you most comfortable with the inevitable swings of the markets and that is also consistent with your goals for investing. As I don't know anything about your risk tolerance or goals (other than that you're 27 and have amorphous goals), I'll tell you what I'd do if starting from your position and why for what it's worth.

As I have ties to various parts of the world, I am happy with an index portfolio of global stocks. If I were starting from your position, I'd add some international stocks to move closer to the total global stock market weighting.

Even if (hypothetically) young, one day I'll be old and want some bonds to adjust my overall investment risk to my risk tolerance of tomorrow. For today, though, I'd want some experience in bonds and to experience in my gut how they differ from stocks during different market environments. I'd want to move towards 10 or 20% of my portfolio in bonds---just to value the experience.

Reits are already in my total market type index fund investments and one day---not as far off as I think---I'll own my own house and be overexposed to the real estate market anyway. Therefore, I won't overweight real estate even further by investing in a separate reit fund.

You, of course, will have different risk tolerances and preferences, so must choose your own path. Since most people make these decisions by inertia, I congratulate you on being far ahead of the game by putting a good deal of thought and introspection behind your investing decisions. Best wishes.
Regards, | | Guy

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Watty
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Re: What index funds would be best for diversifying my current portfolio?

Post by Watty » Wed Jul 13, 2016 5:38 am

zayd13 wrote:
Watty wrote:
zayd13 wrote: I'm considering maybe getting either an REIT index fund, or an international stock index fund (or both).


The international would be better since it is more tax efficient.

The REIT might not be necessary if you own, or likely will own, a house or condo(There is no hurry!) and that would give you a lot a real estate exposure.

You might want to consider what this money will likely be used for. If it will likely be used for something like a house down payment or for paying for your next car then both the the REIT and the international stocks would be too agressive.



What do you think about getting international ETF's as opposed to the mutual fund version if I do not have the minimum purchase price?

I just want the money to grow, I do not plan on using it for a specific investment - especially not one that I will need to access over the next 5 years like for a house, wedding or car.


An ETF would work OK but there could be commissions and then things like reinvesting dividends and record keeping in a taxable account would be more complicated. You already have a total stock market fund in your taxable account so I would just put the money into that and then start using an international fund in a couple of years when you have the fund minimum.

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Re: What index funds would be best for diversifying my current portfolio?

Post by abuss368 » Fri Jul 15, 2016 12:07 pm

Rick Ferri wrote:Try my CORE-4 portfolios!

Rick Ferri's Core 4

:beer


This is a good investment portfolio!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: What index funds would be best for diversifying my current portfolio?

Post by cfs » Fri Jul 15, 2016 12:46 pm

abuss368 wrote:
Rick Ferri wrote:Try my CORE-4 portfolios!

Rick Ferri's Core 4

:beer


This is a good investment portfolio!

And as per your signature this looks like your SWAN.

Thanks for reading.
~ Donating Member ~

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Re: What index funds would be best for diversifying my current portfolio?

Post by abuss368 » Fri Jul 15, 2016 2:12 pm

cfs wrote:
abuss368 wrote:
Rick Ferri wrote:Try my CORE-4 portfolios!

Rick Ferri's Core 4

:beer


This is a good investment portfolio!

And as per your signature this looks like your SWAN.

Thanks for reading.


Somewhat. I have 5 funds right now. International REITs. That has outperformed our Total International so the pain right now is not as bad. May add one more bond fund.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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