Switching from STAR Fund to something else

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Topic Author
UpToTheChallenge
Posts: 14
Joined: Sat Sep 20, 2008 12:03 pm

Switching from STAR Fund to something else

Post by UpToTheChallenge » Sat Oct 25, 2008 4:34 pm

Hi folks . . . my assets has changed quickly due to inheritance. Therefore I feel I need to make a move. I'm 46. I have been using the 60 stocks to 40% bond ratio, therefore invested in STAR.

My current assets are the following:

28% checking account
40% CD at 3.5%
10% I-Bonds
20% Roth IRA - STAR FUND only
2% Cash on hand

No Car payment, House is 5.5% fixed for 15 years, 9 years left
Credit cards at 0% all scheduled to be paid off by March next year.

My only stock investment right now is the STAR Fund.
Considering the STAR Fund is 60/40 (or abouts) I am considering switching from STAR but to what? I don't plan on cashing in I-Bonds any time soon. I'm keeping the CD as security for emergencies. And, I'm keeping most of the checking the way it is for house expenses, like having to repair heating/air systems or anything else that might come my way.

I kind of feel that it would be market timing to switch from STAR fund and split the assets between total stock market, total international index, and small cap index. I'm assuming that this is much more aggressive approach than say doing a 2035 Retirement Fund. But, given that my ROTH IRA won't be touched for 20 years I don't know if I'm engaged in market timing, or changing my allocation because the time has come for it because of the influx of cash.

I look at the NAV price of VTTHX (2035 fund) at 8.98, VTTVX (2025 fund) at 9.01 and VTXVX (2015 fund) at 9.31. What I don't really understand is that if VTTHX is only about 10% bonds, and VTTVX is about 22% bonds, and they hold similary assets, why is their NAV about the same IF they were started at the same time with the NAV? Did they start with the same NAV?

Any suggestion on what to replace the STAR Fund with, or whether folks feel given the present circumstances with the economy that the STAR Fund is just fine and therefore I should just chill and contribute as I have been once a week.

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PiperWarrior
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Post by PiperWarrior » Sat Oct 25, 2008 7:13 pm

UpToTheChallenge wrote:Considering the STAR Fund is 60/40 (or abouts) I am considering switching from STAR but to what?
How about one of Target Retirement funds that meet your needs? You might want to take I bonds into account as you can think of them as a part of your bond allocation.
UpToTheChallenge wrote:I look at the NAV price of VTTHX (2035 fund) at 8.98, VTTVX (2025 fund) at 9.01 and VTXVX (2015 fund) at 9.31. What I don't really understand is that if VTTHX is only about 10% bonds, and VTTVX is about 22% bonds, and they hold similary assets, why is their NAV about the same IF they were started at the same time with the NAV? Did they start with the same NAV?
According to Yahoo! Finance, VTTHX (2035), VTTVX (2025), and VTXVX (2025) all started out at $10.00 on Oct 27, 2003. The fact that the NAV of two funds that started out with the same NAV are about the same means that one share of each fund still has about the same value. Just that. Nothing else. If one fund has more bonds than the other, then you would be getting dividends from those bonds. Presumably, you would be reinvesting those dividends back into the fund. So, comparing two funds by their NAVs doesn't lead to useful conclusions. If you are comparing two stock funds with similar dividend yields, then comparing their NAVs might mean something, but I wouldn't do so for two funds with varying amount of bonds in them.
UpToTheChallenge wrote:Any suggestion on what to replace the STAR Fund with, or whether folks feel given the present circumstances with the economy that the STAR Fund is just fine and therefore I should just chill and contribute as I have been once a week.
Again, if the STAR fund fits your bill, that's OK. Even though it's actively managed, it's not expensive. If Target Retirement funds do the job, that's OK. Rather than focusing on picking funds, you might want to think about how much stock and bonds you want to have. Then pick a fund that best approximates your unique needs. If you need help come up with your own desired stock/bond allocation, the following two links may help.

Topic Author
UpToTheChallenge
Posts: 14
Joined: Sat Sep 20, 2008 12:03 pm

Post by UpToTheChallenge » Sat Oct 25, 2008 8:48 pm

PiperWarrior wrote:Rather than focusing on picking funds, you might want to think about how much stock and bonds you want to have. Then pick a fund that best approximates your unique needs. If you need help come up with your own desired stock/bond allocation, the following two links may help.
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that's exactly my point. I have wanted a 60/40 mix and that's why I'm in STAR - but that was before the additional cash came my way. I can now take more risk than the Star Fund, and with the recent slide in the total market, I could just exchange to the total market index - which I had sold in a taxable account on 7/10/2002 at 20.98 a share and never rebought. It seems like it would be an opportunity to correct a mistake I made of selling that fund and not holding.

But my concern is that even over the long-run, STAR has had a 6.03% return over 10 years, while VTSMX provided a 3.94% return. Since inception STAR shows 9.81% return and VTSMX 8.7%. While I can switch to a fund that's more index oriented and suppodesly provides more reward by taking more risk, the data provided by Vanguard doesn't support the theory that Indexing will in the long-run beat this one fund - which most if not all of STAR funds are actively managed.

This brings up the issue 60/40. If a 60/40 portfolio can beat a 100% total stock market index fund over time . . . then there is no reason to switch. In fact, the retirement fund that's about 60/40 while holding Index funds, provides about the same result as the STAR Fund. There is no reason to switch unless I want a different asset allocation in the ROTH.

I guess this answers my question.

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