What to invest in?

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Topic Author
lee_ng
Posts: 2
Joined: Fri Oct 31, 2008 9:11 am

What to invest in?

Post by lee_ng » Fri Oct 31, 2008 9:32 am

I am totally new to this and really need some advice on thow to allocate both mine and my husbands funds.

Emergency funds = 10 months

Debt: Indicate if you have any debt:
$175000 school loans at 1.85%
$500,000 mortgage @ 6%

Tax Filing Status: Married filing Jointly

Tax Rate: 28% CA

Age: 31

Desired Asset allocation: (100% stocks)

Intl allocation: 10% of stocks


Myself:
I currently have the:
Vanguard 500 index
Vanguard Small Cap Index
Vanguard Total Intl Stock Index

I invested $3000 in each fund over the past couple of years, so I guess that means I have 33.3% allocation in each which is probably not good, but I wanted to buy the funds and the minimum to buy is the $3000, and than once I have all my funds than to change the percentage of allocation into each. (How to know what the percentage is?)
I want to know what is the next fund I should buy? I was thinking of wither the Vanguard growth index? or midcap Index? or Reit? Help! What should I aim for?

Husband:
Vanguard total Stock Market Index
Vanguard Emerging Stock Index
Vanguard Small Cap Value Index

He just changed jobs and will be transfering his 401K to a rollover IRA at vanguard. Should we just redistribute and add the $ from the 401k ($14K) to these funds? What percentage should we aim for? Or what am I missing in this allocation. PossiblY add a bond fund to the mix?

tHANKS SO MUCH FOR THE ADVICE, i KNOW i PROBABLY HAVE SOME DUMB QUESTIONS, BUT WOULD APPRECIATE ANY INSIGHT.

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PiperWarrior
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Post by PiperWarrior » Fri Oct 31, 2008 11:50 am

Welcome to the forum!

Could you indicate the accounts in which your investments are held in like so?

My taxable
XX% fund A
XX% fund B

Husband taxable
XX% fund A
XX% fund B

My Roth IRA
XX% fund A
XX% fund B

Husband Roth IRA
XX% fund A
XX% fund B

My Traditional IRA
XX% fund A
XX% fund B

Husband Traditional IRA
XX% fund A
XX% fund B

My 401(k)
XX% fund A
XX% fund B

Husband 401(k)
XX% fund A
XX% fund B

Please make sure that XX% add up to 100% across all of your accounts, not within each account.

If you have a taxable account, it would be helpful if you could indicate which fund has unrealized losses in your taxable account.

Unless you are very comfortable with the volatility of stocks, I'd recommend at least 10% in bonds even if you have a long time horizon.

Vanguard 500 index
Vanguard Small Cap Index

This is a slightly expensive (and slightly tax inefficient) way of holding Total Stock Market. If you would like to tilt toward small-cap or small-cap value stocks (beyond their respective market weights), I would use Total Stock Market as a starting point and tilt as needed. If you would like to tilt in some informed manner, you might be interested in reading The Only Guide To Winning Investment Strategy You'll Ever Need by Larry Swedroe and All About Asset Allocation by Rick Ferri. The keyword here is Three Factor Model. In a nutshell, the model says that the vast majority return of an equity portfolio is explained by exposure to small-cap stocks and value stocks. So, if the model continues to hold into the future, it doesn't matter exactly what funds or stocks you have. If you want to get small-cap exposure and value exposure at the same time, you could add small-cap value. If you want to get them separately, you can do that as well. I personally want a low-maintenance (fewer funds), low-cost (low ER, low turnover, etc) portfolio, so I combine Total Stock Market and Small-Cap Value.

I would suggest taking a step back. I don't know how you view portfolio construction, but a portfolio isn't a random collection of funds (at least to me). Rather than focusing on "what to buy next", I would recommend focusing on "what portfolio you want to eventually end up with". I would stress this even more if your portfolio involves a taxable account. It's very costly to clean up a taxable account once you accumulate a lot of unrealized capital gains.

I would have at least 20% of stocks in international stocks. Historically, allocating 20% to 40% of stocks to international stocks reduced the portfolio volatility while increasing return a little bit. Some argue that international diversification is less attractive these days due to globalization. While I think there is some truth to it, globalization is unlikely to completely eliminate the possibility of a single country tanking, and that single country could be the U.S. You might be interested in reading Domestic/International.

chaz
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Post by chaz » Fri Oct 31, 2008 2:28 pm

You should have some bonds for diversification.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

Topic Author
lee_ng
Posts: 2
Joined: Fri Oct 31, 2008 9:11 am

Post by lee_ng » Fri Oct 31, 2008 9:50 pm

An update...

My taxable
none

Husband taxable
none currently, both with the transfer of his 401k to a rollover IRA in the next couple weeks in will be taxable> So, I was trying to figure out what his best options were.

My Roth IRA
Vanguard 500
Total International Index
Vanguard Small Cap

Husband Roth IRA
Total Stock Index
Vanguard Emerging
Small Cap Value Index

My Traditional IRA
none

My 401(k)
None

Husband 401(k)
Just started with new company so he is doing some type of time horizon for his age

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PiperWarrior
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Location: right on course

Post by PiperWarrior » Fri Oct 31, 2008 11:39 pm

Thanks for the update, but it's tough to suggest something without numbers, fund selection in his 401(k), etc. If a target-dated fund in his 401(k) is the cheapest in his 401(k), he should probably pick that. Otherwise, he might want to choose the cheapest and most reasonable fund(s) in his 401(k) and build the rest of your portfolio to complement his 401(k).

You might want to revist the recommended format at Asking Portfolio Questions. You can find an example at Please review our portfolio.

pkcrafter
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Post by pkcrafter » Sat Nov 01, 2008 10:42 am

Welcome lee,

I'm not clear on what you mean by the following...
none currently, both with the transfer of his 401k to a rollover IRA in the next couple weeks in will be taxable>
You mean your husband is rolling a 401k AND you will be starting a taxable account for additional investments?

Thanks, and please provide additional information as suggested by Piper.

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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