Am I diversified?

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Ed 2
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Am I diversified?

Post by Ed 2 » Sat May 15, 2010 1:50 pm

I am 40 years old.Wife -39.....two kids.Total portfolio: around $350.000 (IRA`s, 401 K`s ,529`s and tax. accounts)
No debt, accept mortgage ($280.000)

Total Stock Market Index Fund 55%
Total International Fund 21%
REIT Index Fund 5%
I Bonds 10%
Money Market 5%
Gold 4%
Last edited by Ed 2 on Sat May 04, 2013 8:23 am, edited 1 time in total.

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Opponent Process
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Post by Opponent Process » Sat May 15, 2010 2:00 pm

yes.
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37

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Post by namaste » Sat May 15, 2010 2:30 pm

I would feel better with more bonds.

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Post by rai » Sat May 15, 2010 2:42 pm

namaste wrote:I would feel better with more bonds.
me too.

I was more into stocks, but believe in the asset allocation and getting more than 20% in cash/bonds.

I am currently trying to 'catch up' with where I want to be with bonds.

I really don't believe in cash except for emergency and to have a bit to buy into a down market.

That's not to say you have too much, but if you keep at 10% does that mean when you have $2M portfolio you are going to have $200K cash?
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

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Re: Am I diversifaed?

Post by YDNAL » Sat May 15, 2010 2:42 pm

Opponent Process wrote:
Ed 2 wrote:I am 40 years old.Wife -39.....two kids.Total portfolio: around $350.000 (IRA`s, 401 K`s ,529`s and tax. accounts)
No debt, accept mortgage ($280.000)

Total Stock Market Index Fund 55%
Total International Fund 21%
REIT Index Fund 5%
I Bonds 10%
Money Market 10%
Gold 4%
yes.
No.
1) You are missing Foreign Small caps, Nominal Treasuries, and Nominal Corporate Bonds*.
2) You are also aggressive, but you I guess you know that.

* some may also add mortgage-backed Bonds.
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grabiner
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Re: Am I diversifaed?

Post by grabiner » Sat May 15, 2010 2:42 pm

Ed 2 wrote:I am 40 years old.Wife -39.....two kids.Total portfolio: around $350.000 (IRA`s, 401 K`s ,529`s and tax. accounts)
No debt, accept mortgage ($280.000)

Total Stock Market Index Fund 55%
Total International Fund 21%
REIT Index Fund 5%
I Bonds 10%
Money Market 10%
Gold 4%
This is a well diversified portfolio; however, it may be too aggressive for you. At your age, 80% in stocks is reasonable for retirement savings (25 years off, probably), but you have two kids, and depending on their ages, 80% in stocks may be too risky for their college savings.

10% in a money market is a lot; is this in addition to your emergency funds? If it is, you might prefer a bond fund such as Total Bond Market Index instead of most of the money-market funds; hold the bond fund in your IRA or 401(k).
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Ed 2
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Re: Am I diversifaed?

Post by Ed 2 » Sat May 15, 2010 4:39 pm

grabiner wrote:
Ed 2 wrote:I am 40 years old.Wife -39.....two kids.Total portfolio: around $350.000 (IRA`s, 401 K`s ,529`s and tax. accounts)
No debt, accept mortgage ($280.000)

Total Stock Market Index Fund 55%
Total International Fund 21%
REIT Index Fund 5%
I Bonds 10%
Money Market 10%
Gold 4%
This is a well diversified portfolio; however, it may be too aggressive for you. At your age, 80% in stocks is reasonable for retirement savings (25 years off, probably), but you have two kids, and depending on their ages, 80% in stocks may be too risky for their college savings.

10% in a money market is a lot; is this in addition to your emergency funds? If it is, you might prefer a bond fund such as Total Bond Market Index instead of most of the money-market funds; hold the bond fund in your IRA or 401(k).
I know (aggressive ), but I think we live in unusual times....and I do`t want to loose opportunities to invest in relatively cheep Stock Index Funds.
I do not like bond funds, preferring to buy individual. bonds like I Bonds. :)

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Re: Am I diversifaed?

Post by rai » Sat May 15, 2010 4:49 pm

Ed 2 wrote: I do not like bond funds, preferring to buy individual. bonds like I Bonds. :)
why do you not like bond funds?

How do you invest in gold? Is it an ETF?
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Re: Am I diversifaed?

Post by Ed 2 » Sat May 15, 2010 4:49 pm

YDNAL wrote:
Opponent Process wrote:
Ed 2 wrote:I am 40 years old.Wife -39.....two kids.Total portfolio: around $350.000 (IRA`s, 401 K`s ,529`s and tax. accounts)
No debt, accept mortgage ($280.000)

Total Stock Market Index Fund 55%
Total International Fund 21%
REIT Index Fund 5%
I Bonds 10%
Money Market 10%
Gold 4%
yes.
No.
1) You are missing Foreign Small caps, Nominal Treasuries, and Nominal Corporate Bonds*.
2) You are also aggressive, but you I guess you know that.



* some may also add mortgage-backed Bonds.

I think Foreign Small caps would be too aggressive for me,
I`d like to invest in Domestic small companies.
When I will open Broker. account planning to buy mortgage-backed Bonds.
Thank you for the tip. :D

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Re: Am I diversifaed?

Post by Ed 2 » Sat May 15, 2010 5:03 pm

rai wrote:
Ed 2 wrote: I do not like bond funds, preferring to buy individual. bonds like I Bonds. :)
why do you not like bond funds?

How do you invest in gold? Is it an ETF?
I have coins. I've got them long time ago ($450 per ounce).... not going to buy any more.
Bond Funds ??..... Like GNMA`s are reasonable, but not right now. (It is a big bubble in bond funds as well as in a gold too I think) I Bonds bring me real guarantee return unlike a Bond funds:?

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Post by nisiprius » Sat May 15, 2010 5:31 pm

Ed 2, you may have a misunderstanding about the nature of I "Bonds" versus ordinary marketable bonds. From now on when I say "bonds" I mean a) marketable b) investment-grade bonds, including TIPS, Vanguard Total Bond Market Index (VBMFX), and almost every Vanguard fund with the word "bond" in it, except for "high yield bonds" (aka junk bonds).

I don't think there's any problem with your using I bonds, although 10% isn't going to do much to tame the volatility of your stocks and I think you should be closer to "age in bonds." But you need to understand that I bonds are actually in many ways more like cash than like bonds, and they don't function quite the same way in a portfolio as regular bonds do. The biggest thing is that I bonds have both less risk and less return than, say, VBMFX.

What you have in your I bonds is an ultraconservative asset, in many ways less risky than cash or CDs because of the inflation protection. And you pay for that protection in the form of, currently, close to zero real return. This is not to knock I bonds. I love 'em to pieces and they're almost 1/8 of my portfolio. But I'm a very conservative investor.

An ordinary bond pays out a fixed, contracted-in-advance series of payments: often interest payment semiannually, and then repayment of the principal at maturity. There is no direct way to get your principal out of the bond before maturity. However, you can sell your bond to someone else who wants that series of payments. Because of changes in interest rates, the market value of a bond fluctuates and can be greater or less than the principal. Not an awful lot--it's hard to put numbers on it but it can't soar like a stock, because it's never going to do anything more exciting than pay back its principal, and it can't crash like a stock, because it's (almost) always going to pay back its principal.

A series I savings bond is completely unlike ordinary bonds. It is not marketable. You cannot sell it to someone else. I have some wonderful old I bonds that pay 3.4% plus inflation. If that bond could be marketed, it would be worth much more than its inflation-adjusted principal, but I can't market it. All I can do is enjoy the high interest rate myself. However, I can do something with an I bond which I can't do with a regular bond, which is to redeem it with the Treasury, any time I like, for its inflation-adjusted principal plus accrued interest. This is not a market-based transaction.

With a regular bond, I have the risk of losing money if interest rates rise and I sell it before maturity. I also have the opportunity of making extra money if interest rates fall and I sell it before maturity. The price is an unsteady, fluctuating curve.

With an I bond, I have neither the downside risk nor the upside opportunity. The reason I say it is more like cash than like a bond is that, just like a bank account, all that ever happens to it is that the value rises slowly, with no market fluctuation.

There are three minor dangers of thinking of I bonds as "bonds" in your portfolio. First, they (probably!) earn less than bonds, so projections and worksheets of safe withdrawal rates based on "bonds" will be too optimistic.

Second, although this is a relatively minor thing, bond price movements have about zero correlation with stock price movements. That doesn't mean they zig when stocks zag. It means sometimes both zig, sometimes both zag, sometimes bonds zig when stocks zag, sometimes stocks zig when bonds zag. This is how bonds add "diversification" in the modern-portfolio-theory sense, and you're not getting it with I bonds. You don't get very much of it with intermediate-term bonds either, though.

Third, just about everything you read about "bonds" in general is meant to apply to marketable bonds; writers don't have I bonds in mind, so everything you read will be just a little off relative to your own situation.
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Post by retiredjg » Sat May 15, 2010 6:46 pm

Total Stock Market Index Fund 55%
Total International Fund 21%
REIT Index Fund 5%
I Bonds 10%
Money Market 10%
Gold 4%
If this were just your retirement portfolio (not including emergency fund, college fund, fund for next car) I would say it is diversified and fine except
1) there is no need to hold 10% in money market (hold more bonds)
2) you are at the max of what I consider reasonable for a stock to bond ratio for your age (maybe add a touch more in bonds).

Since this contains things other than retirement money, you are too aggressive in my opinion.

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Post by Beagler » Sat May 15, 2010 6:57 pm

There's a low annual limit to I-Bond purchases. Will you purchase individual TIPS when you've reached that limit?
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Post by Milo » Sat May 15, 2010 7:34 pm

Okay, the obsessive/compulsive in me is making me say it....I keep getting 105% when I add up those percentages. :D

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Post by tc101 » Sat May 15, 2010 8:31 pm

Pay off your mortgage before you invest any more, then think about putting more in bonds, but pay off the mortgage first.
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Post by abuss368 » Sat May 15, 2010 9:01 pm

Mr. Bogle advice has always been your age in bonds.

This is a good rule to follow.

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Post by Ed 2 » Sat May 15, 2010 11:40 pm

Thank you all !!!
I will adjust my portfolio. Very good advises from all of you. Good advise from nisiprius about I Bonds, Thankyou.
:D

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celia
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Post by celia » Sun May 16, 2010 12:39 am

Hi Ed,

If you cash out the I bonds in the year(s) your kids are in college and your income is below a certain threshold (around $134,900 MAGI in 2009), the interest is tax-free if used to pay for college.
TaxCut software wrote:To qualify for the exclusion, the bonds must be series EE or I U.S. savings bonds issued after 1989 in your name, or, if you are married, they may be issued in your name and your spouse's name. Also, you must have been age 24 or older before the bonds were issued. A bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child.
This could make them worthwhile for you!

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Post by TJAJ9 » Sun May 16, 2010 12:46 am

You need to hold more bonds.

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celia
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Re: Am I diversifaed?

Post by celia » Sun May 16, 2010 12:58 am

YDNAL wrote: No.
1) You are missing Foreign Small caps, Nominal Treasuries, and Nominal Corporate Bonds*.
Landy, You can be diversified without holding everything there is. It depends on your definition and goals.

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Re: Am I diversifaed?

Post by HomerJ » Sun May 16, 2010 1:26 am

celia wrote:
YDNAL wrote: No.
1) You are missing Foreign Small caps, Nominal Treasuries, and Nominal Corporate Bonds*.
Landy, You can be diversified without holding everything there is. It depends on your definition and goals.
Yeah, that's pretty granualar there...

I used to slice and dice... but now I'm basically just holding

35% Total Stock Market Index
15% Total International Index
45% Total Bond Market Index
5% Gold

Very simple, and I feel I'm pretty diversified too...

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I-Bonds Similarity to Cash

Post by #Cruncher » Sun May 16, 2010 1:39 am

nisiprius wrote:I bonds are actually in many ways more like cash than like bonds
Eye opening! I'm thumping my forehead with the heel of my hand and exclaiming "I could have had an I-Bond". I'm going to rethink my attitude toward them.

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Post by at » Sun May 16, 2010 2:50 am

For your equities portion, you're slightly overweight into large-cap growth. But, that's not a problem IMO.

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Re: Am I diversifaed?

Post by YDNAL » Sun May 16, 2010 6:04 am

rrosenkoetter wrote:
celia wrote:
YDNAL wrote: No.
1) You are missing Foreign Small caps, Nominal Treasuries, and Nominal Corporate Bonds*.
2) You are also aggressive, but you I guess you know that.

* some may also add mortgage-backed Bonds.
Landy, You can be diversified without holding everything there is. It depends on your definition and goals.
Yeah, that's pretty granualar there...
Celia and RR,
  1. If you have only Large Caps overseas... you are not well diversified.
  2. If you have only Series I Savings Bonds (cash) and Cash... you are not well diversified.
  3. Diversification - the subject of the OP - is measurable and shouldn't be a matter of personal opinion. We should look at the holdings and determine if there's a lack of diversification... yes, there is.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Post by Ed 2 » Sun May 16, 2010 8:08 am

celia wrote:Hi Ed,

If you cash out the I bonds in the year(s) your kids are in college and your income is below a certain threshold (around $134,900 MAGI in 2009), the interest is tax-free if used to pay for college.
TaxCut software wrote:To qualify for the exclusion, the bonds must be series EE or I U.S. savings bonds issued after 1989 in your name, or, if you are married, they may be issued in your name and your spouse's name. Also, you must have been age 24 or older before the bonds were issued. A bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child.
This could make them worthwhile for you!
I hold I Bonds for that reason.

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Re: Am I diversifaed?

Post by Quagmire » Sun May 16, 2010 8:44 am

YDNAL wrote:
rrosenkoetter wrote:
celia wrote:
YDNAL wrote: No.
1) You are missing Foreign Small caps, Nominal Treasuries, and Nominal Corporate Bonds*.
2) You are also aggressive, but you I guess you know that.

* some may also add mortgage-backed Bonds.
Landy, You can be diversified without holding everything there is. It depends on your definition and goals.
Yeah, that's pretty granualar there...
Celia and RR,
  1. If you have only Large Caps overseas... you are not well diversified.
  2. If you have only Series I Savings Bonds (cash) and Cash... you are not well diversified.
  3. Diversification - the subject of the OP - is measurable and shouldn't be a matter of personal opinion. We should look at the holdings and determine if there's a lack of diversification... yes, there is.
Doesn't the Total International Fund that he holds include an allocation of the total foreign market, including small caps?

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Re: Am I diversifaed?

Post by Ed 2 » Sun May 16, 2010 8:48 am

Quagmire wrote:
YDNAL wrote:
rrosenkoetter wrote:
celia wrote:
YDNAL wrote: No.
1) You are missing Foreign Small caps, Nominal Treasuries, and Nominal Corporate Bonds*.
2) You are also aggressive, but you I guess you know that.

* some may also add mortgage-backed Bonds.
Landy, You can be diversified without holding everything there is. It depends on your definition and goals.
Yeah, that's pretty granualar there...
Celia and RR,
  1. If you have only Large Caps overseas... you are not well diversified.
  2. If you have only Series I Savings Bonds (cash) and Cash... you are not well diversified.
  3. Diversification - the subject of the OP - is measurable and shouldn't be a matter of personal opinion. We should look at the holdings and determine if there's a lack of diversification... yes, there is.
Doesn't the Total International Fund that he holds include an allocation of the total foreign market, including small caps?
No

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Post by Ed 2 » Sun May 16, 2010 8:52 am

Category Foreign Large Blend

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Re: Am I diversifaed?

Post by YDNAL » Sun May 16, 2010 9:07 am

Quagmire wrote:Doesn't the Total International Fund that he holds include an allocation of the total foreign market, including small caps?
Quagmire,

There's a free tool in Morningstar called X-Ray. You can run a specific fund, several funds, an entire portfolio, and it gives you a Valuation metric based on a 9-box grid.
X-RAY

Total International Fund (VGTSX)
Value..Blend..Growth
34.. 30.. 24 Large Caps
06.. 03.. 03 Mid Caps
00.. 00.. 00 Small Caps

FTSE ex US (VFWIX)
Value..Blend..Growth
34.. 29.. 24 Large Caps
06.. 03.. 03 Mid Caps
01.. 00.. 00 Small Caps
Ed 2 wrote:Category Foreign Large Blend
Ed, for the most part, forget about those category names. I'm not sure you are ready to write that book yet. :)
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: Am I diversified?

Post by iceport » Sun May 16, 2010 9:56 am

Hi Ed,

Here's 2¢ from the peanut gallery:

Your portfolio is generally well diversified. The biggest qualification I would make on that assessment is that you might be better diversivied with a larger and more diversified bond allocation.

Here's why I logged in to respond:
Ed 2 first wrote:I know (aggressive ), but I think we live in unusual times....and I do`t want to loose opportunities to invest in relatively cheep Stock Index Funds.
Ed 2 then wrote:I think Foreign Small caps would be too aggressive for me...
Besides being directly contradictory, it seems you might also be looking at the foreign small cap sector in isolation, rather than as part of a diversified portfolio. I'm not saying they're essential to a well-diversified portfolio or anything, but one thought behind allocating a slice to foreign small cap stocks is that they might be less correlated to your larger domestic stock position than your other equity holdings. If they are less correlated, even if they are more volatile than your other holdings, foreign small caps could actually reduce the volatility of the portfolio as a whole.

Just a thought,
--Pete

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Post by Index Fan » Sun May 16, 2010 9:57 am

"Am I diversified?"

You are diversified. Could you be more diversified? Sure. But you are doing well, and simplicity is a reasonable strategy.

I'd have more in bonds myself, but you know your risk tolerance better than I do :)

Best of luck!
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Re: Am I diversifaed?

Post by celia » Sun May 16, 2010 1:13 pm

YDNAL wrote:There's a free tool in Morningstar called X-Ray. You can run a specific fund, several funds, an entire portfolio, and it gives you a Valuation metric based on a 9-box grid.
X-RAY
Landy, The typical xray tools have limitations. I don't think they can fit your portfolio into the correct style boxes when a fund covers more than one box. For example, try Health Care, VGHCX. It gives you "0" for every box. Also Bershire Hathaway, BRK.B (which is like a mutual fund to me since it owns companies in various sectors) gives all "0"s. But you do have a point about making use of them, as long as you are aware of their limitations. Just don't depend on their results to give you accuracy if you are trying to make an exact asset allocation.

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Re: Am I diversifaed?

Post by YDNAL » Sun May 16, 2010 1:30 pm

celia wrote:
YDNAL wrote:There's a free tool in Morningstar called X-Ray. You can run a specific fund, several funds, an entire portfolio, and it gives you a Valuation metric based on a 9-box grid.
X-RAY
Landy, The typical xray tools have limitations. I don't think they can fit your portfolio into the correct style boxes when a fund covers more than one box. For example, try Health Care, VGHCX. It gives you "0" for every box. Also Bershire Hathaway, BRK.B (which is like a mutual fund to me since it owns companies in various sectors) gives all "0"s. But you do have a point about making use of them, as long as you are aware of their limitations. Just don't depend on their results to give you accuracy if you are trying to make an exact asset allocation.
Celia,

Sophistiscated investors know better than to rely exclusively on X-Ray for allocation decisions. With regards to Healthcare, it should be a warning signal when one inputs the ticker symbol (VGHCX) and the fund's correct name doesn't pop-up on screen. The user should be aware the database is not all-inclusive; and, there's always the "other" category followed by the "not classified" category - where VGHCX is (not) classified. :wink:

That said, in the interest of new-member education, it is a great tool to get your feet wet in understanding what lies under the hood.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Post by celia » Sun May 16, 2010 1:34 pm

Index Fan wrote:"Am I diversified?"

You are diversified. Could you be more diversified? Sure. But you are doing well, and simplicity is a reasonable strategy.
This is a good response. Besides simplicity, the total size of the portfolio affects how many funds (pieces) you should hold. If you have only $3,000, you are going to be very simple and only invest in one fund. If you have $1,000,000, you can buy many funds with a few of them having small balances in order to get an exact well-diversified portfolio. However, funds with small balances aren't going to do much to your over-all performance, except make you want to re-balance all the time.

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Post by Ed 2 » Sun May 16, 2010 2:07 pm

Index Fan wrote:"Am I diversified?"

You are diversified. Could you be more diversified? Sure. But you are doing well, and simplicity is a reasonable strategy.

I'd have more in bonds myself, but you know your risk tolerance better than I do :)

Best of luck!
That was my hole point ...simplicity. The reason I do`t have a broker. account ( only direct mutual funds) so I restrict my self from trading and tempting to get my self into NEW exotic investments ( ETF`s and so on). But that is only my way to invest and not suitable to others , I think.

I am trying now to raise cash in my reserve, going to buy individual. bonds in the future (1-2 years) , like Municipal Bonds.

Thank you all.... I am glad to read all answers that I`ve got. :D

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Post by Ed 2 » Sun May 16, 2010 2:36 pm

Regarding my risk tolerance ..... I am very tolerable and not worry a lot when my portfolio balance shrinks some times( during 2007-2008), opposite getting exited and thinking to buy more shares of my Index Funds. 8)

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Post by wander » Sun May 16, 2010 2:43 pm

I would swap I bond for total bond markets fund.

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Post by Ed 2 » Sun May 16, 2010 2:54 pm

wander wrote:I would swap I bond for total bond markets fund.
I`d like keep my I Bonds for my kids college ( tax free for education)

But to have total Bond Market Index Fund is a vise step . Honestly I sold my GNMA fund 2 month ago for tax reasons ( in my taxable account), worry of taxes are going up.
In the future going to get Bond fund in our IRA`s.
Thank you.

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Post by ladders11 » Sun May 16, 2010 8:42 pm

Instead of Gold, I would own DJP for broader commodity exposure, including metals, energy and agriculture. Or LSC, which is a trend following commodity index fund.

These have demonstrated a very low correlation to stocks.

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Post by Ed 2 » Sun May 16, 2010 8:50 pm

ladders11 wrote:Instead of Gold, I would own DJP for broader commodity exposure, including metals, energy and agriculture. Or LSC, which is a trend following commodity index fund.

These have demonstrated a very low correlation to stocks.
I guess it is a gold ETF some kind.... like I sad, I do not have a brokerage account .But it may be a good tip for those who have one.
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Post by Path » Sun May 16, 2010 10:07 pm

nisiprius wrote: From now on when I say "bonds" I mean a) marketable b) investment-grade bonds, including TIPS, Vanguard Total Bond Market Index (VBMFX), and almost every Vanguard fund with the word "bond" in it, except for "high yield bonds" (aka junk bonds).
Nisiprius,
In your explanation does Muni fund comes under bond category you have described.(from your statement of "except for high..." muni does seem to fit bond term but I wanted to make sure you did mean to include muni.

MnD
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Joined: Mon Jan 14, 2008 12:41 pm

Post by MnD » Mon May 17, 2010 12:11 pm

You are 72%/28% US/international on equities while the world is 42%/58% US/international. That doesn't look properly diversified to me.

Quagmire
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Joined: Mon Jan 26, 2009 7:49 pm
Location: New Jersey

Post by Quagmire » Tue May 18, 2010 5:58 am

Thanks for the info, YDNAL. I actually hold the All World Ex-US fund referenced above and (embarrasingly) assumed that it was more diversfied than that.

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