Portfolio Advice for 23 yr old

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nimo956
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Portfolio Advice for 23 yr old

Post by nimo956 » Wed Mar 31, 2010 1:39 pm

Emergency funds = none, currently using taxable accounts as emergency fund

Debt: 25k student loan, 5% interest

Tax Filing Status: Single

Tax Rate: 15% Federal 6% State

Age: 23

Desired Asset allocation:100%/0% (stocks/bonds)

Intl allocation: 40% of stocks

Current portfolio 42k

Taxable
42% Primecap Core (VPCCX) (ER: 0.54%)
24% FTSE All-World Ex-US (VFWIX) (ER: 0.4%)

Roth at Vanguard
12% Smallcap Value (VISVX) (ER: 0.28%)
12% FTSE All-World Ex-US SC (VFSVX) (ER: 0.63%)

His 401k
10% Smallcap (NAESX) (ER: 0.28%)
Company Match? 6%

Questions:
1. I just got my first job out of college and have been working for about 1.5 years. I make about 35k a year. As you can see, my 401k is only a small portion of my portfolio. It isn't possible for me to contribute the maximum $16.5k per year right now. The most I can do is 25% of my paycheck. This will total to $7.8k per year. Is it wise to make the contributions such a large percent of my overall paycheck? Currently, it's not a problem because I am able to live at home and don't really have any expenses aside from my loans (~$300/month). However, when I get my own place in the future, I'm not sure if I will be able to keep up this level of contribution. Should I continue with it anyway and simply budget around these contributions? I'm having trouble determining what the percentage should be. I also contribute $5k a year to my Roth IRA. Any help would be appreciated. Thank you.

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Re: Portfolio Advice for 23 yr old

Post by YDNAL » Wed Mar 31, 2010 2:07 pm

nimo956 wrote:Tax Rate: 15% Federal 6% State

Age: 23

Desired Asset allocation:100%/0% (stocks/bonds)

Intl allocation: 40% of stocks

Current portfolio 42k
nimo, welcome to the Bogleheads Forum.

Congratulations on the early start... you are doing terrific. There are a few of issues.
- First, with 0% Bonds you don't have a well diversified portfolio.
- Second, you don't want 42% of the Portfolio in Primecap. How did you get in a closed fund?
- We need options in the 401K.

I would prefer Large Cap Index (VLACX) for the bulk of the slice you have in Primecap. This is a concentrated fund with only 113 stocks; of those, 55% are in Healthcare and Information Tech.
Primecap (link)

Taxable
32% Large Cap Index (VLACX)
10% Primecap Core (VPCCX) (ER: 0.54%)
24% FTSE All-World Ex-US (VFWIX) (ER: 0.4%)

Roth at Vanguard
12% Smallcap Value (VISVX) (ER: 0.28%)
12% FTSE All-World Ex-US SC (VFSVX) (ER: 0.63%)

His 401k
10% Best Bond fund (options?)
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

nimo956
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Post by nimo956 » Wed Mar 31, 2010 2:33 pm

As an update for YDNAL, here are the available funds in my 401k:

Vanguard 500 Index Fund Investor Shares- VFINX
Vanguard Explorer Fund Investor Shares- VEXPX
Vanguard International Growth Fund Investor Shares- VWIGX
Vanguard Mid-Cap Index Fund Investor Shares- VIMSX
Vanguard Morgan Growth Fund Investor Shares- VMRGX
Vanguard Small-Cap Index Fund Investor Shares - NAESX
Vanguard Total Bond Market Index Fund Investor Shares- VBMFX
Vanguard Wellington Fund Investor Shares- VWELX
Vanguard Windsor II Fund Investor Shares- VWNFX
All Vanguard Target Retirement Funds

The only bond fund is VBMFX.

Also, what would the tax implications be for me exactly if I sell a portion of VPCCX? It has gained about 30% since I bought it last year. There's also a $10k minimum for the fund. Will VG do anything if the balance drops significantly below this?

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Re: Portfolio Advice for 23 yr old

Post by YDNAL » Wed Mar 31, 2010 2:53 pm

nimo956 wrote:Also, what would the tax implications be for me exactly if I sell a portion of VPCCX? It has gained about 30% since I bought it last year.
Nimo,

You have a great 401K plan. Certainly 10% Vanguard Total Bond Market Index Fund Investor Shares- VBMFX would be the way to go.

If you sell VPCCX, before 1 year, you pay short-term gains and this is costly. After 1 year, you pay long-term capital gains - at a more favorable rate. All that said, you are in a low tax bracket (15%) but also have the pesky State tax (6%).

Lets see 42% x $42K = $17.6K.
1) At this early stage in your accumulation, you can keep the fund and let it go for years and years while it becomes insignificant to the overall portfolio.
2) You can sell, pay taxes, and put this capital in a more diversified holding for years and years.
3) I'm tempted to say option #2.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Random Musings
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Post by Random Musings » Wed Mar 31, 2010 3:20 pm

nimo956,

Ignoring the emergency fund issue, where do you plan to withdraw money from with respect to short- to intermediate term cash flow needs (car purchase, down payment on home)?

If you are planning on drawing down on taxable, a down market in conjunction with an emergency cash issue could make things tight. Of course, if you ramp up the 401K, loans can be taken, but their are cap issues on those loans as well as immediate payment risk (as if job is lost).

Having 100% equity just doesn't make sense - to cover emergency funds and short to intermediate term goals that you will encounter.


YNDAL wrote:
Taxable
32% Large Cap Index (VLACX)
10% Primecap Core (VPCCX) (ER: 0.54%)
24% FTSE All-World Ex-US (VFWIX) (ER: 0.4%)

Roth at Vanguard
12% Smallcap Value (VISVX) (ER: 0.28%)
12% FTSE All-World Ex-US SC (VFSVX) (ER: 0.63%)

His 401k
10% Best Bond fund (options?)
Agree with at least 10% bonds. The international equity exposure remains around 42% of equity portion. However, you have reduced his small cap exposure on the domestic side (which the OP initial roughly had a 2/1 large/small for domestic and int'l).

With respect to Primecap Core, opened a little over five years ago. If you already have money in from before, you can still add to position. Probably infers that the OP started saving young and/or had some gifts.

RM

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Re: Portfolio Advice for 23 yr old

Post by YDNAL » Wed Mar 31, 2010 3:52 pm

Random Musings wrote:
YDNAL wrote:Taxable
32% Large Cap Index (VLACX)
10% Primecap Core (VPCCX) (ER: 0.54%)
24% FTSE All-World Ex-US (VFWIX) (ER: 0.4%)

Roth at Vanguard
12% Smallcap Value (VISVX) (ER: 0.28%)
12% FTSE All-World Ex-US SC (VFSVX) (ER: 0.63%)

His 401k
10% Best Bond fund (options?)
Agree with at least 10% bonds. The international equity exposure remains around 42% of equity portion. However, you have reduced his small cap exposure on the domestic side (which the OP initial roughly had a 2/1 large/small for domestic and int'l).
You are right, Nimo (OP) had 42/24 Primecap/SCB+SCV. He should have Bonds now and can begin accumulating Small Cap Index in the 401K with new money.
Random Musings wrote:With respect to Primecap Core, opened a little over five years ago. If you already have money in from before, you can still add to position. Probably infers that the OP started saving young and/or had some gifts.
I asked about Primecap because I know it is closed and also figured it may be an old holding with significant gains. Nimo responded it was purchased 1 year ago.... perhaps he meant a portion was purchased 1 year ago. :?
nimo956 wrote:Also, what would the tax implications be for me exactly if I sell a portion of VPCCX? It has gained about 30% since I bought it last year. There's also a $10k minimum for the fund.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Random Musings
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Post by Random Musings » Wed Mar 31, 2010 3:58 pm

Article to Primecap Core closing to new investors - August 09

So, the OP was in.....

Primecap Core Closes to New Investors

RM

nimo956
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Post by nimo956 » Thu Apr 01, 2010 9:34 am

Thank you for the fund advice. I'll look into adding bonds through my 401k. Do you have any suggestions on whether or not I should be contributing 25% of my paycheck to my 401k both now and in the future (basically until I hit the $16.5k limit)?

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Re: Portfolio Advice for 23 yr old

Post by YDNAL » Thu Apr 01, 2010 9:53 am

nimo956 wrote:It isn't possible for me to contribute the maximum $16.5k per year right now. The most I can do is 25% of my paycheck. This will total to $7.8k per year. Is it wise to make the contributions such a large percent of my overall paycheck? Currently, it's not a problem because I am able to live at home and don't really have any expenses aside from my loans (~$300/month). However, when I get my own place in the future, I'm not sure if I will be able to keep up this level of contribution.
nimo956 wrote:Do you have any suggestions on whether or not I should be contributing 25% of my paycheck to my 401k both now and in the future (basically until I hit the $16.5k limit)?
Nimo,

Your 2 posts are conflicting.

You said 25% is equivalent to $7.8K annually. Then, you said "until you hit the $16.5K limit" (annual).

Once you don't contribute $16.5K, the opportunity is gone for that year - this would be the case with 25% of paycheck ($7.8K annually).
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: Portfolio Advice for 23 yr old

Post by BW1985 » Thu Apr 01, 2010 10:18 am

YDNAL wrote:
nimo956 wrote:It isn't possible for me to contribute the maximum $16.5k per year right now. The most I can do is 25% of my paycheck. This will total to $7.8k per year. Is it wise to make the contributions such a large percent of my overall paycheck? Currently, it's not a problem because I am able to live at home and don't really have any expenses aside from my loans (~$300/month). However, when I get my own place in the future, I'm not sure if I will be able to keep up this level of contribution.
nimo956 wrote:Do you have any suggestions on whether or not I should be contributing 25% of my paycheck to my 401k both now and in the future (basically until I hit the $16.5k limit)?
Nimo,

Your 2 posts are conflicting.

You said 25% is equivalent to $7.8K annually. Then, you said "until you hit the $16.5K limit" (annual).

Once you don't contribute $16.5K, the opportunity is gone for that year - this would be the case with 25% of paycheck ($7.8K annually).
I think he means in the future his pay will go up and eventually the limit will cap under 25% of his pay. I think he's just saying "is 25% of my pay into my 401k reasonable at this point in my life?"

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Re: Portfolio Advice for 23 yr old

Post by nimo956 » Thu Apr 01, 2010 10:36 am

BW1985 wrote:I think he means in the future his pay will go up and eventually the limit will cap under 25% of his pay. I think he's just saying "is 25% of my pay into my 401k reasonable at this point in my life?"
Yes, that is what I meant.

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Re: Portfolio Advice for 23 yr old

Post by YDNAL » Thu Apr 01, 2010 11:04 am

nimo956 wrote:
BW1985 wrote:I think he means in the future his pay will go up and eventually the limit will cap under 25% of his pay. I think he's just saying "is 25% of my pay into my 401k reasonable at this point in my life?"
Yes, that is what I meant.
Nimo,

The earlier you start contributing to retirement, and the more time allowed for compounding, the better you will be.

Now, when it comes to individual circumstances, only you can be the best judge. Previously you mentioned that you wanted "a place of your own." Are you saving separately for this? About major purchases like car? At the lower income levels... the more retirement savings, the less for other things. All things in life should be balanced. :wink:
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: Portfolio Advice for 23 yr old

Post by LotinElite » Thu Apr 01, 2010 4:35 pm

YDNAL wrote:
nimo956 wrote:Tax Rate: 15% Federal 6% State

Age: 23

Desired Asset allocation:100%/0% (stocks/bonds)

Intl allocation: 40% of stocks

Current portfolio 42k
nimo, welcome to the Bogleheads Forum.

Congratulations on the early start... you are doing terrific. There are a few of issues.
- First, with 0% Bonds you don't have a well diversified portfolio.
I disagree.

You're 23, you have no use for bonds right now, especially with the bond market where it is (read bubble.)

Do yourself a favor and don't waste your money on bonds.

Diversification is great, but it's a means not an end.

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Post by te5486a » Thu Apr 01, 2010 8:17 pm

Skip the bonds till you're 30.

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Post by jeffp » Thu Apr 01, 2010 9:13 pm

I have a lot of respect for RM and Landy, but I'm going to echo the sentiment of sticking with 100% equities. I own no bonds and I'm 27. I see nothing wrong with not having a separate emergency fund, assuming that you are not saving for a specific upcoming, important, large purchase and that you are reasonable secure with your employment situation. At your age, retirement is such a long way away, so I say take more risk now when you can afford to take losses in the event of another downturn. IMO you don't need bonds right now.

I'd call 42k a pretty large portfolio for 23, so it's great that you've started young and it's also good that you're living at home. Resist the urge to move out right away - I wish I had waited longer. You save SO much money while living at home, and being in a situation where (A) you're not paying rent and (B) you have no kids hemorrhaging your money away is a good situation, even with your student loans still being paid down (that 25k will be gone before you know it).

What you're doing right now with your 401k is great - contribute as much as you can afford, while still being able to live comfortably. By no means is 25% too much (that's about what I do), as long as it fits in your budget. Take advantage now of your low expenses and get a head start on accumulating those assets. There's no problem at all with reducing it later if you get an apartment or whatever. That's actually more of a reason to stretch yourself a little right now, and just keep budgeting around those contributions like you're doing now. You can (and should) consider changing your deferral rate any time your financial situation changes.

I'd also recommend getting rid of the Primecap Core fund. You can do A LOT better than .54% on a large cap fund (Fidelity Spartan 500 Index investor class is .10%, for instance), and I think you'd be better off in an index fund. VLACX would be fine, and VTSMX would be another good choice, but it isn't a perfect substitute for Primecap since it has a little mid and small cap in it. So you'd either have to be comfortable with having a bit of a small tilt, or if you want to keep your exact same size exposure, adjust your other holdings accordingly.

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Post by pkcrafter » Thu Apr 01, 2010 9:57 pm

I don't want to get into a AA tug-of-war, but I also think holding some bonds is just necessary for a fully diversified portfolio. Bonds are a major asset class. Investing is not all about the hot pursuit of maximum returns. It's about balance and compromise.

I notice that it's newer investors who suggest 100% stock. Are you only looking at returns over the past 1 year? For the past ten years, portfolios with the lowest stock allocations beat 100% stock portfolios. Total bond market even beat 100% equity. Some balance and full diversification is just prudent investing.


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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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Re: Portfolio Advice for 23 yr old

Post by bmelikia » Thu Apr 01, 2010 10:39 pm

nimo956 wrote:
Taxable
42% Primecap Core (VPCCX) (ER: 0.54%)
24% FTSE All-World Ex-US (VFWIX) (ER: 0.4%)
Hey Nimo. . .

How were you able to invest in the Primecap Core fund? I thought it's closed?
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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Re: Portfolio Advice for 23 yr old

Post by YDNAL » Thu Apr 01, 2010 11:30 pm

LotinElite wrote:
YDNAL wrote:Congratulations on the early start... you are doing terrific. There are a few of issues.
- First, with 0% Bonds you don't have a well diversified portfolio.
I disagree.
Anyone, Lotin, may choose to forgo either 1 of 2 major asset classes (Stocks/Bonds), however, (s)he is simply not well diversified.... period.
LotinElite wrote:You're 23, you have no use for bonds right now, especially with the bond market where it is (read bubble.)

Do yourself a favor and don't waste your money on bonds.
1) The "use for bonds" is to mitigate Equity risk and diversify the portfolio.

2) Anyone can choose not to mitigate Equity risk - for whatever reason (valid or bogus) - but it doesn't diminish in any way the lack of diversification.
LotinElite wrote:Diversification is great, but it's a means not an end.
What does that mean?
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: Portfolio Advice for 23 yr old

Post by LotinElite » Fri Apr 02, 2010 3:54 am

pkcrafter wrote:Investing is not all about the hot pursuit of maximum returns. I notice that it's newer investors who suggest 100% stock. Are you only looking at returns over the past 1 year? For the past ten years, portfolios with the lowest stock allocations beat 100% stock portfolios. Total bond market even beat 100% equity.
It is probably newer investors suggesting 100% stock because it is newer investors who are most served by avoiding bonds (again, particularly in this bond bubble).

You ask if we are only looking at returns over the past year (no) and then tout numbers based only on the last ten years. The past ten years are an exception, not the rule. If you look at any 15 year period stocks have always beaten bonds. If you look at any 25 year period the difference is more pronounced. I would assume the OP is closer to 25 years from retirement than 15. I recommend bonds for those who are within 15 years of retirement. I can't post the link here but on the Vanguard site there is a risk/return allocation analysis under "Portfolio Analysis". Starting from an AA of 100% bonds, from 1926-2009 the average annual return continues to go up until you reach an asset allocation of 100% Stock.

You say investing is not about "hot pursuit" while advocating the hottest asset class at this time. Over the past few years people have been flocking to bonds, pouring hundreds of billions into bonds while putting almost nothing into stocks. Interest rates have nowhere to go from here but up. I think that's a good combination for bonds being the next bubble to pop.
YDNAL wrote:
LotinElite wrote:Diversification is great, but it's a means not an end.
What does that mean?
It means that diversification is not the goal. The goal is the best possible portfolio based on one's time horizon and risk tolerance. Based on what the OP has posted, that's currently an all stock portfolio.

To take someone and blindly say "Oh, well, you need bonds because otherwise you're not diversified." is irresponsible. One could say the same thing about commodities.

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Re: Portfolio Advice for 23 yr old

Post by YDNAL » Fri Apr 02, 2010 7:34 am

LotinElite wrote:
YDNAL wrote:
LotinElite wrote:Diversification is great, but it's a means not an end.
What does that mean?
It means that diversification is not the goal. The goal is the best possible portfolio based on one's time horizon and risk tolerance. Based on what the OP has posted, that's currently an all stock portfolio.

To take someone and blindly say "Oh, well, you need bonds because otherwise you're not diversified." is irresponsible. One could say the same thing about commodities.
Lotin,

To say "you need bonds because otherwise you are not diversified" is the most "responsible" input to be provided under all circumstances.

"Irresponsible:"
1) To suggest 100% of anything and avoid diversification.
2) To avoid mitigating Equity risk.
3) To take such Equity risk in order to avoid Bond "bubbles."
4) To think (s)he knows "the best possible portfolio" in advance.
5) To assume anything about investing - believing the future will look anything like the past.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Post by pkcrafter » Fri Apr 02, 2010 8:05 am

Lotin, you are of course entitled to your opinion. But in the opinion of many experienced investors on this forum, it is simply wiser to be fully diversified across all major asset classes. Yes, the past 10 years has been unusual, but we remain in a very volatile market and we do not know what the next 10 years will bring. 20-25% in bonds will reduce volatility with a minimal reduction in return, if in fact it the return is even provided by the market. Hopefully, nimo will consider all feedback and make his own decision.

The discussion on bonds has been done several times. If anyone is interested, here are a couple of previous threads on the subject.

http://www.bogleheads.org/forum/viewtop ... ight=bonds

http://www.bogleheads.org/forum/viewtop ... ight=bonds




Paul
Last edited by pkcrafter on Fri Apr 02, 2010 8:37 am, edited 1 time in total.
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Post by jeffp » Fri Apr 02, 2010 8:36 am

I think the discussion is getting a bit overcharged if we're calling each other irresponsible over a 10% allocation to bonds.

Nimo, while I think a 23-year-old doesn't need bonds, there are many knowledgeable people here, some of whom with different opinions, which you should also consider. I think we can all agree that there's never one "right" answer, and frankly it's not going to make much of a difference being 90% equities or 100% equities at this stage in your investing career. Right now your savings rate is most important, and you're very much on top of that, which is great. While certain fundamental things like using index funds and minimizing costs are recommended universally on this forum, some of the finer points of designing your portfolio come down to personal preference and what your own situation/risk tolerance dictates.

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Post by nimo956 » Fri Apr 02, 2010 6:01 pm

Wow, thanks everyone for all of the great advice. There are cogent arguments both for and against adding bonds, but I think that I will probably add them for the diversification and the ability to rebalance if stocks should decline. However, instead of selling shares of NAESX, which would throw off my smallcap US %, I might just build my position through new money coming into my 401k (to be split with NAESX).

I also agree that I should be more diversified in large caps. I will still hold VPCCX, but will sell a large portion of it to fund either VLACX or VTSMX. That way I can still get some of the tilt to healthcare and IT that Primecap provides. Are there any striking differences between VLACX and VTSMX? I'm leaning slightly towards VTSMX. Are they both the same in terms of tax-efficiency? VTSMX also has a slightly lower expense ratio.

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Post by bmelikia » Fri Apr 02, 2010 7:01 pm

nimo956 wrote:Wow, thanks everyone for all of the great advice. There are cogent arguments both for and against adding bonds, but I think that I will probably add them for the diversification and the ability to rebalance if stocks should decline. However, instead of selling shares of NAESX, which would throw off my smallcap US %, I might just build my position through new money coming into my 401k (to be split with NAESX).

I also agree that I should be more diversified in large caps. I will still hold VPCCX, but will sell a large portion of it to fund either VLACX or VTSMX. That way I can still get some of the tilt to healthcare and IT that Primecap provides. Are there any striking differences between VLACX and VTSMX? I'm leaning slightly towards VTSMX. Are they both the same in terms of tax-efficiency? VTSMX also has a slightly lower expense ratio.
Nimo. . .

How were you able to invest in the PrimeCap fund considering it is a closed fund?
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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Post by nimo956 » Fri Apr 02, 2010 8:49 pm

bmelikia wrote:Nimo. . .

How were you able to invest in the PrimeCap fund considering it is a closed fund?
Primecap closed in August 2009. I first invested in the fund in May 2009.

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Post by bmelikia » Fri Apr 02, 2010 8:55 pm

Dang. . .you lucked out. . .seems like a good fund to have. . .
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Post by jeffp » Sat Apr 03, 2010 3:38 pm

nimo956 wrote: I also agree that I should be more diversified in large caps. I will still hold VPCCX, but will sell a large portion of it to fund either VLACX or VTSMX. That way I can still get some of the tilt to healthcare and IT that Primecap provides. Are there any striking differences between VLACX and VTSMX? I'm leaning slightly towards VTSMX. Are they both the same in terms of tax-efficiency? VTSMX also has a slightly lower expense ratio.
I'd say the most noteworthy difference between VLACX and VTSMX is the presence of small cap stocks in VTSMX (none in VLACX). It's only about 10% of VTSMX's holdings (which approximates the market capitalization), but it would certainly have some effect on your asset allocation that you would want to consider adjusting for. After looking closer at VLACX, I see it has about the same amount of midcaps (20%) as VTSMX. VLACX also has higher turnover (9%) compared to VTSMX (5%) which makes it somewhat less tax efficient.

I feel compelled to ask, though, why do you want to keep some VPCCX? You cited the IT/healthcare tilt, but why on earth would you want to tilt to those industries? Do you have that strong of a feeling about them that you want to take a bet on those industries against the rest of the market? Or is it because of the exclusivity of it being a closed fund? Because that sort of mentality is used to market hedge funds, and that exclusivity doesn't make them better investment vehicles than anything else.

You note the ER of VLACX being marginally higher than that of VTSMX, and it's great that expenses are on your radar, but remember that VPCCX is over twice as expensive as VLACX, and three times as expensive as VTSMX. I mean, 54 bps isn't horrible - you could certainly do far worse in the world of actively-managed funds - but I see no reason to pay more for large cap exposure when fabulous funds like VTSMX are available to you.

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Post by nimo956 » Mon Apr 19, 2010 10:07 pm

I just wanted to say thanks to everyone for all of your help. After much reading, I've come up with with a target allocation that I will work towards.

80% stock/ 20% bonds
70% US/ 30% Intl
53% LC/ 23% MC/ 24% SC (According the M* breakdown)

Taxable:
Total Stock Market Index (VTSMX)- 35%
FTSE All Word Ex-US (VFWIX)- 20%

Roth IRA:
Small Cap Value Index (VISVX)- 15%
FTSE All World Ex-US SC (VFSVX)- 10%

401k:
Total Bond Market Index (VBMFX)- 20%

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brinko99
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Location: Paso Robles, CA

Post by brinko99 » Tue Apr 20, 2010 4:17 am

I agree on skipping the bonds. With 37 years until retirement at 60 (likely later) and ~77+ years total time horizon I don't see why bonds would make sense right now.

Diversification into REITs and commodities will help to lower volatility in the short term while still growing as equities.

-- Terrence

TheEternalVortex
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Joined: Tue Feb 27, 2007 9:17 pm
Location: San Jose, CA

Post by TheEternalVortex » Tue Apr 20, 2010 5:40 am

I am also 23. I wanted to post my allocation just to compare. I'm not suggesting it's necessarily any better :).

25% Total Stock Market
25% Small Cap Value
12.5% Total International
12.5% Small Cap International (SCZ or VSS)
12.5% Short-term Treasury
12.5% TIPS

It's pretty similar to yours. The main differences are that I have safer bonds but riskier stocks (50% small cap). I would use international small cap value if it was possible to get at that cheaply (DLS doesn't really count IMO).

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jeffp
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Location: Arlington, VA

Post by jeffp » Tue Apr 20, 2010 8:48 am

nimo956 wrote:
401k:
Total Bond Market Index (VBMFX)- 20%
According to your first post, your 401k was only about 10% of your portfolio. Are you going to start at 10% bonds and work your way toward 20% as you fund your 401k? Do you have good equity funds in your 401k to rebalance into?

Also, did you decide to sell your full position in VPCCX? Or just part of it?
"Doubt is not a pleasant condition, but certainty is absurd." - Voltaire

nimo956
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Joined: Mon Feb 15, 2010 6:07 pm

Post by nimo956 » Tue Apr 20, 2010 3:44 pm

Jeffp,

Yes, I will start out with 10% bonds in my 401k and work my way up to 20% as I contribute, at which point I have a number of Vanguard funds to choose from (see 3rd post for the list).

I'll admit I still haven't completely decided what to do with VPCCX. I will sell a large chunk of it, but need to wait a couple more months anyway to avoid the redemption fee to sell the rest. I will probably sell all of it, but just need to get over the mindset of selling a closed fund!

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johncgay
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Location: Frisco, TX
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Case for bonds regardless of age

Post by johncgay » Tue Apr 20, 2010 4:43 pm

I have to agree with those who have said that bonds belong in a portfolio regardless of age for two reasons:

1) If you are 100% equities and all risky asset classes fall in tandem, you have nothing to rebalance into. Big opportunity lost.

2) The theoretical case for 100% equities typically applies only to very young investors. By definition, very young investors are very inexperienced investors (at least in terms of actual time and real money in the market). Those two just don't mix. I spent the last 18 months hand-holding "experienced" investors; if any had had 100% in equities they would have bailed. Many of these investors had lived through (but repressed) the dot-com bust. It won't be any different the next time, either.

IMHO of course.

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Ilovevolleyball
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Joined: Fri Jan 11, 2008 2:56 am

Post by Ilovevolleyball » Wed Apr 21, 2010 1:42 pm

Hello,

What do you think of:

Sell off of your taxable investments and max out your 401k, this year and next.

Mike

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