Mutual Funds/IRA investments
QUESTION: Hi John,
I am in my mid 40s, I just rolled over my ex 401k about 200k to a Scott-trade IRA acct, I need your help to figure out my portfolio fund choices. I am thinking about some mutual funds:
Vanguard Total Stock Market Index
Schwab Total Stock Market Index Fund
Vanguard Target Retirement Funds
TIAA Equity Index
TBGVX Tweedy, Browne Global Value
VBINX Vanguard Balanced Index Inv
IEMG iShares Core MSCI Emerging Markets
VIG Vanguard Dividend Appreciation ETF
What do you think, would you give some suggestions?
Thank you very much!!
ANSWER: Hi! I would be happy to offer some guidance. Before doing so, can you give me a sense of your goals for the account and how you would perceive yourself from a risk tolerance standpoint?
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QUESTION: I thinking I will work another 10-15 years, I hope it would be less.
Risk tolerance should be medium to low.
ANSWER: Thanks for clarifying. Although it is difficult to offer specific investment advice in a forum such as this, I hope the following is helpful. With a long term investment horizon, I feel having a low cost, globally diversified portfolio that will provide the desired investment return within the context of your risk tolerance is the best approach. Vanguard funds with their low cost and index approach nature I feel are a good solution for this. There are many different funds to choose from so analyzing them all and giving specific recommendations is difficult. And although the funds you reference above are good funds on their eon, it's important to make sure you have the right pieces of the puzzle assembled in the way that gets you what you are wanting to achieve. To better understand this, I would go to www.vanguard.com and use their retirement planning tool under the planning and education tab. This will help you get a sense of a reasonable allocation based our preferences and will also suggest sample funds to give you good diversification. Once you have this info share it with me and I can provide additional thoughts. I think this process will help you better understand where to start with all of this and will allow you to ask more specific questions that I can help address. Thanks!
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QUESTION: Here is what I get from www.vanguard.com:
stock legend 28% $61,600.00
Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)
international legend 12% $26,400.00
Vanguard Total International Stock Index Fund Investor Shares (VGTSX)
bond legend 48% $105,600.00
Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
international bond legend 12% $26,400.00
Vanguard Total International Bond Index Fund Investor Shares (VTIBX)
What do you think? I am thinking adding the Vanguard Target Retirement Funds as well?
Also, since I have the Scott Trade acct, would that cost me more to buy vanguard funds? Or would that be the same to set up a directly with Vanguard?
Hi. Interesting suggestions from Vanguard. Im assuming their suggestion of 40% stocks and 60% bonds is based on the conservative minded nature in which you answered their questions. To me, with an investment time horizon of 10 yrs +, I would consider switching this mix by making stocks 60% and bonds 40%. With this comes additional risk over short time periods but over 10 yrs + should serve you well. In regards to the investments themselves, I am also a bit surprised that the specific recommendations don't include a couple of more mutual funds. This could be driven by the amount of $$ that are involved so I would consider "tricking" the system and put a higher total account value in and see if the recommendations change. For example, maybe type of 500,000 in assets and compare.
In any instance, the base of their recommendations I agree with in that you should use low cost index funds as the core of your portfolio. However, I would also add a small company US fund to the mix and possibly an Emerging Markets fund on the international side. A total mix to consider within stocks could be 55% Large US Index, 15% Small US Index, 20% Large International Index and 10% Emerging Markets. On the bond side, it is difficult to get robust bond diversification with Vanguard so I think their thoughts are fine, except adjusted to reflect a lower amount in bonds than they are proposing.
Finally, if you wanted to use a retirement date fund, then this gives you an automatic allocation based on the portfolio you choose. This is a nice way of keeping it simple and getting "one stop shopping" but doesn't give you the flexibility to adjust based on personal preference. If you were to use Vanguard funds, then I would consider moving the account to Vanguard as you then do not have to pay transaction charges each time you decide to buy and/or sell within the account. I hope this helps.