Author Topic: Splitting My Investment Money  (Read 2116 times)

SporeSpawn

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Splitting My Investment Money
« on: December 04, 2014, 10:31:55 AM »
I just opened my first mutual fund investment account with Vanguard. *kazoo* I've started with the S&P 500 fund because it's the S&P 500 fund and since this is my first time, you can guess all the reasons why that's the one I choose. But, thinking on the future, I'm not sure what will be the best route to take from here.

At the moment, I only have 6k a year that I can put into investments (not retirement; that has its own 5500). I saved up for the initial 3000 for the S&P fund, and now that it's in there, I plan to build it until I secure a higher paying job. When I do have more income to spare, would it be better to diversify my portfolio by investing in other mutual funds or would it be better to focus on a select few avenues (S&P fund, retirement, mortgage, etc)? If it is better to branch out and add additional funds, what sort of metric do other users here use to keep their portfolio in balance? Is it best to try and keep the funds dead even in terms of investment (going on my current income, 3000/3000, or 2000/2000/2000 or whatever) or does it depend on the fund types themselves?

I know this is a pretty childish question, but I'm in baby's-first-funds stage, so I could use a good crash course.

matchewed

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Re: Splitting My Investment Money
« Reply #1 on: December 04, 2014, 10:37:13 AM »
It depends on your chosen asset allocation. You've taken the right steps by first saving. Now you need to educate yourself to a level you are comfortable with. I'd suggest starting at the following links.

http://www.bogleheads.org/wiki/Investment_policy_statementhttp://www.bogleheads.org/wiki/Investment_policy_statement

http://jlcollinsnh.com/stock-series/

Once you've gone through that if you have more questions or don't feel you have a complete grasp on the subjects covered start reading some investment books (The Four Pillars of Investing).

FrugalSpendthrift

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Re: Splitting My Investment Money
« Reply #2 on: December 04, 2014, 11:03:48 AM »
I've also been struggling with the same decision.  I have money in an S&P index fund outside of my retirement accounts.  My retirement accounts are more diversified with a target date fund, but I haven't been able to come up with an asset allocation that feels right.  It's fairly easy to say that I should be 90% stocks / 10% bonds, due to my age, but there are so many different strategies trying to split up the stocks between large/mid/small cap, value/growth, US/developed markets/emerging markets, that I'm not sure what makes sense.  I guess being consistent is more important than trying to choose the allocation with the absolute highest return and least risk.

I keep thinking the next step would be to add a small cap index fund, but don't know when or what percentage of my stash it will be.

matchewed

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Re: Splitting My Investment Money
« Reply #3 on: December 04, 2014, 11:12:46 AM »
I've also been struggling with the same decision.  I have money in an S&P index fund outside of my retirement accounts.  My retirement accounts are more diversified with a target date fund, but I haven't been able to come up with an asset allocation that feels right.  It's fairly easy to say that I should be 90% stocks / 10% bonds, due to my age, but there are so many different strategies trying to split up the stocks between large/mid/small cap, value/growth, US/developed markets/emerging markets, that I'm not sure what makes sense.  I guess being consistent is more important than trying to choose the allocation with the absolute highest return and least risk.

I keep thinking the next step would be to add a small cap index fund, but don't know when or what percentage of my stash it will be.

Analysis paralysis.

That being said just come up with an asset allocation. There are far too many variables when you start saying what caps should you be in and what sectors should all those caps be in. Just select something reasonable that is cost effective. There is no way to determine what the future performance will be so there is no way to tell you whether small caps will perform better, or the S&P 500, or total US market, or total international market...etc. I'd keep my analysis towards the meta side of things in regards to asset allocation and try to learn more (read them books). I'd keep things to the micro side of things in regards to that which I can see has a direct predictable influence on my returns (fees and taxes for instance).

FrugalSpendthrift

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Re: Splitting My Investment Money
« Reply #4 on: December 04, 2014, 02:21:57 PM »
Analysis paralysis.
Yes, absolutely, but it isn't preventing me from investing, just preventing me from diversifying beyond the S&P 500 fund, so I'm not overly convinced I need to take action.  Additionally my retirement accounts are more diversified, so this small amount in a taxable account isn't really affecting my overall allocation yet.

I look through something like this: http://www.bogleheads.org/wiki/Lazy_portfolios, and the portfolios are so vastly different and none of them really make sense to me.

Some people feel so strongly about the total stock market index, that they make you feel like you made a mistake buying the S&P index, but there really isn't anything wrong with it, it's just a slightly different investment.  I'm not interested in adding gold or reits, but I could see myself adding small caps & international stocks.  But on the other hand, I would be comfortable continuing to plow everything into this s&p fund.