The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: unitsinc on October 01, 2012, 09:54:04 AM
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I just saw this article and it's portfolio seems to be fairly well balanced in the manner that I think I'd like.
http://www.investmentu.com/research/gone-fishin-index-fund-portfolio.html
Vanguard Total Stock Market Index (VTSMX) – 15%
Vanguard Small-Cap Index (NAESX) – 15%
Vanguard European Stock Index (VEURX) – 10%
Vanguard Pacific Stock Index (VPACX) – 10%
Vanguard Emerging Markets Index (VEIEX) – 10%
Vanguard Short-term Bond Index (VFSTX) – 10%
Vanguard High-Yield Corporates Fund (VWEHX) – 10%
Vanguard Inflation-Protected Securities Fund (VIPSX) – 10%
Vanguard REIT Index (VGSIX) – 5%
Vanguard Precious Metals Fund (VGPMX) – 5%
After reading a few books(4 Pillars, Random Walk) this seems very much in line with their way of thinking.
Does anyone have any thoughts on this portfolio?
Also, how would you guys go about balancing this between tax deferred and normal accounts?
I know that REITs should go in tax deferred since they tend to produce more dividends. Any others to be more wary of with dividends?
And since many of these have minimum balances needed, how would you start off investing since I can't just drop the minimum in due to the 5k/yr limit. Thoughts?
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Unless you have half a million or more to invest I wouldn't bother about spreading yourself so thin. You get almost as much diversification by just going a third each on Total Stock Market Index (VTSMX), Total International Stock Market Index (VGTSX) and Total Bond Market Index (VBMFX).
Or other proportions if you prefer.
If you have $100,000 to invest then with your spread you'd only have $5,000 in the REIT Index. On the other hand if you have $500k+ you'd have $25,000 in your smallest investment, which could be big enough to matter.
My recommendation would be to use the three funds I mentioned above, and add one more fund per $50k (or $100k) above that.
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I forgot to mention that one reason that you want to go with fewer funds is that you can qualify for the Admiral version of the above funds.
If you are willing to invest at least $10,000 in a single fund you can choose the Admiral version. This drops the expense ratio from around 0.30% to 0.10%. Free money.
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I think luna's suggestions are good. I have non-Vanguard money in my 401k which is invested in a mix of index funds, but my Vanguard taxable account holds an S&P 500 index fund (admiral shares), and a municipal bond fund. I also have a small Roth IRA with Vanguard that has the REIT index fund, about 10% of my overall portfolio. I am very close to the balance needed for admiral shares with that account. With the amount of money that I have invested, I do not wish to have more funds with higher expense ratios.
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luna gives great advice. Those three funds combined will give you an average fee of 0.21% (vs about 0.24% if you invested exactly like the Gone Fishin' Portfolio), but they'll mean you'll need a minimum of $9,000 to invest ($3k min per fund).
Until you have that much, you can put everything in a blended fund such as Vanguard's Moderate Growth Fund (https://personal.vanguard.com/us/funds/snapshot?FundId=0914&FundIntExt=INT). This fund has almost the same mix as investing in the 3 above funds individually. It's just slightly more conservative (40% bonds vs 33%). Plus, it only has 0.16% fees.
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I think luna's suggestions are good. I have non-Vanguard money in my 401k which is invested in a mix of index funds, but my Vanguard taxable account holds an S&P 500 index fund (admiral shares), and a municipal bond fund. I also have a small Roth IRA with Vanguard that has the REIT index fund, about 10% of my overall portfolio. I am very close to the balance needed for admiral shares with that account. With the amount of money that I have invested, I do not wish to have more funds with higher expense ratios.
From what I understand, wouldn't it be better to put the REITs into your IRA since they tend to be pretty dividend heavy, so you'd end up deferring more taxes than if you kept them in a normal account?
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I appreciate the responses. What you guys are saying definitely makes sense since I have so little to play with at the current time.
Once I get 10k for a few of the basic funds(to get to Admiral) maybe then I will start branching out into other indexes for the full diversification.