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Learning, Sharing, and Teaching => Investor Alley => Topic started by: whammer33024 on October 30, 2014, 03:49:31 PM

Title: what to put in simple IRA
Post by: whammer33024 on October 30, 2014, 03:49:31 PM
i work for my parents with the intention of taking over the business.  i'm just now getting around to starting a retirement plan(i'm 30).  we are in the process of setting up a simple IRA through vanguard for me.  i'm wondering what i should invest in. 

my wife and i are going to be setting up roth IRA's through vanguard as well and i planned on going 90% in VTSMX and 10% in a bond fund in each of the roth IRA's.  is that how i should do my simple IRA as well? 

any advice on this would be much appreciated!
Title: Re: what to put in simple IRA
Post by: whammer33024 on November 01, 2014, 02:27:22 PM
Thanks guys! Lol
Title: Re: what to put in simple IRA
Post by: bacchi on November 02, 2014, 09:42:07 AM
How complicated do you want it?

I'd add in some emerging markets, VWO, and maybe some real estate, VNQ.

60% Total
10% Bonds
15% VWO
15% VNQ

Check out the coach potato type portfolios, http://assetbuilder.com/lazy_portfolios/. Over the past five years, anyway, the more diversified portfolios did better.

http://assetbuilder.com/couch_potato/couch_potato_cookbook
Title: Re: what to put in simple IRA
Post by: wtjbatman on November 02, 2014, 11:28:51 AM
my wife and i are going to be setting up roth IRA's through vanguard as well and i planned on going 90% in VTSMX and 10% in a bond fund in each of the roth IRA's.  is that how i should do my simple IRA as well? 

If that's the Asset Allocation (AA) you have determined fits your investment needs and risk profile, then yes, you should put any additional money into similar investments. When your investment vehicle allows you to choose your own funds, it's best for simplicity's sake to keep the same AA in each.

bacchi suggests adding REITs (real estate) and an emerging market fund (international, developing countries). There is nothing wrong with that, but it's entirely up to you if you need to add more diversification. Just keep in mind VTSMX does hold publicly traded REITs, and by putting all of your international allocation into an emerging market fund you are giving up on international diversification, as you would be completely ignoring developed markets.
Title: Re: what to put in simple IRA
Post by: NP on November 02, 2014, 12:05:42 PM
Your original plan is not bad, but since you asked for opinions, here are my two cents:
http://forum.mrmoneymustache.com/investor-alley/what-is-your-asset-allocation/msg438236/#msg438236
http://forum.mrmoneymustache.com/investor-alley/help-me-balance-my-assets-in-my-401k/msg437391/#msg437391
(The first post suggests 80% stock allocation initially but your idea of 90% is perfectly OK while you're far away from retirement if you can handle the volatility emotionally.)
Title: Re: what to put in simple IRA
Post by: KC1983 on November 02, 2014, 06:39:15 PM
i planned on going 90% in VTSMX and 10% in a bond fund in each of the roth IRA's.  is that how i should do my simple IRA as well? 

I say go for it. Virtually all of my new investments go into VTSMX (actually VTSAX). Once a year, when I load up my wife and my IRA, I put about half in VGSLX (REIT) and half in VBILX. Since I put much more in my taxable investment account, I've ended up with about 80% VTSAX (the Admiral version of VTSMX), about 10% in bonds, and 10% in the REIT fund. It's super easy to make it more complicated, and I have in the past, but I've seen the error of my ways.

I've also learned to mostly ignore the siren song of 'emerging markets'. Somehow those funds never quite emerge! (Read William Bernstein for a better explanation of why you're probably better off now sweating investing in international and emerging stocks -- the short answer is it's more expensive, any foreign stock markets aren't as well regulated or have far more corruption, and a few other factors).
Title: Re: what to put in simple IRA
Post by: NP on November 02, 2014, 08:06:14 PM
(...) any foreign stock markets aren't as well regulated or have far more corruption (...)
There are certainly many countries where the markets are less regulated or where there's more corruption than in the US, but there are also many foreign stock markets about which this isn't true, think Canada, Japan or many European countries, for example. In fact, if you look up worldwide statistics about corruption, you'll find that while the US is not too bad, it is definitely not among the few least corrupt countries in the world.

There are many reasonable arguments against (and for) international investing but the lack of corruption in comparison to the US is not one of them unless we're specifically talking about less developed or stable countries. If you actually lived in some of the less corrupt countries, a statement like the above sounds surprisingly uninformed.
Title: Re: what to put in simple IRA
Post by: KC1983 on November 02, 2014, 09:44:37 PM
NP, I was specifically referring to emerging nations with the corruption statement. I should have clarified. I hear a lot of people who want to invest in Chinese companies, because they keep reading about the amazing growth of the Chinese economy. Sometimes I hear people saying things about India. It doesn't take much research into who those investments would have done to show how erroneous it is to assume that a country's growth rate and the returns from that country's stock market go hand in hand.

The argument against investing in developed markets outside the US, like Europe, Canada, and Japan is weaker. The key points for me is that many US companies, especially large cap, are essentially multinationals, and by investing in the US total market you are inherently investing in the world market. The fact that the total US stock market has outperformed those of other developed nations (certainly over the 30+ years I've been investing) is another argument. Finally, for me, the whole point of diversification is to invest in vehicles that aren't tightly correlated. We can argue that stocks and bonds aren't really independent, and that REITs and equities are also hardly independent, but ultimately the correlation between the US stock market and the European/Canadian/Japanese is rather high.

Bottom line for me is that (1) investing in equities outside the US is more expensive, (2) these markets have scant history of significantly outperforming the US stock market, (3) foreign markets often carry substantially higher risk, and (4) they provide minimal real diversification. YMMV.
Title: Re: what to put in simple IRA
Post by: NP on November 03, 2014, 08:35:54 AM
KC1983, fair enough, it's a different story if we're talking about corruption only in emerging markets.

As for the outperformance and stability of the US in the long term or the relative risk of foreign markets in general, I'd be careful about drawing far-reaching conclusions from only the experience that's still in living memory. Those of us in the US should be particularly cautious because the US enjoyed an unusually smooth and prosperous ride in the recent past, which makes it very hard to view risks realistically. The fortunes of countries and empires can turn fast. (Of course, if you are not a buy and hold investor but make tactical investments based on the most recent state of the markets, then different considerations apply.)

Here's an eye-opening entry about the topic with some numbers: http://monevator.com/world-stock-markets-data/ What I find most interesting is the variation between countries, indicating that it's easy to lose a lot with large single bets.

Quote
In Fooled by Randomness, author and Black Swan-spotter Nassim Taleb points out that an investor in Russian or Chinese companies at the start of the 20th Century who suffered a complete wipe-out would have a rather different tale to tell about ‘investing for the long term’ to the Americans who typically write all the investing books.

Who is to say that the 21st Century won’t hold similar surprises?
Title: Re: what to put in simple IRA
Post by: KC1983 on November 03, 2014, 07:08:56 PM
Hey, NP, that's an interesting link. When I look at that list, though, I see that it's the western countries, US included, that have done well over the century. And it's not just the recent past for the US that's been good. Go back to before the great depression, and if you factor in dividends, the US market has done well, even including what happened around 1929.

Another thing that strikes me is that we're probably making a mistake looking at that list and assuming the 'US stock market' meant the same thing in the early 20th century compared to the last few decades. That list begins at 1900, when travel by steamship and communication by telegraph was state of the art, before air travel and automobiles, before radio, TV, internet, etc., etc. These markets were vastly less interdependent and linked than they are now.

Take a look at this page: http://portfolios.morningstar.com/fund/holdings?t=VTSMX
Scroll down, to the list of the top 25 holdings in the Vanguard total stock market index. All of these companies are multinational. Many of them do the majority of their business outside the US. If I could find a list of the top 100 holdings, I believe that pattern would hold up. Investing in VTSMX is about as far away from making a 'large single bet' as is possible in a single index fund.