Author Topic: young investor_asset allocation  (Read 4886 times)

younginvestor987

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young investor_asset allocation
« on: February 16, 2014, 11:17:32 AM »
I am 26 years old. I am great at saving, but just starting to dip my toe into investing. I recently put about 30K into Vanguard Total Stock Market Index Fund, but I have about another 100k to invest. What asset allocation do you recommend? I am a bit hesitant to put everything in all at once. Thanks!

matchewed

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Re: young investor_asset allocation
« Reply #1 on: February 16, 2014, 11:20:54 AM »
Put it in an asset allocation that is determined by your Investment Policy Statement.

matchewed

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Re: young investor_asset allocation
« Reply #2 on: February 16, 2014, 11:28:07 AM »
Also your asset allocation should be whatever balance prevents you from reacting emotionally to market fluctuations keeping in mind that there will be an incredibly large number of small market fluctuations and a few really big market fluctuations in your long long investing timeline.

MarcherLady

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Re: young investor_asset allocation
« Reply #3 on: February 16, 2014, 11:28:26 AM »
This is a really helpful guide to working out your ideal asset allocation.  http://monevator.com/asset-allocation-construct/

Vjklander

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Re: young investor_asset allocation
« Reply #4 on: February 19, 2014, 01:46:01 PM »
My assets right now are about 50% precious metals, 25% real estate, and 25% stocks. I don't do mutual Funds or ETFs etc, just plain old shares in plain old American companies.

KingCoin

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Re: young investor_asset allocation
« Reply #5 on: February 19, 2014, 01:52:51 PM »
My assets right now are about 50% precious metals, 25% real estate, and 25% stocks. I don't do mutual Funds or ETFs etc, just plain old shares in plain old American companies.

I'd respectfully suggest that a 50% precious metal allocation is highly questionable (unless you just like gambling or have $20 million in assets and want to take an extremely defensive long term posture).

GlassStash

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Re: young investor_asset allocation
« Reply #6 on: February 19, 2014, 02:04:35 PM »
My assets right now are about 50% precious metals, 25% real estate, and 25% stocks. I don't do mutual Funds or ETFs etc, just plain old shares in plain old American companies.

This is ill-advised. Please see http://jlcollinsnh.com/stock-series/ for the many, many reasons why.

OP, as others have stated, the best asset allocation for you is one that will allow you to suffer through multiple bear markets without withdrawing funds. There are also some studies that show that yearly rebalancing can be an added benefit to a sub-100% stock asset allocation. At 26, my personal AA is 60% Vanguard Total Stock Market Index, 20% Vanguard Total Int'l Market Index, and 20% Total Bond Market Index. YMMV.

Vjklander

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Re: young investor_asset allocation
« Reply #7 on: February 20, 2014, 04:45:04 AM »
Not 'ill-advised' at all. Giving someone else a huge chunk of your profits to sit on your assets is ill-advised as far as I'm concerned. If you are happy with mutual funds - power to you. I'll just keep the income from my stocks for myself thank you very much.
Vjk

matchewed

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Re: young investor_asset allocation
« Reply #8 on: February 20, 2014, 07:13:56 AM »
Not 'ill-advised' at all. Giving someone else a huge chunk of your profits to sit on your assets is ill-advised as far as I'm concerned. If you are happy with mutual funds - power to you. I'll just keep the income from my stocks for myself thank you very much.
Vjk

Whatever helps you sleep at night. But at the very least understand that expense ratios in index funds that are reputable do not constitute a "huge chunk of profits" and in fact is a very small amount of your profits.

The ill advisement is towards a 50% allocation in precious metals and is not referring to your stock balance whatsoever.

Vjklander

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Re: young investor_asset allocation
« Reply #9 on: February 20, 2014, 07:50:37 AM »
Not 'ill-advised' at all. Giving someone else a huge chunk of your profits to sit on your assets is ill-advised as far as I'm concerned. If you are happy with mutual funds - power to you. I'll just keep the income from my stocks for myself thank you very much.
Vjk

Whatever helps you sleep at night. But at the very least understand that expense ratios in index funds that are reputable do not constitute a "huge chunk of profits" and in fact is a very small amount of your profits.

The ill advisement is towards a 50% allocation in precious metals and is not referring to your stock balance whatsoever.

Per the Power of Compounding, the expense ration IS huge up front and becomes HUGER exponentially as time goes on.
My metals I bought in 1999-2000. When gold went above $1800, I sold enough to recoup my entire original investment and then some. So, I basically just sit on the rest using an occasional coin to buy something. Like, I swapped a 0.1 oz gold coin for 2 cords of seasoned red oak firewood.  At the time the coin was worth about $160, but I paid about $27 for it originally. I would not particularly recommend that allocation today, but the Libertarian in me loves it. My real estate is my house in town and my farm in the mountains. Both paid for.  We are slowly moving to the farm, but I still live at the house during the week for work. I'll probably sell the house some time this year and but more stocks. My perspective on the stocks is basically to produce an income stream.
Vjk

matchewed

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Re: young investor_asset allocation
« Reply #10 on: February 20, 2014, 08:00:34 AM »
I guess we're just working with different definitions of huge. :) If you're investing $1m in index funds and paying an average of .2% for expense ratio you're paying out $2k a year in fees. With that size of a portfolio I wouldn't consider $2k huge. But see sentence one. :)

I'm glad you've had success at buying gold coins. As I said earlier, whatever helps you sleep at night. I may not invest that way but if it works for you cool.

KingCoin

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Re: young investor_asset allocation
« Reply #11 on: February 20, 2014, 08:55:51 AM »
Per the Power of Compounding, the expense ration IS huge up front and becomes HUGER exponentially as time goes on.

Stocks have had a real (inflation adjusted) return of close to 7% over the last century while gold has had a real return of 0%. Worrying about a 0.2% management fee is being penny wise and pound foolish.  How someone who invests predominantly in an asset that produces no distributions can lecture on the power of compounding interest is head scratcher.

If you've had success gambling on gold in the last decade, hats off to you. Suggesting that 50% precious metals is a good starting point for a beginning investor is not good advice.
« Last Edit: February 20, 2014, 10:29:06 AM by KingCoin »

Undecided

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Re: young investor_asset allocation
« Reply #12 on: February 20, 2014, 09:05:26 AM »
Per the Power of Compounding, the expense ration IS huge up front and becomes HUGER exponentially as time goes on.

Stocks have had a real (inflation adjusted) return of close to 7% over the last century while gold has a real return of 0%. Worrying about a 0.2% management fee is being penny wise and pound foolish.  How someone who invests predominantly in an asset that produces no distributions can lecture on the power of compounding interest is head scratcher.

If you've had success gambling on gold in the last decade, hats off to you. Suggesting that 50% precious metals is a good starting point for a beginning investor is not good advice.

A co-worker and I once had a detailed conversation about this, as a result of which we concluded that his annual expenses from trading (at, as I recall, $7/trade) were substantially greater than my mutual fund expenses (which were like .11% overall) on comparable low 7 digit portfolios. Granted, he was trading several times a week, which may be more than most stock pickers.

birdman2003

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Re: young investor_asset allocation
« Reply #13 on: February 20, 2014, 09:50:03 AM »
This is a really helpful guide to working out your ideal asset allocation.  http://monevator.com/asset-allocation-construct/

I saw you post this in response to another young investor asking about asset allocation.  As a 29 year old wondering about how to rebalance my $100k in retirement accounts, I read it and benefited greatly.  Thanks for the link!

GlassStash

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Re: young investor_asset allocation
« Reply #14 on: February 20, 2014, 10:34:46 AM »
Not 'ill-advised' at all. Giving someone else a huge chunk of your profits to sit on your assets is ill-advised as far as I'm concerned. If you are happy with mutual funds - power to you. I'll just keep the income from my stocks for myself thank you very much.
Vjk

Define "huge chunk." .05% expense ratio is very low. Coupled with the fact that stocks have returned >8% in the past 40 years (adjusted for inflation)....how is this ill-advised? I think you have a misunderstanding about how the market works.

If by "my stocks" you mean individual stocks you picked, you are speculating. Speculators lose at a much higher rate than index fund investors. Additionally, half of your portfolio is in precious metals. Have you even read the stock series?
« Last Edit: February 20, 2014, 10:50:49 AM by GlassStache »

MarcherLady

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Re: young investor_asset allocation
« Reply #15 on: February 20, 2014, 11:57:00 AM »
Thanks for the link!
You're welcome, Birdman.