Free Ebook.

Enter your email address:

Delivered by FeedBurner

« My Finances 10 Years Ago and Now | Main | How to Earn More Money with a CD Ladder »

May 22, 2008


Feed You can follow this conversation by subscribing to the comment feed for this post.


I know you've talked about this before most likely, but at what portfolio $ value should one really start looking at this type of allocation? Taking into account minimums required by Vanguard for their funds, it would be hard to spread it out over this many funds with less than $25k it seems.

Right now my wife and I have all our Roth funds in either a 500 index or total stock market index and I have all my 401(k) money in American Funds New Perspective to get some foreign stocks in the mix - unfortunately that is the only fund family available in our plan - man do I hate paying 1%+ on those when Vanguard is usually under 0.5%.

I've been thinking of moving my wife's Roth to the New Horizons fund they recommend, so maybe that is the right move now to get more small company exposure.

No, I personally don't think 7 is too many. I use modified version of Vanguard portfolio. It uses 11 funds, but I modified it to use 10.

Vanguard Total Stock Market Index (Taxable Account)
Vanguard Value Index (Taxable)
Vanguard Tax Managed Small Cap (Taxable)
Vanguard Small Cap Value (Roth)
Vanguard REIT (Roth)
Vanguard Tax Managed International (Taxable)
Vanguard International Value (Taxable)
Vanguard Emerging Market (Taxable)
Vanguard Total Bond (Rollover IRA)
Vanguard TIPS (Rollover IRA)

For the location of the assets (Roth, Rollover, Taxable), I sort of follow MyMoneyBlog chart.

For my 401k, my options are American Funds and I take it as if it is separate (to keep it simple for myself) and keep similar target allocation with my combined assets outside 401k.

Kevin --

Some of these funds may allow for lower minimums as long as you sign up for monthly contributions. You'll need to check to be sure -- it's been a long time for me since I was there and I honestly don't know for sure.

If that doesn't work, you can do waht I did -- take them in order. Save enough to get the minimum on #1, then invest in it. Then save enough to get the minimum on #2 and invest in it -- and so on. Assuming you have a very long time horizon (I had 35 years when I started), you should be ok allocation-wise.

FMF, how do you (and your readers) feel about target-date funds? My 401(k) is in the Fidelity Freedom 2040 plan, which reallocates itself over time based on how close I am to retirement. I.e., it is more heavily weighted towards stocks now, and will slowly become more conservative as I get older. Do you think these are a good idea? I confess, if I had to pick my own investments I wouldn't even know where to start, so this seemed like a good option for me. I just wonder if it's worthwhile.

FMF - I don't think they have that option with Vangaurd anymore. Most of the funds are $2,000 or $3,000 minimum. I do like your idea though. I have about the same time horizon 35 years as I am 33 right now and will probably work in some capacity past 65.

Acehbee, I wouldn't feel so bad about those American Funds if you've had them for a while. I've had my SEP in American Funds (based on the recommendations of a financial advisor) for about 8 years now. I didn't know any better about buying into a loaded fund at the time and once I did I hated paying the higher annual charges. Then I looked at the returns and realized that my American Funds had dominated the market over the period by a *far* greater percentage than I had been paying. I never invest in new load funds anymore (although I do continue to fund my SEP at American) and I realize that this isn't indicative of what American's future returns will be but they've been a great investment for me.

AL (May 22, 2008 at 09:56 AM)

I think if you don't know where to start, I think target-date funds is a good choice. I started with Target-date fund. But as continue to learn more, I feel that I can get better diversification, hopefully better return, without significantly increasing my risk. I personally am a fan of allocation and I modified the % of stock/bond allocation based on my age and risk tolerance. But if you go with target-date fund, I would suggest to keep that as your only fund, since adding other funds pretty much remove the main reason of using target-date fund.


I tried to look several time regarding my 401k plan, I believe there is no-load for me since I invest through my company 401k plan. I pay attention closely to my statement, I don't see any fees too. Thus I actually don't mind my 401k plan, considering I have access to American Funds without load and fees. I agree with you that American Funds seem to have done a good job over the year and also realize that there is no guaranteed about the future performance. I am leaving my company soon and I am actually planning to leave my 401k (with biannual re-balancing) to keep my holding at American Funds instead of rollover to Vanguard.

AL --

I don't know a lot about them specifically, but the concept is good especially if you couldn't do it yourself. One question -- any idea what the expenses are?

Yeah, I feel like I don't have that kind of money right now to be investing in that many funds.
I have a target date fund in my IRAs and it makes me a little uncomfortable. I understand that the fund is a diversified fund, but if that's my only fund, it feels very NOT diversified....

Stephanie - the target date fund should state what percentage is invested in each "sub-fund" which I'm guessing is at least 4-5.

For example, here is the breakdown of the Vanguard 2040 fund - it holds 5 regular Vanguard funds.

Looks like the expenses for the Fidelity Freedon 2040 Fund are 0.82%. It's pretty well diversified between domestic stocks, international stocks, bonds, and other (cash, short-term, etc). I'll probably stick with it for now and just put my focus on actually building up the principal. The hardest part about saving for retirement is simply making it a priority! :)

I prefer individual bonds to bond funds. Bonds have a maturity date while bond funds don't. When interest rates go up, the bond value on secondary market goes down and you can loose principal with bond funds. If you own individual bonds, you are guaranteed to get your money back plus interest on maturity regardless of what happens with interest rates unless the company/governemnt defaults on debt, but with AAA bonds there is little risk of that; with government bonds - no risk. With bond fund you don't have a maturity date, so there is risk of loosing the principal.

Bonds aren't like stocks - you don't need to time the market for bonds. You know the bonds' rating; you know the coupon rate; if you don't want to hold to maturity you also can have an idea where the interest rates are heading based on market situation and inflation.

Sure you can achieve more diversification with bond funds which may reduce the risk of default. But you have an added risk of your fund value being entirely dependent on the market. Whereas with individual bonds, you aren't dependent on the market as long as you hold to maturity.

"With bond fund you don't have a maturity date, so there is risk of loosing the principal."

losing only has ONE "o" .


Are your assets evenly distributed across these funds? If not, what is your asset allocation and how often (if ever) do you plan to change it over time? This is a HUGE and often neglected question that can radically effect whether you are or are not on track.

Also, unlike CNN, many financial advisors recommend at least some exposure (2-3% minimum) in commodities and precious metals (gold, oil, food, etc). These have been on a tear over the last five years.

Dave --

1. This is CNN Money's list, not my complete list of investments. I own more than these listed.

2. Yes, asset allocation is VERY important -- I've written about it several times before.

3. I've never listed all my holdings and don't plan to until I get them under control (regular readers will know I bought too many funds a long time ago, have huge capital gains on them, and am now giving a few of them away every year to pared down the list.)

To petpeeve - Thank You! I don't know why, but that is one of my biggest pet peeves. Stupid really, but aren't all pet peeves?

I think your list may have worked in the 80's and 90's. We are entering a new long-term paradigm of scarcity worldwide. You'd be much better off looking for diversified sector funds/ETFs:

Metals: Gold/Silver/Base metals: Destruction of fiat currency
Uranium/Solar/Energy: Many developing countries now hungry for energy that is in short supply.
Food/Agriculture: People in developing countries want a more sophisticated diet.
Water: Only 1% of the earth's water is drinkable. Pair this with food demand (and water pollution as a result of farming), water is going to be an issue for the future.


That is totally fine if you don't want to list all of your holdings. However, do you have an opinion on whether CNN is right that those seven categories of investments are the "only" investments you need?

"losing only has ONE "o" .
Thanks, this was a typo. I was at work and didn't have time to proof read.

I agree with the second post - If you want true asset allocation it takes more than three or seven funds. There are excellent articles on the site that completely expalin why that diversification is needed, why low fees are important, why short to intermediate bonds are better than long term bonds, why low taxes are important, etc. A great education to be found there.

Dave --

No, I think there should be at least one other -- real estate (your home). There are also a few to be considered such as gold, etc., but these aren't really a necessity for most investors to do well.

Hmmmm. Nobody here's mentioned funds that short the indices.

The comments to this entry are closed.

Start a Blog


  • Any information shared on Free Money Finance does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. All posts are © 2005-2012, Free Money Finance.