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March 30, 2011


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One relevant fact needed is # of years until retirement.

Why investing with TD Ameritrade instead of Vanguard or Fidelity? When using mutual funds as your primary investment tool rather than individual stock trades, I think Vanguard and Fidelity have better expense ratios and more options including the VERY low cost index funds.
If you like to see different ratios between stock types and manage the percentages yourself, stick to approximately the funds types you described (though I'd pick a broad bond fund, not just a long-term one for better diversity). If you don't want to handle the percentages yourself, take a look at the underlying funds in some of the target-date options and pick the one that is closest to what you want.

Why are you at TD Ameritrade if you want to invest in index funds? They are brokerage company not a mutual fund company and you are going to pay them transaction fees to invest in index funds (how else would they make money if you sent all your funds to Vanguard mutual funds for which TD Ameritrade would receive no benefit). If you have you account at some place like vanguard you would not pay those transaction fees for their index funds. Vanguard also has a brokerage option if you want a few stocks or ETFs. If you don't want to invest mostly in stocks then I would not suggest having your account at a stock brokerage firm.

Those are some very broad questions.

1. First, your reader need to decide whether he like managed or index funds. When you realize that most money managers don't beat indexes, index funds sound better. I like ETFs because the costs are low and easy to adjust.

2. 20% exposure to international funds is a good choice because everyday the world is more global. Countries like China and Brazil have done very well during the recession and in a sense have shown more stability than U.S. large caps.

3. Bonds. Consider cash in the bank as an alternative. Although rates are historically low, doing a little shopping can help.

1) 80% Stocks / 20% Bonds is quite aggressive, normally you shouldn't be quite that heavy unless you're in your 20's.

2) I agree with the other commenter that Vanguard is generally a much better choice on a cost basis when they have the appropriate funds.

3) Even for an ETF index only portfolio I think your selection is probably a bit thin diversification wise. Those three stock funds are very highly correlated. As a very simple portfolio for someone moderately aggressive, I might go with something like this:

40% VTI - Vanguard MSCI Total U.S. Stock Market
10% VSS - Vanguard FTSE World ex-US Small Cap
20% BND - Vanguard Total Bond Market (4-5yr)
10% VNQ - Vanguard MSCI U.S. REIT
10% GCC - GreenHaven Equal-Weight Commodity
5% PFF - iShares S&P US Preferred Stock Index
5% FXF - Swiss Franc CurrencyShares

You should get a lower drawdown and better risk adjusted returns that way.

I'd open an account at Vanguard instead, and then another account at Fidelity. Vanguard for your ETFs and mutual funds, their low-cost expenses cannot be beat.

Fidelity because it has two good things. First, excellent research products, the have the most information of any discount brokerage for the individual investor. Second, you can purchase "new issue" bonds at Fidelity, and the selection is decent. By purchasing new issue, you can avoid the fees and too-high spreads of the secondary bond market. Bottom line is Fidelity has a lot of products, some of them with low expenses, so I think a second account with Fidelity is good for your fixed-income portfolio.

I just rolled my old 401k into Vanguard last week and it was pretty easy. If you open a brokerage account (need it for ETFs) it is an extra step but overall it took me about 30 minutes, including speaking with someone from Vanguard on the phone.

I cannot tell you much about your portfolio because only you can determine your risk level, but one thing I would say is avoid long term bonds now. Bond prices are high because rates are low but once rates begin to rise, their prices will begin to fall so that the yield to return equals the higher rate on newer issue bonds (think rates up, prices down, and vice versa). In times of rising rates you want to be in shorter maturities because they will be less volatile, and with rates as low as they are they really do not have anywhere to go in the future other than up (or stagnate).

Why no mention of a Roth IRA? If he qualifies, that seems like a no-brainer!

If you like low fees, I think a good balanced fund like Vanguard Wellington is in order. The expense ratio is .30% and drops to .22% once you get to a 50K balance. It has beaten the S&P 500 with less volatility over the last 3, 5, 10, 15, 20, and 30 year periods, and I used the more expensive share class for this comparison.

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