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Asset allocation with mutual funds for young adults
Old 02-11-2013, 11:33 PM   #1
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Asset allocation with mutual funds for young adults

I have started IRAs for my boys. Both in their early 20s. I have seen postings regarding asset allocations using 4 to 6 mutual funds. Right now, I can't put find these postings in the searches.

Any suggestions for a good allocation using funds? I will be using Fidelity. I know this is more of a Vanguard crowd, but I am used to the Fidelity interface, and that is where my 401k and some of my individual accounts are. Any links would be appreciated.

My older son had a decent start on contributing to a 401k, but got slammed in 2008, and got spooked out of the market. My goal is for an assortment of mutual funds that is growth oriented, but perhaps a bit more on the conservative side. I would like to see their accounts grow a bit before getting overly aggressive with a portion of the account.
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Old 02-12-2013, 05:34 AM   #2
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I helped my two like-aged daughters get started with Roth's. Their personalities and risk tolerance are opposite. One I have in an aggressive allocation fund, JSPGX, which is about one third Intl. The other one I have in VGSTX which has a low $1000 minimum. Once she reached $5000 in STAR she moved it to VWELX. Over six years the JSPGX has performed slightly higher, but with a lot of volitility. Both are comfortable with their choices. IMO allocation funds can provide a one fund portfolio along side of a 401k/403 b/457.
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Old 02-12-2013, 07:42 AM   #3
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At those ages the AA would typically be all equities or a balanced fund that is highly skewed to equities.

I used Vanguard STAR for my kids and I suspect that Fidelity has a similar fund. Or Magellan might be a good choice.

Bill Miller of Legg Mason Capital Management Opportunity Trust (Mutual fund: LMOPX) was on WealthTrack last week and made an impressive case for stocks. He has a good long term track record (up 41% in 2012 IIRC) but had bad years in 2008 and 2011.
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Old 02-12-2013, 08:40 AM   #4
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Originally Posted by ER Fireball View Post
My older son had a decent start on contributing to a 401k, but got slammed in 2008, and got spooked out of the market.
I would advise that this should be used as a 'teachable moment'.

Better to learn about how volatility can be your friend in the accumulation phase (DCA, buying more shares when prices are down) than to forever run to an overly-conservative portfolio for life. A few 30 year graphs of a stock index versus a less volatile index should make this clear if you think about buying some with each paycheck along the way.

Buy high, sell low is not a winning strategy.

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Old 02-12-2013, 09:29 AM   #5
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I'd Google "couch potato" funds and also research some balanced funds like Wellesley, decide what you like and then recreate the asset allocation with a mix of low cost Fidelity Spartan Funds.

Learning from the research and exercise of coming up with your own AA will be as valuable as any financial return you might get.
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Old 02-12-2013, 10:21 AM   #6
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Quote:
Originally Posted by ER Fireball View Post
....My older son had a decent start on contributing to a 401k, but got slammed in 2008, and got spooked out of the market. My goal is for an assortment of mutual funds that is growth oriented, but perhaps a bit more on the conservative side. I would like to see their accounts grow a bit before getting overly aggressive with a portion of the account.
Perhaps you can show what this fund would be today had he stayed the course. I can concede that the biggest investing mistake that I have made over the years is not following my AA (usually due to fear). An S&P 500 index fund wouldn't be a bad place to start.
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Old 02-12-2013, 01:14 PM   #7
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I started my kids with equal parts of oakbx, oakex, oakgx, and ryvfx, all NTF and $1k minimum in an IRA at Fidelity. A little bit of everything. If you don't want to go with the pure index or lazy portfolio that's one alternative. Oakbx in particular is fairly low volatility and suitable for conservative investors. The ER's aren't in index territory, but they aren't horrible.
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Old 02-12-2013, 03:20 PM   #8
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For ease of use for beginning investors, the target retirement funds might be good. But I have to go with Vanguard on this one, since VFFVX has an er of 0.18%, FDEEX has an er of 0.78%...

https://personal.vanguard.com/us/fun...FundIntExt=INT

https://fundresearch.fidelity.com/mu...mary/315793851
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Old 02-12-2013, 06:27 PM   #9
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I also agree with making this a teachable experience. I've been funding my son's Roth IRA for the past 3 years, as well as advising him on a taxable account funded from a graduation present and a small inheritance. After a couple years of basically managing it myself and trying to explain it while we were online at Vanguard, I realized the plan probably wasn't sinking in, so I put together a letter/document.

This document discusses the various types of investments: equities/bonds/cash instruments; individual stocks/bonds and mutual funds; indexed funds and managed funds; international and domestic; cap sizes; and a bit on things like real estate and REITs, precious metals, annuities, and insurance. Also account types such as 401K, IRA, Roth IRA, and taxable accounts, and ESPPs and pensions. Not that all of these will be available, nor should he invest in all, but I wanted to expose him to everything I could think of, then outline my investment advice. Finally I covered things like asset allocation and adjusting it for age, and of course living within or beneath his means.

With that, we discussed the advice and he agreed with it, and we set up his account based on that advice. He is in Vanguard like me so I can't give you the Fidelity equivalents, but we set up domestic and international total market index funds for the Roth, and a balanced stock/bond index for his taxable account. I've encouraged him to read and learn on his own and that he's free to come up with his own plans, but to be aware of expenses, and that with higher returns comes greater risk.

Another advantage to doing this is that if I'm unable to manage my finances, I told him I'd be very happy for him to manage it with those guidelines.

I had thought about creating a thread to discuss this and get advice, but ultimately decided it was personal enough to keep the details private, plus I didn't want to go off the rails with opinions on what to recommend. I also wanted to write it in a letter style that I figured he'd understand rather than an article style for the public.
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Old 02-12-2013, 10:41 PM   #10
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Both of our kids have Roth IRAs in Vanguard Target Date funds. DD is a little more conservative so hers is in 2040 rather than the age-appropriate fund. I'll also use this opportunity to brag on her since she works for a non-profit that doesn't pay her well enough for her to afford both a car and an apartment of her own (she chose the apartment and uses a bicycle and public transit to get around) and she is putting 10% of her meager paycheck into her Roth every month.

Everything we can do to get our kiddos investing for their retirement is a good thing. I'm so happy that so much of our LBYM / save for the future mentality seems to have rubbed off on the kids.
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