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IRA allocation advice
Old 11-05-2007, 12:41 PM   #1
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IRA allocation advice

I found out that my GF (45 yo) has her IRA (traditional) 100% in EACFX There are all sorts of alarms going off for me... 100% in one fund, it's rated as "Low" risk yet has posted gains of around 11%...

What's more, it's through a company (I think Wachovia?) that charges here each time she even thinks about it. This came up when she mentioned wanting to deposit $4000 for this year's contribution, and I suggested that she break her contribution up throughout the year to take advantage of dollar-cost averaging.

I cannot help but think that there's somebody out there (Vanguard? Fidelity?) that will let her set up an account, make contributions without dinging her every time, and help with a much saner allocation than all in one pot. I'm with USAA, and so don't have to worry about such things, but she isn't.
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Old 11-05-2007, 01:22 PM   #2
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Heck yea. Get her outta there. Find out what fees she may get dinged with for moving, but it may be the cost of financial education. At the same time you can get her into something more diversified like a target retirement or lifestyle fund. Been there and done that with my (now) wife.
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Old 11-05-2007, 08:46 PM   #3
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Morningstar - EACFX - Expense ratio 2.07% "includes underwriting expenses"


YIKES - what does that mean?
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Old 11-06-2007, 08:03 AM   #4
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Quote:
Originally Posted by jnojr View Post
I found out that my GF (45 yo) has her IRA (traditional) 100% in EACFX There are all sorts of alarms going off for me... 100% in one fund, it's rated as "Low" risk yet has posted gains of around 11%...

What's more, it's through a company (I think Wachovia?) that charges here each time she even thinks about it. This came up when she mentioned wanting to deposit $4000 for this year's contribution, and I suggested that she break her contribution up throughout the year to take advantage of dollar-cost averaging.

I cannot help but think that there's somebody out there (Vanguard? Fidelity?) that will let her set up an account, make contributions without dinging her every time, and help with a much saner allocation than all in one pot. I'm with USAA, and so don't have to worry about such things, but she isn't.
This is a fund of funds. I own one fund of funds as well. RPSIX: Holdings for T ROWE PRICE SPECTRUM INCOME FD - Yahoo! Finance.

Here are yahoo holdings from OP's link above. This fund is highly diversified.
GMO Strategic Fixed Income VIN/A18.78N/AGMO International Core Equity VIN/A16.36N/AGMO Inflation Indexed Plus Bond VIN/A10.68N/AGMO U.S. Quality Equity VIN/A8.93N/AGMO International Growth Equity IVN/A8.35N/AGMO Intl Intrinsic Value IVN/A8.33N/AGMO Alpha Only IVN/A6.96N/AGMO Core Plus Bond IVN/A5.54N/AGMO Emerging Markets VIN/A5.14N/AGMO Emerging Markets Quality VIN/A4.12N/A
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Old 11-06-2007, 10:58 AM   #5
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This came up when she mentioned wanting to deposit $4000 for this year's contribution, and I suggested that she break her contribution up throughout the year to take advantage of dollar-cost averaging.
May want to look into this "dollar-cost averaging" thing a bit more. There's some discussion out there which shows it may be more advantageous to invest lump-sums instead of DCA. Those discussions also point out the primary point of DCA is not to take advantage of ups and downs, but rather, to take advantage of the fact that for most people to really benefit from investing they need to be able to do it in smaller amounts.
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Old 11-06-2007, 11:00 AM   #6
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May want to look into this "dollar-cost averaging" thing a bit more. There's some discussion out there which shows it may be more advantageous to invest lump-sums instead of DCA. Those discussions also point out the primary point of DCA is not to take advantage of ups and downs, but rather, to take advantage of the fact that for most people to really benefit from investing they need to be able to do it in smaller amounts.
DCA reduces risk, but it's very possible it also reduces returns.

I DCA into my 401k to maximize my match and because that is the way a payroll plan is set up.
My IRA gets maxed as early in the year as possible to let compounding do it's thing.
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Old 11-06-2007, 12:09 PM   #7
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So the good news is that as a fund of funds it is diversified, however the expenses are very high. She can easily open an IRA account at Vanguard/Fidelity and start investing there as well as transfer her current IRA to them - there may be charges involved but better to do it sooner rather then later.

Just to clarify:

DCA is when you have a lump sum to invest and choose to do so over time rather then as a one time investment. It reduces risk but given that the market, in general and over time, rises your return willl likely be less. This is an emotional decision - will you sleep better testing the waters with small amounts or roll the dice and go banco and risk a falling market right after.

Periodic Investing is what we do with our pay checks each month when allocating a portion to go into our 401k/IRA plans.

DD
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Old 11-06-2007, 12:19 PM   #8
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EACFX is an asset allocation fund with about 65% stocks (per Morningstar). That may be an appropriate allocation for her, but even if it is that total expense ratio of 2.07% is absurd. Vanguard Wellington has a similar allocation with an 0.30% expense ratio. I'm sure other funds with similar allocations are available with considerably less than 1%, assuming there's not yet enough in the account to "homebrew" an appropriate allocation with index funds and/or ETFs.
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