Recommended Low Cost Index Fund

[Tommy_Dolitte]

Before I go Morningstaring and Bogle-ing....any thoughts?

TD

I use Vanguard Funds, as do most of the posters here.

[mickeyd]

There are thousands of index funds, both stock and bond, so it is real difficult to make a suggestion especially since I do not know what your AA is or if the fund will be tax-deferred or not. *

That being said, it is hard to argue with the Vanguard Total Stock Market Index fund as the basis for any investment program. Low cost (.20%ER) and well diversified (Wilshire 5000).

[unclemick]

Why do you want one? What's the purpose the fund is supposed to accomplish? One fund to do all things/taxable/tax deferred/tax managed/part of a multi asset class set/what kind ot SD, R squared/ correlation with other assets are you looking for?

In short - Buy the Vanguard Target Retirement Series appropriate for your age - put every nickel you got into it - and go fishing - never ever listen to investment advice, read any books, or even watch your investment. When it's time to ER, call up Vanguard and arrange an autodeduct to your checking/savings.

It's that simple. Unfortunately, if your male, biology prevents you from doing that. There is no cure.

Perhaps the best you can manage is to benchmark a balanced index and try and beat it. I used Lifestrategy (quasi 60/40) - the Target Retirement Series is the new kid on the block.

Unclemick speaks with great wisdom

If only I would would have listened to his advice 25 years ago.

[Tommy_Dolitte]

Unclemick and others --

I'm targeting retirement between 39-42 (currently 28), are you really saying it's that simple? :-/

Pardon the questioning, but your posts are so simple that they remind me of how I respond to things when I KNOW what I'm talking about!

It's funny how I always say--"Nothing is complex, we choose to make it that way---once you understand the algorithm--VIOLA!"

WHY IS IT TAKING ME SO DAMN LONG TO GET IT!!!

I'm an obsessed with making sure I "optimize" everything...when it looks like that effort may be fruitless @ the end of the day....

Comments?

*researching Unclemick's advice...co-signed by Cut Throat*

[ats5g]

Tommy,

You can optimize all you want, but there are a whole lot of unknowns. For example, future returns of various asset classes, future volatility, future correlations b/w asset classes. Changing one of these, even slightly, can vastly change an optimized allocation. Roger Gibson's book, Asset Allocation, has a good chapter on issues with optimization. The best you can do is ballpark things, and say something like "I can probably retire in 10-15 years". You have to be flexible.

The whole purpose of an AA, or an Investment Policy Statement (IPS), is to keep you from falling into behavioral traps. A good reference for this is the book "Why Smart People Make Big Money Mistakes", and Terrance Odean's website, including the streaming video(s) and "Boys will be boys". It is apparently totally natural for males, especially single males, to try and squeeze every last bit out of their returns. Unfortunately, we end up shooting ourselves in the foot a lot of the time. We do things like see patterns where there aren't any, get caught up in "anchoring" [feel too attached to our current holdings], and don't give things that are mostly chance their just due. That's why a balanced portfolio of stocks and bonds, even at a young age can be beneficial. Check out Peter Bernstein's The 60/40 Solution.

Yet another problem with being diversified is that you'll always want to be owning the stuff that's doing the best. Resist this urge at all times!! See, The Loneliness of the Long Distance Asset Allocator. Just keep repeating, "I'm selling as expected returns go down, and buying as they go up."

The vast majority of your portfolios value, when you're young and don't have a lot of money [relatively], is your contributions. It isn't until you've quite a bit of money that your return (positive, or negative) starts to dominate your portfolios value. I agree with unclemick that the target retirement or life strategy funds are excellent for young men like you and me. You want to add REITs, fine add 10%. You want a value tilt, fine add some Wellington.

- Alec

[Tommy_Dolitte]

Thanks Alec. I appreciate the candor. Very well put.

I actually did some research on the Vanguard site and came to the conclusion that the REIT fund and the Target 2045 fund would suit me just fine!

I'll continue to max the Roth/401-K and open these accounts.

TD

[Tommy_Dolitte]

Okay..been doing some "research" for a few hours. * Need insight from the wise counsel on this one! *

1. *Is this too many funds? (8)
2. *How do I assess if there is redundancy?
3. *Is spending time on how to allocate a fruitful exercise?

Vanguard Energy Fund Investor Shares (VGENX)
Vanguard REIT Index Fund Investor Shares (VGSIX)
Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
Vanguard Long-Term Bond Index Fund (VBLTX)
Vanguard Small-Cap Index Fund Investor Shares (NAESX)
Vanguard 500 Index Fund Investor Shares (VFINX)
Vanguard Long-Term Bond Index Fund (VBLTX)
Vanguard Target Retirement 2025


Thanks,
TD *

[unclemick]

TD

I spent at least 25 years in the 'school of hard knocks' before I got it. Even today, I have 40 DRIP stocks trying to best my balanced index portfolio.

I repeat - if you are male - it is incurable - the best you can do is compensate.

[ShokWaveRider]

Does Vanguard have a Utilities fund? Not the Energy Investor Fund. One that contains Utility companies.

SWR

[WilliamG]

SWR - Vanguard used to have a utility fund but they converted it (in past year or so) to Dividend Growth Fund to diversify sectors.... Bill

[cute fuzzy bunny]

Yeah they do that a lot lately.

I wonder if anyone has ever told them that perhaps the reason why their customers wanted to buy a utility fund was because they wanted to own utilities?

I've seen them do this with the "energy" fund, the "precious metals" and lately with the corporate bond funds.

Pretty much forcing the customer to either sell off and take a gain they dont want, or be stuck with a "broader set of asset classes" than they wanted to buy in the first place.

Why the hell dont they just start a new fund with the different objective and leave the original fund to its original asset direction?

[Nords]

... Fidelity just dropped a few of their index fund ERs to 0.10%. That's right, lower than Vanguard's costs.

Sounds like Abby's carrying a little testosterone of her own. Let the price wars begin!

http://www.reuters.com/printerFriend...toryID=6115440

[ats5g]

Hey Gang,

Actually, Vanguard does still have pure utilities funds, but you have be able to use the admiral index shares, or use their ETFs:

Vanguard Utilities Index Adm - VUIAX
Vanguard Utilities VIPERs - VPU

Tommy,

The whole idea of using the Target Retirement or Life Strategy funds is that you'll only use one or two funds total (like unclemick - LS + REIT). Combining a TR fund with numerous other funds just makes things more complicated b/c you have to constantly decifier how much of your total portfolio is in each asset class (US stock, int'l stocks, bonds) of the TR fund, and then add those %'s to the other funds. If you want to slice and dice more, for whatever reason, it'd probably be wiser to use all individual funds.

TR and LS funds are also very good for those who will get hit with the extra low balance fees and per fund fees b/c they only have a small amount of money (hint: people just started saving). If you do have enough money to avoid Vanguard's fees, and you want say more int'l, or more small cap, or more value, or other asset classes, than the TR or LS funds, I'd just forgo them.

- Alec

[BigMoneyJim]

After hearing about Lifestrategy and Target Retirement 20xx so much I finally decided to start learning about them. I was nearly decided on TR2025 or TR2035, but they plan to hit "Target Retirement Income"s mix in their target years, and that's way more conservative than I want.

Now I'm looking closely at Lifestrategy Moderate Growth which targets a 60/40 stock/bond mix which is the mix I've been pondering for at least a couple of months. (I'm currently at 80/20; a year ago I was 100/0. The change is an evolution in my long term strategy and not a reaction to markets.)

I think I like the 10% Total International component (got out of international for a while but think I'm ready to toe back in for diversification), but I'm not fond of the 25% Asset Allocation Fund.

My current strategy is to avoid any moves based on market levels (possible exception to rebalance after a major dip in one asset class) and maintain a relatively consistent asset mix throughout accumulation and into retirement. (This strategy evolved from my previous strategy where I was going to have a very high stock allocation gradually decreasing towards and into retirement. My thinking now is that I'll rely on my current and future savings, time in market and diversification and let it all ride.)

My current holdings are quite similar in nature to Lifestrategy Moderate Growth. So it seems like a natural fit, and I like the built-in rebalancing. 1/4 of my assets are in my 401(k) where I don't have this fund as an option, so I can tune my overall allocation using my 401(k) funds.

So I have a couple of questions. First, is Lifestrategy Moderate Growth going to change on me like the Target Retirement 20xx series? Can they mess around with the funds they hold or drastically change their percentages?

Second, is there a disadvantage using Lifestrategy with respect to Admiral shares? (I don't have enough to get Admiral shares yet, but I will someday.)

Third, what do you think about the Asset Allocation fund which makes up 25% of the holdings? It looks like a bit of a wildcard to me; on the other hand it's fairly cheap for a managed fund.

If I can feel confident Lifestrategy won't change up their holdings on me and decide I can stomach the Asset Allocation Fund I'll probably convert my entire IRA (3/4 of my assets) to this fund and forget about it for 15 or 20 years. I'll probably also use my 401(k) to increase my overall allocation of small caps and tune bonds down closer to 30%.

(My current holdings are Vanguard Index 500, Extended Mkt Index (whole market minus 500) and Total Bond Index. Currently the first two are in proportion to market; it's this way instead of the total market index due to fund availability at the time I made the contributions. I'll use the Extended Mkt Index to increase my exposure to small/mid caps.)

[BigMoneyJim]

Oh, and while we're at it, what do y'all think of Wellington? My 401(k) (currently 1/4 of my savings and where my current contributions are going) doesn't have Lifestrategy available, but it does have Wellington. I'm wary of active management and higher fees, but it seems quite similar in spirit to Lifestrategy Moderate Growth and has built-in rebalancing.

Besides the part of the 401(k) used to tweak my asset mix I can either keep my current mix (Index 500, Extended Mkt Index and Total Bond Mkt Index) or stuff it in Wellington and forget it.

(I thought I was being on topic in this thread, but I notice it's titled "Index" funds...oops.)

[unclemick]

Wellington is the one fund I have liked for a long time but never owned (did own Wellesley).

Our core (me, SO, Mom) has been Lifestrategy mod, cons, income for about 9+ years. 70-75% of all portfolio's.

The Asset Allocation component bugged me too - but I've learned to ignore it. I deliberately try to avoid to avoid poking toooo deep into that quant stuff - might be addicting to a former engineer. After expenses they still have a slightly positive alpha - 1+ % - but I have faith (like Bogle) their numbers will fall to wrong side sooner or later - hopefully not too badly.

Any wise that's our core -fire and forget position (ala De Gaul) - complete with AA fund warts. Plan to manually shift to more conservative when I get really old.

With discipline you can do the same thing manually with the component Vanguard Index funds. I like the part where the computers rebalance regardless of MY emotions/discipline/brain pharts.

Heh,heh - still have 15% mad money for dividends, putzing, etc.

[charlie]

BMJ,

I like both Wellington and Life Strategy Mod. Wellington
has a slightly higher ER .... 0.36% vs. 0.28% but has
a slightly better 1,3,5 and 10 year track record.
Wellington leans to large cap value, which is a plus IMHO.

As for the Asset Allocation fund, it has captured over
90% of the Index 500 with only 70% of the volatility
over the last 15 years. I have been toying with the
idea of using it instead of Index 500 in my "coffeehouse"
IRA. The bond component of AA is Long Term Corporate, which bothers me a little ... I prefer shorter
duration at present.

Cheers,

Charlie

[cute fuzzy bunny]

I took a position in wellington and i'm going to slowly shift some of my wellesley holdings over towards that. Not right now though, we've had a bit of a runup.

The management costs are cheap. Considering dodge and cox gets .54% on dodbx. A few microdollars here and there dont matter as much...at least they arent charging 1-2%!!!