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Old 06-07-2007, 08:40 PM   #1
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Safe Investing

How about Index funds? I am thinking of putting 175K in for the long term 10+years. any thoughts or advice? I am thinking of vanguard or fidelity.
this is money for late life since my wife and I are only 54.
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Old 06-07-2007, 09:08 PM   #2
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I wouldn't call index funds "safe". With index funds, you don't have to deal with fund manager risk, it's true, but there are still plenty of risk associated with them (meaning you can still lose a lot of money if the corresponding index tanks!). But there are definite advantages to invest in index funds (low costs being one of them). What kind of index fund were you thinking about? I invest with VG and own VTSMX and VGTSX.
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Old 06-07-2007, 09:37 PM   #3
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I am looking for a good asset allocation. since this is long term money it can be in risky funds. I took a look at the lazy portfolios with vanguard funds and like the 9 fund one. I want to be diversified enough so that I will be covered no matter what happens.
Bob
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Old 06-07-2007, 09:53 PM   #4
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The biggest thing to determine is the stock/bond ratio... like 50/50 or 60/40 or whatever.

That'll determine the majority of volatility and/or return.

I'm a big fan of index funds for the long term. Diversification is good! Index funds do keep costs low. Vanguard or Fido are good choices. You're on the right track as far as using a lazy portfolio. I see no problem with using the 9-fund in this link.

Just as long as you realize it's not foolproof like FIREdreamer says. If one of 'em tanks, you still might lose money short-term. Or if they all turn out to be at their peak these days... yadda yadda. I would think after 10+ years you'd be better off, but you just never know.

Good luck.

-CC
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Old 06-07-2007, 09:58 PM   #5
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What about VTSMX + VGTSX + VBMFX? I think it's a good start. Such a portfolio would cover the whole US stock Market, the whole international stock market and the whole bond market. You can always add a few more funds such as the REIT index for diversification purposes or to tilt your portfolio any which way you want. But for the core of your portfolio I would stick with those three.
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Old 06-07-2007, 10:02 PM   #6
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I would agree with those three, too. And you can get as complicated as you want from there.

Total Stock Market
Total International
Total Bond Market

The 3 funds makes it easier to rebalance, less monitoring, etc.

-CC
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Old 06-07-2007, 10:22 PM   #7
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Or look at Target Retirement funds, e.g. 2015 or 2020 if you want simple and diversified.
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Old 06-07-2007, 10:46 PM   #8
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A good Target Retirement fund is a great choice, it is the core of my portfolio. A lazy approach or the 9 fund system is excellent. What I think people are warning about is the market can still go down overall for quite a while. Usually 10 years is enough to get past a recession or two but there is still the remote chance of a long, Japan like down market, something like 14 years, I think. So it is still possible to lose money just not very likely. Not likely enough by my calculations that I have my money there, just no certainty.
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Old 06-07-2007, 11:13 PM   #9
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The reason I warned the OP about index funds, is because in the past 2 months I had two people tell me they read somewhere (in some sort of newsletter for retirees) that using index funds was the safest way to invest. They misunderstood what the author meant by "safe". They thought you couldn't lose money with index funds. One of those people was my MIL (She just got divorced and was asking for my help to deal with her investments). She was under the impression, after reading the article, that she could not lose money investing in index funds (which, over a long enough period of time, is probably true). I had to explain that it might not be necessarily the case. Once she understood the risk, she still wanted to invest in index funds so I invested her money in the VG target retirement 2015. But even now she behaves like it's a money market account with a 8% APR or something.
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Old 06-07-2007, 11:16 PM   #10
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The above suggestions look good to me.

You have a good chance of coming out ahead after ten years, but..."Things are hard to predict, especially about the future."
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Old 06-08-2007, 03:07 AM   #11
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Need a little more info. It would help if we knew a little about how much risk you are willing to take/growth expectations. Plus a little more info about the time/age you intend to begin the draw down (for example age 75).

I would strongly recommend the use VG (or some other reputable MF) for low cost.

Consider a balanced managed fund. You could consider using the target retirement fund.
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Old 06-08-2007, 07:48 AM   #12
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If the money is going to be invested in a taxable account and not used for 10+ years, then a target retirement or balanced fund is not a good idea. The reason is that the income generated by those funds gets taxed as ordinary income.

Now you may wish to have the $175K invested so that you have 50% in equity funds (say index funds split between large cap, small cap, foreign, etc) and 50% in fixed income funds (intermediate bond, TIPS, GNMA, money market). But if you do that see if you can get the fixed income side of things in an IRA or 401K.

As an example, supposed you $80K in an IRA in the S&P500 index fund. You could exchange that $80K into a bond fund and buy $80K of an S&P500 index fund with your taxable money. That still leaves you with $80K of S&P500, but a nice $80K earning dividends tax-deferred in your new bond funds in your IRA. You could then purchase $80K of a foreign index fund in you taxable account. So now your taxable account has $160K of index funds and your IRA has $80K of bond funds.

So think a little bit about taxes when you do this investing. Think alot about asset allocation and which kinds of assets to have in which accounts. I would be advising something different if you needed income now to live off of.

For more help on this kind of stuff, I have found the Diehards board immensely helpful. The folks there give the absolute best free personal asset allocation advice on the web.
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Old 06-08-2007, 01:27 PM   #13
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Quote:
Originally Posted by rpow53 View Post
How about Index funds? I am thinking of putting 175K in for the long term 10+years. any thoughts or advice? I am thinking of vanguard or fidelity.
this is money for late life since my wife and I are only 54.
In many cases indexes will have more risk than a managed fund investing in similar stocks.

The index fund will have lower fees, and probably go up higher on the top side... but the managed funds will not go as low- managers often have the freedom to not be fully invested in down markets.

It also depends if the money you are putting in is going into an IRA/401k or in a taxable account. Index funds are good for a taxable account, but in tax advantaged accounts, keep an open mind.

I like PRFDX (T Rowe Equity Income) for my Roth. It has solid long term performance, it's fund manager has been there for YEARs, and T Rowe does not turn over fund managers very often anyway...

If you look at how PRFDX did when S&P went down 2000-2002, that is what I like (downside protection). The index did go higher when it went up...

The allocation (stocks/bonds) will have a much higher impact on performance than index/managed.
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