Would like Advice

[smooch]

I am impressed with the knowledge and experience on this board and I would like to ask some advice. I have the following funds in my current 403B:

FID BLUE CHIP GROWTH FBGRX 22K Expense ratio .68%
FID BLUE CHIP VALUE FBCVX 36K Expense ratio 1.17%
FID STR MDCAP VALUE FSMVX 36K Expense ratio .87%
FID VALUE STRATEGIES FSLSX 21K Expense ratio .87%

I have lost money on the FID BLUE CHIP GROWTH -.73% for 3 years, but I have read that Blue Chips are supposed to be good now and I have no idea if that is true. At this point, I would much rather put this into something that I am sure will have a positive return.

This is about 15% of our portfolio and I am contributing the max each year. I am 55 and my husband just turned 59.

The Vanguard Funds are also available in my 403B and I have been reading what you are saying about fees. Are there particular Vanguard Funds that you would recommend if I move this money?

 

[cute fuzzy bunny]

Whats your timeframe?

Whats your tolerance for volatility?

What are your short, intermediate and long term objectives?

What vanguard funds are available to you?

 

[wildcat]

Smooch,

Here is my take on your investments and this my opinion based on my education. I believe the ideal portfolio should be aimed at achieving a steady average return of 10%. Yes I think the days of 15-20% returns are long gone and we are back to the normal part of the cycle. By doing this you should be able to yield higher returns than a volatile portfolio with extreme "ups" and downs" over the long term. OK are you still with me b/c I promise I am getting to the point.

I believe the majority of people are either undiversified or overdiversified if that makes sense. I would say you fall in a little of both. You are overdiversified in US stocks and under in investments that are negatively correlated with US stocks. I will point out there are not many asset classes (maybe gold) out there that are perfectly negatively correlated with US stocks. How do you achieve the 10%? OK my point being is that you can be completely diversified with a few low-cost index funds (i.e. Vanguard). You are diluting your returns and increasing your expenses by holding 4 actively managed US stock funds all while lowering your chances of hitting the 10% rule. For example, foreign stocks have done well over the past few yrs and a little exposure in that area could have helped out. Go after a mix of index funds and other assets that are not correlated with the US market (your current funds may outpace each other but for the most part they will be up and down the same years). You could own every US stock that is traded with the Total Market Index, every international stock with the Total International Index, every REIT traded with the REIT Index and whatever Bond Index as well (and pay less than you are now in expenses). TH is right w/o more info its hard to tell how to exactly allocate your money but hopefully this will give you a start.

Hope this helps and gives you some ideas.

 

[smooch]

Thankyou both for your input. The rest of our portfolio is 50% stock (some international) and 50% bonds. We have some in the Calamos Convertible Fund. I think this portfolio is well diversified, but my current 403B is obviously not.

TH:
I do not intend to touch this money for at least 5 years. I don't want much risk - having lost half of my 403B in the tech bubble. I believe all of the Vanguard funds are available.

Wildcat:

How can I achieve a steady return of 10%? I would be thrilled with that. We are not getting that on our portfolio now. If we got that now we would be at about 1.5 million in 5 years. I am going to check out the fund types that you mention with Vanguard tonight.

 

[wildcat]

The steady 10% is no guarantee but you increase your chances by being diversified. The 10% is the average meaning you will have some periods where ylou are above (US stocks late 90's) and below (since 2000). That is the risk associated with holding stocks but what I am saying is that you have lowered the predictability of the 10% return by holding too many correlated assets, i.e. multiple US stocks funds. I think increasing the predictability of a steady 10% is the key and the "magic" behind diversification. Does that make sense?

 

[cute fuzzy bunny]

If your time frame is 5 years, and you have a low tolerance for risk, you might consider the vanguard target retirement income, target retirement 2005 or 2015, lifestrategy income or conservative growth, or the wellesley fund.

All have low expenses and a mix of stocks and bonds, mostly high quality bonds.

If thats too conservative, target retirement 2025 or 2035, lifestrategy growth or the Wellington fund are good picks, also inexpensive to own.

The lifestrategy funds own their mixes and dont make many changes to the holdings for the time you own them. The 'target retirement' funds start with a stated mix of stocks and bonds and slowly slides you out of stocks and into bonds. Hence the Target retirement 2015 fund when 2015 arrives will essentially look exactly like the target retirement 2005 fund does today, and a new 2065 fund will likely crop up at some point.

Wellesley is my core holding. Fairly decent returns, no huge losing years, never two down years in a row, any down years usually followed by a very good year, good income thrown off as dividends, very cheap for a solid actively managed fund...the others are index based. Wellington is run by the same active managers as wellesley with similar strategies, but more stocks than bonds whereas wellesley is more bonds than stocks.

Some divvy their money half to wellesley and half to wellington. I own a six figure chunk of wellington as well as my wellesley holdings.

Anything can happen, but in this investing environment, giving up a half point in expenses hamstrings you right out of the gate. Your current funds might just slap the skin off the ball in the next 5 years and these vanguard funds might stink up the place.

So if you want an actively managed fund thats cheap and has good performance, there are a pair for you. If you want an indexed fund with a mix of investments and want to control how and when the volatility/returns change, get lifestrategy funds. If you want indexing and complete no-brainer autopilot, go 'target retirement'.

Btw, I wouldnt count on 10% returns on a steady basis going forward. I would expect after expense, after inflation returns in the 5-8% range for a VERY aggressive portfolio with a lot of downside, and 3-4% for a moderately diversified portfolio. If you're lucky.

At current broad stock valuations and rising interest rate environment, we might see zero or negative returns for a very good period of time. Which makes keeping your expenses low even more important.

 

[unclemick]

Amen

I just finished refreshing my memory on VG Target 2015.

I'll second TH's post.

 

[smooch]

I have researched the Vanguard Funds that you suggested, TH. I'm thinking about splitting the money between the Wellington and the Target 2015. One more question - the VLIP Life Strategy Growth has an expense ratio of .81%. Why is it so much higher than the others?

 

[cute fuzzy bunny]

I'm seeing a .26% ratio for lifestrategy growth on vanguards site...where are you seeing the higher number? From your 403b's site? Sounds like they're looking to make some money off the transaction. All of these funds should be in the .20-.26% range.

Also note that wellington is a lot more aggressive than I thought you'd care for. You could easily see a double digit down period within 5 years with that fund. On the other hand, if stocks perform well, you will get more upside out of it that the others I mentioned.