Emerging Markets Fund?

[fjammer22]

Hey guys,

This is my first post. Glad to be apart of this community! I am 19 and am invested in 4 individual stocks and I am in a bond index fund in my ROTH. I also have a little cash stashed away in a CD.

I have about $6k that I want to invest right now. Since I am so young I would like to take on some risk and was thinking about an emerging markets fund... Any recommendations on which funds or if I should steer away from EMFs and go in different direction?

Thanks in advance,

Tommy

 

[DblDoc]

Welcome and congratulations on getting started so early on your retirement plans. Before buying any VWO (my recommendation for an EM fund) I would suggest you sit on that money and invest some time in reading about investing. There is an excellent list of books, all of which should be available in your local library, here: Investment Books.

Also there is a very good thread here: http://www.early-retirement.org/forums/f28/asset-allocation-tutorial-31324.html

DD

 

[FUEGO]

Definitely figure out an asset allocation and then figure where emerging markets fits in your plan. I'm a young guy like you (well, under 30 anyway). So I have a larger than normal allocation to emerging markets and other "risky" asset classes since I figure I have longer to make up losses if things don't turn out well.

 

[armor99]

Just a healthy bit of advice about emerging market mutual funds. I have been in Vanguards VEIEX and another one that Morgan Stanley has. I do not remember the abbreviation of that one at the moment. At any rate... since roughly the beginning of the year... I got in slightly after that... both are up over 60%! Now I know that sounds great... and you want to get in on that. But I have got to tell you... it has me really nervous. Anything that goes up THAT much in such a short amount of time in my mind is definately heading for a fall. That sort of growth is completely un-sustainable.

Normally I never change anything more that once a year. I wound up chasing my tail in the past and loosing every time. However, I may have to break my rule this year and get out of emerging markets early. These are just my thoughts. Nothing really scientific to it....

 

[Midpack]

Hey guys,

This is my first post. Glad to be apart of this community! I am 19 and am invested in 4 individual stocks and I am in a bond index fund in my ROTH. I also have a little cash stashed away in a CD.

I have about $6k that I want to invest right now. Since I am so young I would like to take on some risk and was thinking about an emerging markets fund... Any recommendations on which funds or if I should steer away from EMFs and go in different direction?

Thanks in advance,

Tommy

Once you've figured out your asset allocation, if emerging markets make sense, start with Morningstar (online, at your library).

 

[fjammer22]

Thanks for all of your advice! As far as asset allocation, I had in mind 15% cash/cd, 15% bonds, 35% stocks, 35% some type of emerging market fund or etf...

 

[DblDoc]

Thanks for all of your advice! As far as asset allocation, I had in mind 15% cash/cd, 15% bonds, 35% stocks, 35% some type of emerging market fund or etf...

That would result in 50% of your stock portfolio invested in EM. Do you want that much risk?

DD

 

[LiveWell]

VWO is a good fund for emerging markets. If you're looking for an exchange traded fund then EEM is a good one. Both of these follow the MSCI Emerging Markets index and have very low management fees.

 

[FUEGO]

VWO is a good fund for emerging markets. If you're looking for an exchange traded fund then EEM is a good one. Both of these follow the MSCI Emerging Markets index and have very low management fees.

EEM has expense ratios of 0.72%. Not exactly "very low" management fees in my book when VWO can be had for a 0.2% expense ratio.

 

[W2R]

Just a healthy bit of advice about emerging market mutual funds. I have been in Vanguards VEIEX and another one that Morgan Stanley has. I do not remember the abbreviation of that one at the moment. At any rate... since roughly the beginning of the year... I got in slightly after that... both are up over 60%! Now I know that sounds great... and you want to get in on that. But I have got to tell you... it has me really nervous. Anything that goes up THAT much in such a short amount of time in my mind is definately heading for a fall. That sort of growth is completely un-sustainable.

Normally I never change anything more that once a year. I wound up chasing my tail in the past and loosing every time. However, I may have to break my rule this year and get out of emerging markets early. These are just my thoughts. Nothing really scientific to it....

And yet if you look at the 1-year performance for VEIEX here, for the year ending July 31st the returns were -16.96%. It actually went down so much before it went up, that 17 days ago it was still down almost 17% from its value a year prior to that.

VEIEX can be pretty volatile. But, if you have a long time horizon maybe that isn't an issue.

 

[Gotadimple]

And yet if you look at the 1-year performance for VEIEX here, for the year ending July 31st the returns were -16.96%. It actually went down so much before it went up, that 17 days ago it was still down almost 17% from its value a year prior to that.

VEIEX can be pretty volatile. But, if you have a long time horizon maybe that isn't an issue.

If emerging markets are a part of your asset allocation, it shouldn't be an issue. When its down other segments are up.

-- Rita

 

[fjammer22]

Does the VGTSX fund provide emerging markets exposure? Also, is there ETF equivalent to this fund?

 

[FUEGO]

Does the VGTSX fund provide emerging markets exposure? Also, is there ETF equivalent to this fund?

VGTSX does provide EM exposure. No ETF that is exactly the same as VGTSX, but they do have VEU which is their "Total World ex-US" fund. VGTSX is roughly 23% EM and the VEU etf is also roughly 23% EM.

 

[CuppaJoe]

Welcome, Tommy
I have no financial advice for you except to say this seems to be a good time to start.

Tell us more about yourself, are you retired yet?, working, college, etc. If working, when do you plan to pull the plug?

 

[fjammer22]

I am in college right now. Saved quite some money from waiting tables. Read a couple investment books, but still am not sure in what direction to head. Right now I am 57% cash. Yikes!

As far as retiring... I don't see myself ever completely retiring. I always gotta be doing something productive hah

 

[Gone4Good]

I am in college right now. Saved quite some money from waiting tables. Read a couple investment books, but still am not sure in what direction to head. Right now I am 57% cash. Yikes!

Based on the numbers you threw out, I don't think your cash balance is all that out of line. You should plan on keeping a pretty sizeable emergency cash fund. At least six months living expenses. That emergency fund may tilt you toward a more cash heavy asset allocation than would seem appropriate for your age, but I wouldn't skip it. It sure would suck to have to sell an EM fund down 40% because you needed to fix the transmission on your car.

As far as retiring... I don't see myself ever completely retiring. I always gotta be doing something productive hah

There is a strong possibility you will feel differently in 20 years.

PS . . . you are off to an incredible start financially. Well ahead of most of the rest of the population. Congratulations!

 

[fjammer22]

Based on the numbers you threw out, I don't think your cash balance is all that out of line. You should plan on keeping a pretty sizeable emergency cash fund. At least six months living expenses. That emergency fund may tilt you toward a more cash heavy asset allocation than would seem appropriate for your age, but I wouldn't skip it. It sure would suck to have to sell an EM fund down 40% because you needed to fix the transmission on your car.




There is a strong possibility you will feel differently in 20 years.

PS . . . you are off to an incredible start financially. Well ahead of most of the rest of the population. Congratulations!

Thanks for the advice.

That is a good point about keeping more emergency cash. Right now, my parents are paying for education and nearly everything. But in four years I am on my own. So I am trying to get nearly all that I have right now invested. Then, the money I make the next four years will be saved for emergency for when I got out of their umbrella.

Haha Yeah Im sure my perspective will change in 2 decades

 

[Gone4Good]

Four years is not a long time in the life of the markets. The S&P 500 is down ~30% from where it was nine years ago.

Think ahead to all the things you will want to spend money on once you graduate . . . a new car, a closet full of suits for that spiffy new job you just landed, security deposit and 1 month rent for a new apartment, furniture for said apartment, a summer (or longer) spent traveling around Europe, a wedding (who knows??) . . . keep that money in cash and/or bonds. Then invest the rest as aggressively as your risk tolerance allows.

Good luck.

 

[fjammer22]

When you say invest in bonds, do you recommend a bond fund or individual bonds or what?

Basically what is the relatively liquid investment that you would recommend that I could easily get out of in 4 years?

 

[Lusitan]

I am 19 and am invested in 4 individual stocks and I am in a bond index fund in my ROTH.

It just warms my heart to see a 19 year old posting in the Early Retirement forum.

Kudos to you for thinking so far ahead. I'd stick with index funds (e.g. Vanguard Emerging Markets Index) but that's just because I'm too lazy to pick stocks.

 

[In the Money]

When you say invest in bonds, do you recommend a bond fund or individual bonds or what?

Basically what is the relatively liquid investment that you would recommend that I could easily get out of in 4 years?

ETFs are pretty liquid and a good fit for you since you don't have that much money to invest. They give you some diversification. Since you are interested in EMs, like others suggested VWO is good. However, I agree with what many are saying to keep a good amount in cash in an emergency fund since you are still in college.

 

[PrivateCitizen]

fjammer22,

Your first fund purchase shouldn't be an EM fund. EM funds are typically not more than 5% to 20% of any portfolio.

I suggest you pick one or two "core" funds first. I also suggest you read the free articles on how to construct diversified mutual fund portfolios on morningstar.com, and where you'll learn about what "core" funds are.

$6k is not that much in the scheme of things, and you'll undoubtedly be ramping that money up over the decades as you continue to work and save, so start with the basics first: select great core mutual funds to anchor your portfolio. Don't feel rushed into buying an EM fund...you've got plenty of time on your side to buy on the dips which always come. EM funds are near all time highs right now so you'd be buying near the top anyway.