How much in one fund before spreading out?

[Arifriekinel]

I'm keeping my IRA over at American Funds, but since there are such high fees on deposits, I've officially opened one over at Vanguard. I opened with $3k in their Dividend Growth fund, and I was wondering, how much should I put into one fund before moving on and opening up in another?

I know $3k is often the minimum, but should I have $5k in one before adding a second one on? $10k? Or is there just no right way to answer this?

 

[Midpack]

It's not a question of how many $ to put into given funds (as long as you meet the minimum), it's more a function of % allocated to each asset class IMO.

Depends on the funds to some extent. With index funds, most are already (almost) as diversified as the entire market/sector they're invested in, so there's no need to have more than one fund for each asset class you choose to include in your AA. Most lazy portfolios are invested this way holding as few as 3 funds and typically no more than a dozen or so, no matter how large the portfolio.

I have 19% of my portfolio in two funds, or 38% of my total, and I sleep like a baby. And I don't think it's worth owning anything that makes up less than 5% of my overall portfolio, anything smaller has no real impact good or bad.

If you're invested in (some) active funds, you might want more than one for each asset class to hedge a little, but I'd never hold more than 2 or 3 per asset class. And I'd likely be comfortable with just 1 fund - I'd not be afraid to own a huge chunk of Wellesley or Wellington for example, though I don't own either (yet).

Owning small chunks of lots of funds suggests no confidence in what you're choosing IMO. It's just owning everything hoping some will perform...that's not investing. If you're that unsure in your chosen funds, you should probably have core holdings like Total Stk Mkt, Total Bond Mkt & Total Intl Mkt to begin with.

You'll get other opinions I'm sure, but not likely from the Bogle, Bernstein, Burns, Ferri, Schultheis et all crowd. YMMV

 

[nun]

How much you put in each fund depends on your desired asset allocation. The percentage of your holdings in a fund is the thing you need to watch. Don't believe that you need to have a bit of cash in each fund. That's an error that many people make when faced with a large choice of funds that they don't really understand.

You could legitimately have 100% of your assets in a Target Retirement Date fund as it is a "fund of funds" and invests in several broadly invested underlying funds.

Many people use "Lazy Portfolios" with as few as 3 funds and maybe 33.33% in each one. As long as those funds are indexes they will be well diversified.

Some people like to "slice and dice" and have smaller percentages in more targeted funds so they can concentrate on sectors like small caps or value etc.

IMHO the target date or lazy portfolio approach is good for the beginning investor, and good for many experienced investors too.

 

[Animorph]

+1 to the above.

If you are just getting started on filling in your AA, go ahead and put the minimum in the funds you have selected just to get them all started. A couple of exceptions might be if one or more funds have a lot more or less in them according to your AA, or if there is a low balance fee you need to avoid. In that case concentrate on your core funds and add the others when the AA for them exceeds the minimum balance.

 

[Willers]

+2 to all above and an extra +1 for keeping positions above 5% minimum. Falling in love with every fund under the sun can result in nothing more than a very high maintenance, high cost index fund.

 

[Arifriekinel]

Thanks guys

It's a well-diversified fund, so I think I'll stick with it for my full $5,500 ROTH deposit this year, making it about 50% of my portfolio since I only opened my ROTH last year, and have $500 invested individually. I'm finding I have to relearn a lot of what I thought about the ways you invest in IRAs because my financial adviser had a funny way of doing things.

I hadn't really looked into it all, but he split me into the same three funds he had put my boyfriend in at American Funds starting in 2010. They're performing well, but he seemed to just be doing things in robot mode, giving a standard portfolio for anyone who comes in, and rattling off some reasons why that don't seem to make sense now that I'm trying to self-manage.

 

[photoguy]

Personally I would wait until my fund hit the minimum for admiral with lower ER (I think it's 10k) before adding another.

 

[nun]

I'm keeping my IRA over at American Funds, but since there are such high fees on deposits, I've officially opened one over at Vanguard. I opened with $3k in their Dividend Growth fund, and I was wondering, how much should I put into one fund before moving on and opening up in another?

I know $3k is often the minimum, but should I have $5k in one before adding a second one on? $10k? Or is there just no right way to answer this?

1) Decide on an asset allocation (AA) appropriate for your age and goals. If you are young and saving for retirement that might be 70/30. A rule of thumb is to have your age in bonds.
2) Roll your IRA over to Vanguard.
3) Set up you AA using Vanguard's core funds. You might do this over a period of time if you can't buy more than the minimum in each fund right away.

https://personal.vanguard.com/us/funds/vanguard/core

4) Invest automatically through payroll deduction in your 401k etc and also after tax.

5) Read this board and bogleheads.org so you can make educated decisions about your investments and allocations.

 

[Meadbh]

I second all the advice to follow the KISS principle (keep it simple, sister!). It's also very important not to waste money on unnecessarily high MERs. If I were the OP I would not be putting any more money into American Funds. If you can transfer your IRA in kind to Vanguard, do.

What impresses me is that a smart 19 year old wants to learn how to invest intelligently, is willing to pick the brains of old geezers, lives LBYM and is thinking long term. Kudos to you, Ari! You are on the right road to a secure financial future.

 

[Arifriekinel]

1) Decide on an asset allocation (AA) appropriate for your age and goals. If you are young and saving for retirement that might be 70/30. A rule of thumb is to have your age in bonds.
2) Roll your IRA over to Vanguard.
3) Set up you AA using Vanguard's core funds. You might do this over a period of time if you can't buy more than the minimum in each fund right away.

https://personal.vanguard.com/us/funds/vanguard/core

4) Invest automatically through payroll deduction in your 401k etc and also after tax.

5) Read this board and bogleheads.org so you can make educated decisions about your investments and allocations.

1- I'm definitely hoping to get into bonds as well, but I was thinking of getting a decent amount, at least $20k, into mutual funds first. Is that a bad idea? Should I start already with bonds?

2 - I like the portfolio I have over at American Funds. The large fees were on deposit from my financial adviser, but other than that, I was paying $10 in yearly fees. I do feel confident in the ones I'm in over there, and would like to keep them. If I roll over to Vangaurd, can I keep those same ones?

3- I didn't know about those core funds. Thank you! I bought the $3k minimum into VGDIX this year, so I can only put in $2,500 more, less then the minimum for any of those, so they will be my first buy in next year

4- I am self employed, so I don't have a 401k or payroll deductions. Clients pay me at various times per month, I get it all, and deal with the taxes later. I like it because I'm able to invest in my savings early in the year and get growth while paying taxes with the earnings we get around that time of year.

5- Planning on it!


Meadbh- Thanks! I think it's those compliments that are going to keep my motivated until I can count the years down a bit faster That and the fact that I do have fun managing funds. Boyfriend hates it, so I'm in charge of both of our finances, giving me more room to play

 

[Texas Proud]

Wow.... 19 and starting out investing.... good for you..


As to fees.... it is NOT the fees that they deduct that people are talking about.... it is the management fee that is taken out of earnings...

Go put in the fund ticker into one of the stock lookup sites and look for the annual expense ratio... here is an example...


Fees & Expenses ExpenseAMECXCategory
AvgAnnual Report Expense Ratio (net): 0.59%
Max 12b1 Fee: 0.24%
Max Front End Sales Load: 5.75%
3 Yr Expense Projection*: 753
5 Yr Expense Projection*: 885
10 Yr Expense Projection*: 1,270


The .59 is not bad, but there is a 12b1 fee.... NEVER be in a fund with this... also, Never be in a fund with a front end load...


As an example... some Vanguard or Fidelity expense ratios are .20 or less..


Here is one from Vanguard... Notice that you save over $1,000 over a 10 year period... per $10,000 invested!!!

Fees & ExpensesExpenseVTSMXCategory
AvgAnnual Report Expense Ratio (net):0.17%
Prospectus Net Expense Ratio:0.18%
3 Yr Expense Projection*: 58
5 Yr Expense Projection*: 101
10 Yr Expense Projection*: 230

 

[FUEGO]

OP, sounds like you are where I was when I decided to switch out of American Funds and a full service brokerage firm. I opened up an account at Vanguard and put my first $3000 into the Pacific Index Fund. Then when I had my next $3000 to invest I put it into something else. Rinse, repeat until I had the asset allocation I was aiming for. Then I could go back to adding money to each fund to keep my allocations where I wanted them. I think it took me a couple of years to get to the target allocation I was aiming for, $3000 per fund at a time.

 

[nun]

1- I'm definitely hoping to get into bonds as well, but I was thinking of getting a decent amount, at least $20k, into mutual funds first. Is that a bad idea? Should I start already with bonds?

You are young so there's no hurry to buy bonds. They provide a buffer against the fluctuations of the stock market and produce income which are more important for middle aged and older investors. Us the old "percentage of bonds is your age" rule.....so if you are 19 maybe go 20% Total Bond Index.

2 - I like the portfolio I have over at American Funds. The large fees were on deposit from my financial adviser, but other than that, I was paying $10 in yearly fees. I do feel confident in the ones I'm in over there, and would like to keep them. If I roll over to Vangaurd, can I keep those same ones?

You will be able to replicate pretty much the same portfolio at Vanguard and the fees you'll pay on each of those funds will be a fraction of what you are paying for the American Funds. People use Vanguard because of the low fees they charge, but if you open a brokerage account with them you can buy anything you want......but there'd be no reason to buy American funds when you can get the same investments for less money by using a Vanguard (or several other low cost firms). If you tell us what you own we can do a comparison.

3- I didn't know about those core funds. Thank you! I bought the $3k minimum into VGDIX this year, so I can only put in $2,500 more, less then the minimum for any of those, so they will be my first buy in next year

Those core funds are great low cost ways to invest with great diversity. Many people will just own those 4 core funds. There is nothing wrong with VGDIX, but it might not be the best for your circumstances. As it's name suggests it provides growth of capital, but also produces dividends. Those are usually more important for people later in life who want to generate income. If you hold that fund in a regular non-retirement account you might end up paying quite a bit of tax on the dividends.

4- I am self employed, so I don't have a 401k or payroll deductions. Clients pay me at various times per month, I get it all, and deal with the taxes later. I like it because I'm able to invest in my savings early in the year and get growth while paying taxes with the earnings we get around that time of year.

Have you looked into SEP-IRAs and Solo-401ks. These are great benefits of being self employed and allow you to invest up to $49k/year for retirement tax deferred. Vanguard can set these up for you.

5- Planning on it!

Excellent!

Meadbh- Thanks! I think it's those compliments that are going to keep my motivated until I can count the years down a bit faster That and the fact that I do have fun managing funds. Boyfriend hates it, so I'm in charge of both of our finances, giving me more room to play

Be careful you don't get "fund happy" and drawn into constant tweaking. When people start investing there is a temptation to look for the best returns and trade too much. You should be looking to set an AA and rebalance as the markets go up and down. Managing your investments should not take up a lot of your time, there are more important things to do, and as you get more experience you'll set up your investments so a lot of it is automatic and simple.

 

[Arifriekinel]

Thanks again guys, and yeah Fuego, sounds exactly like me

I've looked at the SEP-IRAs and solo-401ks, but not in too much detail. When I started my retirement accounts last year, it was recommended I max out my ROTH IRA first because I'm so young and in such a low tax bracket that having tax free growth would be a huge benefit to me.

Between maxing out both me and boyfriend's ROTHs and our emergency savings, we didn't have any left over to start a SEP yet, so I just decided to learn as much about what I'm currently able to invest in first, and then talk with MY CPA about how to format everything for a SEP, because the rules seem very complicated for the kind of salary we need to give ourselves as S-Corp owners and all that. It seemed best to get extra knowledgeable in what I'm already working on before loading my plate up too much.

At American Funds, after my initial funds and crunching that down to two I liked, I've got about $2.5k in Capitol Income Builder Class A and the same in New Economy Fund Class A.

Boyfriend's is AMCAP Fund (AMCPX), with $4k, EuroPacific Growth Fund (AEPGX) with $3k and SMALLCAP World Fund (SMCWX) with $3k.

When we open his Vanguard account next month, he's decided to choose one of the core funds you recommended.

Aside from that, just to create an overall financial picture, We've got $14k emergency savings, $3k cash, and $7k in a CD, along with the $10k in his ROTH, all at American Funds right now, and $8k in mine split between the Vanguard and American Funds.

What is the process when switching ROTHs over from one to the other, and how will it affect our funds?

Oh, and don't worry, I won't tweak I get really anxious when putting them in because I'm trying to put the money in and just forget it all.

 

[nun]

At American Funds, after my initial funds and crunching that down to two I liked, I've got about $2.5k in Capitol Income Builder Class A and the same in New Economy Fund Class A.

The question is why do you like these funds, why did you invest in them?

Capital Income Builder is a balanced fund with a front end load of 5.75% and an ER of 0.63%
Vanguard Wellington is a balanced fund with no front end load and an ER of 0.25%. Although you could use the core funds to better replicate the AA of the Capital Income Builder and pay even less fees.

New Economy fund has a front end load of 5.75% and ER of 0.87%, it concentrates on "new technologies" so it's hard to replicate it with a Vanguard fund as they don't slice and dice that much. But Vanguard Total Stock Market index would give you great stock diversification and has an ER 0f 0.05%

What is the process when switching ROTHs over from one to the other, and how will it affect our funds?

Oh, and don't worry, I won't tweak I get really anxious when putting them in because I'm trying to put the money in and just forget it all.

To transfer the ROTHs you just call up Vanguard and they will talk you through the whole process, it's easy.

If you have an AA and invest in inexpensive index funds it makes things simpler and a lot less worrying.

 

[Arifriekinel]

I invested in them at the recommendation of adviser and a bit of online research that showed pretty steady performance. The fees to invest up front were very high, the 5.75, but I didn't plan on putting any more money into them, just leaving them there to grow for the next 40 some years and starting fresh at Vanguard this year. The 5.75 I had to pay upon deposit is the main reason I am switching to Vanguard.

 

[nun]

I invested in them at the recommendation of adviser and a bit of online research that showed pretty steady performance. The fees to invest up front were very high, the 5.75, but I didn't plan on putting any more money into them, just leaving them there to grow for the next 40 some years and starting fresh at Vanguard this year. The 5.75 I had to pay upon deposit is the main reason I am switching to Vanguard.

Those initial fees are always to be avoided. Never buy a fund that charges you for the privilege of owning it, but I know you'll never do that again.

Also your reasons for buying the funds aren't really very convincing. You need to understand how the funds are invested and how they relate you your investing goals. For you those should be long term capital appreciation for your retirement funds and maybe capital preservation for short term funds that you might use for an emergency fund or to save for something like a house down payment. So for retirement you might have 60% US equity index fund, 20% international equity index and 20% total bond market index. Short term funds would be kept in a bank account checking or saving account or a short term bond fund.

 

[Mulligan]

How much you put in each fund depends on your desired asset allocation. The percentage of your holdings in a fund is the thing you need to watch. Don't believe that you need to have a bit of cash in each fund. That's an error that many people make when faced with a large choice of funds that they don't really understand.

You could legitimately have 100% of your assets in a Target Retirement Date fund as it is a "fund of funds" and invests in several broadly invested underlying funds.

Many people use "Lazy Portfolios" with as few as 3 funds and maybe 33.33% in each one. As long as those funds are indexes they will be well diversified.

Some people like to "slice and dice" and have smaller percentages in more targeted funds so they can concentrate on sectors like small caps or value etc.

IMHO the target date or lazy portfolio approach is good for the beginning investor, and good for many experienced investors too.

I am even "lazier". I have only 2 funds. Vanguard Total Stock and STAR. I love that what .08 annual fee Total has. Total Market gets my monthly contribution and STAR gets my yearly Roth contribution. I live off my pension though, so I don't need a comprehensive plan. This keeps it easy for me and I am buying the market and getting a little bond and international diversity in the STAR account. It probably doesn't matter though as I doubt if I ever touch a penny in them and probably just keep contributing until I die.

 

[LOL!]

BTW, one is allowed to transfer the money in the American Funds IRA to Vanguard. There appears to be no reason to continue to keep anything in American Funds. It is probably better to do this now before the amounts get larger and become stuck because of inertia.