Foreign investments or not?

[fanfairs]

Okay I've been reading all the articles on this site.  Really really good I must say.  Now I have some questions.

After what I've read, I'm strongly reconsidering my decision to buy a house in a few years when I return to the States.  What John says about home ownership really makes sense to me.  I've had two houses in the past, one which I rented out.  It was quite the pain.  Don't think I'll ever do that again.  So I think I'm going to withdrawal my money out of the CD (losing only two months in interest) and invest it into index mutual funds.  That leads me to my question:  Which ones?

Many of the articles talk about diversification but also seem to be saying to stick with something as simple as just the Vanguard S&P 500 index fund or am I wrong?

Would investing in just the S&P fund be adequate for an investment under $100K or would this be too risky?  In the article:  "Asset Allocation for the Ages" [1998] it mentions a "... a balance in a diversified portfolio of domestic and foreign stocks."  But in the: "Invest for Retirement" [2001] article it mentions to avoid international investments all together.  That there is: "... little of investment interest outside of the United States."  Did something change between 1998 and 2001?

Is it good to invest in foreign investments or not really?

How can I figure out what mix of fund(s) would be appropriate for me?  Can anyone shed some light?

Natalie

 

[BigMoneyJim]

For a while I had nearly all my tax-deferred nest egg in the Vanguard 500 Index Fund (VFINX). I wanted some exposre to the smaller stocks, so now I'm adding to the Vanguard extended market fund (VEXMX, basically a representative sampling of all stocks except the S&P 500). I'm trying to build up the mix to match the total market, which you could also do by picking Vanguard's total market index fund (don't recall the symbol), but I don't have the total market fund available in my 401(k) so I have to mix the 500 and 'not 500' to emulate the total market. I'm satisfied that is enough equity diversity for me.

I heard some of the same advice you did about international investments, and for a while I had some money in an international fund. I pulled it out because 1: it was performing poorly and 2: I didn't understand it. I decided I'd better keep my money where I understand why and how it's invested. I still have a lot to learn about U.S. investments, so for now I'm quite happy having no international equity exposure.

The standard advice applies, of course, about a mix of equities, securities and cash equivalents based upon your investment time horizon. I'm assuming you've considered that.

 

[fanfairs]

Thanks for your input BigMoney. I currently have monies going into the Small-Cap Index fund and am wondering if I should also transfer that money into the Extended Market Fund (VEXMX). I never see the Small-Cap fund mentioned as an investment choice in anything I've read so far and that concerns me. Why??

 

[BigMoneyJim]

The best bit of advice I can offer is that if your money is safe where it is then take your time deciding where and why you want to move it.

I can tell you what I've done and what I think, but I'm no Peter Lynch or Warren Buffet or even John P. Greaney or Cap'n Bill. I am 33 and don't plan on withdrawing any of this money in the next 15 years; 10 if I'm really smart or lucky. Your timeline is probably different.

That said, I haven't looked in a while, but I suspect that VEXMX and the small cap fund are fairly similar in composition.

I don't recall reading about the small cap funds in particular, but I did read several opinions on including small cap stocks in a portfolio. If you haven't read about them yet, you will. The consensus seems to be that small caps and large caps can have different business cycles, so including both helps diversification, and that's why I decided to invest in some stock fund outside of the Index 500 fund (VFINX).

I don't clearly recall all the reasons for making my decisions, but I believe I went with VEXMX over the small cap index funds was because VEXMX had lower fees. But double-check that as I may be remembering wrong. It might also have been because I decided not to transfer existing funds and had restricted fund choices for my 401(k) contributions.