31 Y/O and over Ind. stocks - ready to simplify

[moneymaker]

Hi all,

Alright, I've always been very interested in the markets, but am OVER investing in individual companies and ready to simplify. Basically, I've been investing since 2007, am 31 y/o, married, 2 young girls (4 and 1) and what I've found is that my individual stock picking has seriously lagged the overall markets and big mutual funds, so why am I wasting all this time for lower than market returns.

Anyway, I'd like some advice. I do have a few funds at Vanguard: Wellington and Dividend Growth. I also have a few at Fidelity (which is where my brokerage accounts are with: Fidelity total stock market, Leveraged stock and low priced stock.

I have approx. 165k between both accounts. I would like to pick 5-10 funds that offer exposure across all spectrums - maybe large cap, mid, and small....not sure. I'd like to get some advice from the group. Should I just drop everything between a total market index like the one I have at fidelity, wellington and dividend growth. I'm also interested in a few of the small cap (explorer), mid cap growth and large cap (morgan growth). I wanted to get your perspectives about some of the other vanguard funds besides wellington or total market.

As always, thanks for the advice!

 

[growing_older]

Your request to get funds in so many asset classes and combinations may mean that you are not as much over with individual stocks as you say you are. Try investigating the "three fund" portfolio or "couch potato portfolio" and see what you think of those.

A broad market index, an international index and a bond index should be sufficient. You don't have to do all that slicing and dicing to get tweaks to the basic plan. If you do still like the ideas of fiddling with other than basic asset classes, you might investigate William Bernstein books.

 

[karluk]

Your request to get funds in so many asset classes and combinations may mean that you are not as much over with individual stocks as you say you are. Try investigating the "three fund" portfolio or "couch potato portfolio" and see what you think of those.

+1 Either you are trying to simplify or secretly still believe you can outperform the market and are just taking another tack to achieve this outperformance.

If the purpose really is to simplify your portfolio and ensure market-matching returns, all you need is a total stock market fund, total bond fund, and total international stock fund.

If you are posting in an attempt to get recommendations about which mutual funds will outperform the market in the future, well my crystal ball has just fogged up. I'll have to get back to you later.

 

[Ready]

+1 Either you are trying to simplify or secretly still believe you can outperform the market and are just taking another tack to achieve this outperformance.

If the purpose really is to simplify your portfolio and ensure market-matching returns, all you need is a total stock market fund, total bond fund, and total international stock fund.

If you are posting in an attempt to get recommendations about which mutual funds will outperform the market in the future, well my crystal ball has just fogged up. I'll have to get back to you later.

+2

Those three funds are all you really need to own the entire market. Anything else puts you into actively managed funds, where the performance must beat the index enough to justify the extra fees. Good luck guessing which of the thousands of funds out there might do that. And don't bother looking at past performance. Funds that outperformed the index over the past decade are likely to underperform in the future, based on the theory of reversion to the mean.

 

[Major Tom]

I'll add something to what has been said above. If you do end up switching over to a simple portfolio consisting of just a few index funds, you may have to fight the urge to keep making small adjustments to your portfolio. Other than very occasional re-balancing, managing such a portfolio takes very little work - so little, in fact, that you could well be tempted to change your allocations every now and again in order to "jump start the process."

If the above strikes a chord, how about earmarking a very small part of your portfolio for individual stocks? If, after a few more years, that part is still lagging the indices, that may be all the evidence you need to completely give up the individual equity habit, and you won't have lost much. Please note that I'm not suggesting no-one should hold individual stocks but as you have been honest enough to admit that your portfolio has lagged the markets, you may well be one of those people (like myself) who would do better with a more passive approach. One of the main rules of this kind of passive index fund investing seems to be "Don't just do something - sit there!"

Afraid I can't comment much on particular funds, as, apart from a small (<3%) piece of my portfolio that is in GOOG, BIDU and RAX, all I own is -

Vanguard Total Stock Market Index (VTSAX)
Vanguard Total International Stock Index (VTIAX) and
Vanguard Total Bond Market Index (VBTLX)

I like not having to actively manage my holdings. I don't even have a hard and fast rule about re-balancing, other than to do it when the portfolio gets way out of whack. For my purposes, I define "way out of whack" as somewhere between 5 and 10%.

 

[REWahoo]

If the above strikes a chord, how about earmarking a very small part of your portfolio for individual stocks?

Unclemick refers to this as "testosterone money".

Makes sense to me. I will admit to allocating ~3% of our funds to scratch my occasional individual stock investing itch. Seems to do the trick.

 

[Animorph]

What you are talking about is "slice and dice". A good example would be Merriman's recommendations.

http://www.merriman.com/PDFs/UltimateBuyAndHold.pdf

This is roughly what I have. They may even have a suggested Vanguard portfolio somewhere. I switched from individual stocks once I wanted to go international, even though my stocks were doing fine.

 

[Sue J]

+1 Either you are trying to simplify or secretly still believe you can outperform the market and are just taking another tack to achieve this outperformance.

If the purpose really is to simplify your portfolio and ensure market-matching returns, all you need is a total stock market fund, total bond fund, and total international stock fund.

If you are posting in an attempt to get recommendations about which mutual funds will outperform the market in the future, well my crystal ball has just fogged up. I'll have to get back to you later.

I'll add something to what has been said above. If you do end up switching over to a simple portfolio consisting of just a few index funds, you may have to fight the urge to keep making small adjustments to your portfolio. Other than very occasional re-balancing, managing such a portfolio takes very little work - so little, in fact, that you could well be tempted to change your allocations every now and again in order to "jump start the process."

If the above strikes a chord, how about earmarking a very small part of your portfolio for individual stocks? If, after a few more years, that part is still lagging the indices, that may be all the evidence you need to completely give up the individual equity habit, and you won't have lost much. Please note that I'm not suggesting no-one should hold individual stocks but as you have been honest enough to admit that your portfolio has lagged the markets, you may well be one of those people (like myself) who would do better with a more passive approach. One of the main rules of this kind of passive index fund investing seems to be "Don't just do something - sit there!"

Afraid I can't comment much on particular funds, as, apart from a small (<3%) piece of my portfolio that is in GOOG, BIDU and RAX, all I own is -

Vanguard Total Stock Market Index (VTSAX)
Vanguard Total International Stock Index (VTIAX) and
Vanguard Total Bond Market Index (VBTLX)

I like not having to actively manage my holdings. I don't even have a hard and fast rule about re-balancing, other than to do it when the portfolio gets way out of whack. For my purposes, I define "way out of whack" as somewhere between 5 and 10%.

I am a totally unsophisticated investor. My son recommended Vanguard's Life Strategy Funds which are based on -

Vanguard Total Stock Market Index
Vanguard Total International Stock Index
Vanguard Total Bond Market II Index
Vanguard Total International Bond Index

There are four Life Strategy Funds and the difference is in their stock/bond ratios from those four index funds.

LifeStrategy Income Fund 20/80
LifeStrategy Conservative Growth Fund 40/60
LifeStrategy Moderate Growth 60/40
LifeStrategy Growth Fund 80/20

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/holdings/0122

Scroll down for more details on each fund and click Holdings and Management for the percentages ratios in each one.

The name LifeStrategy sounds like it might be a target retirement fund but it's not. Just a nice simple way to invest in the big indexes.

 

[growing_older]

I'm not convinced about the value of International Bonds. It just seems like bonds with currency risk on top of it. Is there a good reason to add them? Do they not correlate with total bond market in some way other than currency issues?

 

[Sue J]

I went for the Growth Fund that has the smallest percentage of International Bond index, 4%.