Young poker players and their winnings?

[jively]

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15% US Total Stock Market Index
15% US Large Cap Value Index
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So let say I have 100k to invest every year. Do I keep putting 15k in US Total Stock Market Index, 15k in US Large Cap Value Index etc. every year for the next 20 years? The reason I am asking this because I do not get the idea of asset allocation.

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No, not exactly. The best thing to do is to determine the exact allocation that you want, and then to keep that allocation for many years. Any time you add or remove money from a portfolio, or every year or so if there are no cash flows, you want to do a portfolio rebalance. That means that when you are done, you want the proportions of the funds to be exactly right.

Let's say you put in $100K the first year, and after a year, the portfolio has grown to $110K, a gain of 10%. You are adding $100K for the second year. When you are done, you'll have $210K in your portfolio. So, you'll want 15% of $210K, or $31,500 in US Total Stock Market Index, $31,500 in US Large Cap Value Index, and so on.

Each of the funds had a different performance in the first year. You started with $15,000 in US Total Stock Market Index, and let's say that fund went up only 4% to $15,600. You need to add $31,500 - $15,600 or $15,900 to this fund this year. You started with $15,000 in US Large Cap Value Index, and let's say that fund went up 12% to $16,800. You need to add $31,500 - $16,800 or $14,700 to this fund this year.

So, you add more money to the funds that have gone up the least (or went down), and you add less money to the funds that have gone up the most.

In retirement, it's done exactly the same in reverse. You'd sell the funds that have gone up the most.

If you are rebalancing without adding money or removing money, you do the same thing, and exchange from the funds that have gone up most (the overweight ones) to the ones that have gone up less or gone down (the underweight ones).

After you finish this type of rebalance, your portfolio is back to the original weightings, so it is balanced and diversified. It is excellent in that is unemotional, and causes you to buy low and sell high. Most people don't have the discipline to do this; they tend to sell their losing funds and buy more of the winning funds, which tends to increase their risk and usually give them a pretty bad year at some point soon.

-Tom

[LondonBroil]

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20% US Total Stock Market Index
20% US Large Cap Value Index*
10% US Small Cap Index*
10% US Small Cap Value Index*
10% REIT Index
10% European Index
10% Asia/Pacific Index
10% Emerging Markets Index*


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Doesn't Vanguard charge a $10 fee every year for a fund under $10,000? If he puts 10% of his $100,000 in each of these and they go down a little, would he be hit with $60 in charges?

[jively]

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Doesn't Vanguard charge a $10 fee every year for a fund under $10,000? If he puts 10% of his $100,000 in each of these and they go down a little, would he be hit with $60 in charges?

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Looks like you're right. $60 per year on a ~$100,000 portfolio is 0.06%, or 6 basis points. To have this kind of globally diversified passive portfolio is definitely worth 6 basis points.

-Tom

[DespotInExile]

1. If you wanted poker advice, you wouldnt go to morningstar. Dont come to 2p2 for investing advice.

2. That said, an S&P500 index fund is going to get you too much variance. You need a broader portfolio.

3. If you're going learn how to DIY, you hvae a lot of work to do. Start with some of the Bogle, Bernstein, Random Walk stuff, etc. YOu also ought to look into ETFs.

4. If you dont want to DIY, you can go with a simple Vanguard balanced fund like VTTHX

[Sniper]

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1. If you wanted poker advice, you wouldnt go to morningstar. Dont come to 2p2 for investing advice.

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This is just plain bad advice... there are experts in many subjects, who happen to enjoy playing poker, and post on 2+2. Specifically, this forum has a very good cross section of experts!

There is also a large skill overlap between successfully playing poker and successful investing/trading.

[Carl_William]

Assuming you are a young person, I might suggest you invest in the VanGuard Group Target Requirement2045 with symbol: VTIVX. The has some asset allocation properties; it invests in four other Vanguard index funds; about 66.7% in the Vanguard Total US stock market, 11.97% bonds; 11.95% Vanguard European Stock Index; and about 5.6% in the Vanguard Pacific Stock Index. It's passive (maybe boring to people who want a quick buck), and probably will do as good or better than most index funds over the years. As most Vanguard funds; it has a low expense ratio, and as all Vanguard Funds it is load fee free. I have my wife in it in her IRA (and she is 60 years old -- she can do this because were are about 65% liquid overall).

This fund also automatatically rebalances as you grow older. This is not too important at this stage in you life, but might be 40 years down the line. Like I said, this fund as a somewhat asset allocation approach -- probably good enough but not superlative.

I recommend that you get a ROTH as soon as possible if possible.

Also some of the very knowledgable guys (I presume guys) on this 2+2 format have recommended the FAIRHOLME FD (FAIRX) fund. This funds recent past record(5 yrs or so) is excellent. You can contact the fund on the Internet and they will send you the necessary dope required to buy it. If you buy it through an American brokerage house you will probably be required to pay a small transaction fee (maybe $40 or so). If you buy it through the European firm -- there is no transaction fee. I feel this fund has excellent management and the fees are very fair. Also....

THe Vanguard Strategic Equity Fund FD (VSEQX) is a good fund and I have done well in the past with this fund in my Vanguard cash account. Its record is somewhat similar to the FAIRHOLME FD (FAIRX) fund; it has slacked off a little this year -- about 12% less than FAIRX.

Some guys have recently on this site have recommended William J. Bernstein's book "The Four Pillars of Investing." I have this book and i recommend it to you -- especially since you are a young person. It things go well, the stuff in this book could really pay for you over the years. THe book mentions that time is very important, and it's important to get some money down early in your life to take advantage of your abundance of time. Some of the things (very important things) that the book covers is asset allocation, risk, rebalancing your portfolio, and which type of funds you should buy, and which type of funds should be in taxable accounts and which should be in sheltered accounts. good luck

[Carl_William]

You must buy Wm.J. Bernsteins "Four Pillars of Investing." You can get it at Amazon.com at a good price -- better than the book store.

Larry E. Swedroe has written at least four books on this subject (which I have). You might pick some of these "used ones" at Amazon at very low prices but you will have to pay the postage -- still can be a good deal.
Swedroe goes on like a broken record that low expense index funds are the only way to go. He goes on-and-on about what funds to avoid -- it worth reading once -- I suggest getting his books from a library for free to read.

The are probably other good books on this subject -- but I am not really into them. ETFS are also a way to go -- I suggest you read up on them. The have spread fees -- so always do a little research on the spread. Spiders and QQQQs have low spreads.

guton luck

[jively]

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You must buy Wm.J. Bernsteins "Four Pillars of Investing." You can get it at Amazon.com at a good price -- better than the book store. [...]
ETFS are also a way to go -- I suggest you read up on them. The have spread fees -- so always do a little research on the spread. Spiders and QQQQs have low spreads.

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You mention a great book; it's my favorite asset allocation book.

But then you suggest QQQQ? Bernstein talks about using a value tilt, based on the Fama French research. QQQQ is a large, undiversified growth index. The long-term growth of QQQQ is not higher than the S&P 500 or a large value index, and the risk is substantially higher.

The S&P 500 averaged 12.3% from 1973-2005. The Nasdaq Composite averaged 12.3% from 1973-2005. Exactly the same.

The annual standard deviation (variance) of the S&P 500 was 17.7%. Nasdaq Composite's was 27.7%! Much higher risk. It may have been exciting in 1999 with an 85% return, but -39% in 2000, followed by -21% in 2001, followed by -31% in 2002 really hurt.

So avoid QQQQ as a long-term investment.

-Tom

[Carl_William]

YOU POSTED:"But then you suggest QQQQ? Bernstein talks about using a value tilt, based on the Fama French research. QQQQ is a large, undiversified growth index. The long-term growth of QQQQ is not higher than the S&P 500 or a large value index, and the risk is substantially higher."


I RESPOND:
I was just "on-the_-fly" mentioning a couple of ETFs symbols that came to my mind -- that's all. I didn't mean to recommend anything. I wanted to mention that ETFs are now available -- many newbies don't know what they are... The ETF concept can be simple or not-so-simple. I am not an expert on them. I know that some traders use them to conventiently lay off their bets -- I think some types of ETFs can be shorted and also shorted on a down-tick. Initially a few of the highly traded ETFs had small spreads, but also initially many of the newer ETFs had larger (very expensive) spreads. I think that there is a technique where the spread differnence is split down the middle for ETFs with high spreads and thin volume. Also as ETFs become used more -- the spreads will become less and less . Enough said on ETFs and spread -- I don't know much about these. .... (by me). Thanks for correcting my thoughts....

[BDaws]

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20% US Total Stock Market Index
20% US Large Cap Value Index*
10% US Small Cap Index*
10% US Small Cap Value Index*
10% REIT Index
10% European Index
10% Asia/Pacific Index
10% Emerging Markets Index*


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Doesn't Vanguard charge a $10 fee every year for a fund under $10,000? If he puts 10% of his $100,000 in each of these and they go down a little, would he be hit with $60 in charges?

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I don't have the same kind of poker success as the original poster, but I do have about $20,000 to invest. Because of the fee charged on accounts under $10,000, should I stay away from that allocation? Should I instead opt for all $20,000 in the Vanguard Total Stock Market Index fund? Thanks for the advice.