Help Me Choose A Mutual Fund (Lost/Confused)

[Im_Your_ATM]

I'm not sure whether I'm going to invest in a mutual fund at all right now but I was given a lot of information on these two by my financial advisor (bad idea?). If anyone has an opinion on them or if there is one you like better for me please say so.

This is the third financial advisor I've talked to so I have trouble commiting to a advisor and the mutual funds they recommend so maybe the best thing to do is to make a choice even if it is not the #1 mutual fund in the world and start earning as this procrastination has hurt me in regards to opportunity cost versus just choose. I hate making decisions based on the advice of others I don't know very well and that's basically what I need to do though.
Oh and get A shares right?

Goldman Sachs Aggressive Fund of Funds
U.S. Stocks 42.9%, Non-U.S. Stocks 44.1%
Returns Through 02/2007: 1 year 15.53% benchmark 3.56%, 5 year 13.48% benchmark 6.66%
Sharpe Ratio (risk vs. return (seems like a magic number to me)) 3 Year 1.32 benchmark .79, 5 Year .9 Benchmark .39
Beta 3 Year 1.13, 5 Year .91
Expense Ratio 1.61%


RiverSource Portfolio Builder
U.S. Stocks 40.77%, Non-U.S. Stocks 39.31%, Bonds 14.79%
Returns 02/2007 1 Year 14.8%, 3 Year 13.43% (oldest available)
Sharpe Ratio 3 Year 1.52 Benchmark .52
Expense Ration 1.21% (I'm unsure about this #)
Beta .86


How are the benchmarks different on sharpe ratios between the two?

Spoke to the investment specialist in regards to how average mutual fund will underperform the market and he said yes but actively managed ones with proven leadership are superior. Title on the Riversource packet says April 04, 2006 Hypothetical Portfolio but it has numbers from 02/2007. Something to worry about?

Imagine like you're talking to a young person with a limited financial background in your responses because you are.

[mwgr5]

First, how much money do you plan to invest, how long to you plan to invest the money, and is this money in an IRA/401K/Roth IRA or a taxable account?

Second, the main problem with actively managed mutual funds are the high expenses relative to an index fund. Index funds hold all of the stocks in a general index, such as the S&P 500. Index funds have low expenses and other benefits, such as generally being more tax efficient.

The funds your financial advisor's recommended have high expenses. First, I assume you are paying a load, an upfront fee to buy the shares, since you asked if you should buy the class A share. This load is usually a 4-5% expense. Second, you are paying an annual expense of 1.61 or 1.21% for the management fees each year. You can see how these expenses add up. Over time, these expenses eat away at portfolio returns. In addition, very few managers are able to outperform the general market over the long run. These funds do seem to provide you with a fairly well diversified portfolio though.

I would invest in index funds through Vanguard. Their index funds have expense ratios of below .3% and have no loads. Lowering your expenses will enhance return over the long run. I would recommend buying the Vanguard Total Stock Market Index, Total International Stock Market Index, and Total Bond Market Index. This way you are completely diversified. However, you these funds have 3K minimum each so you would probably need 15K+ to have an appropriate allocation. Also, these funds are going to be much more tax efficient if you are investing in a taxable account.

If you are investing partially in taxable accounts and partially in non-taxable accounts (ie IRA) place the bond funds in the non-taxable accounts as it is least tax efficient.

If you are investing a small amount in a taxable account, I would recommend using a Vanguard Target Retirement fund. These funds provide complete diversification. You can choose a fund based on your investing time range, and they have 3K minimums.

Check out Vanguard.com for more info.

[IdealFugacity]

"Spoke to the investment specialist in regards to how average mutual fund will underperform the market and he said yes but actively managed ones with proven leadership are superior."

Just like in poker, he will profit from your mistakes when you take his advice. Follow the post above.

Actively managed funds with proven leadership are more likely than not going to underperform the market every year for the next 356 years.

[Sniper]

[ QUOTE ]
This is the third financial advisor I've talked to so I have trouble commiting to a advisor and the mutual funds they recommend so maybe the best thing to do is to make a choice even if it is not the #1 mutual fund in the world and start earning as this procrastination has hurt me in regards to opportunity cost versus just choose. I hate making decisions based on the advice of others I don't know very well and that's basically what I need to do though.

[/ QUOTE ]

Get the monkey off your back... stick it all in a S&P500 index fund... and then complete your research without the added pressure of feeling like you have to do something or you are losing out.

[gull]

Congratulations for getting started, and also good job for being skeptical. Like the previous posters said, commission-based financial advisors are not good. They don't have your best interests at heart, and they will recommend funds with loads that pay them commissions. The funds that the financial advisor recommended to you are not good. Index funds will serve you much better. Which index funds to choose can be a tough question to answer. If I were you, I would keep it very simple. Don't worry about things like the optimal global diversification percentage, small and value tilting, and asset allocation. The index fund(s) you should invest in depend in part on your risk tolerance and the amount of money you're investing.


Here's the simplest, easiest plan:

1) Open an account at Vanguard.
(Open a Roth IRA at Vanguard, if possible.)

https://flagship.vanguard.com/VGApp/hnw/...AdobeInstall=No

2) Stick all of your money into the Target Retirement 2050 fund.

https://flagship.vanguard.com/VGApp/...FundIntExt=INT


This extremely simple strategy will do better than most. This one fund is cheap (an expense ratio of .21%), and it provides exposure to US stocks, foreign stocks, and bonds. It also automatically rebalances for you, so if you want, you can just let your money sit there for 50 years without ever looking at it again. This advice is unbiased. We recommend low-fee, highly diversified funds that have a high expected return. Vanguard index funds meet all three criteria. (Also, this advice aligns with the previous posts. Mwgr5 says to put your money in either a Target Retirment fund or a mixture of Total Stock Market, Total International Stock Market, and Total Bond Market. The Target Retirement funds actually invest in these funds (for example, the Target Retirement 2050 fund has 72.2% invested in the Total Stock Market fund), and the performance will be almost identical. Sniper recommended keeping it simple and putting the money in an S&P 500 index fund. The S&P 500 and the Total Stock Market funds are very similar, although the Total Stock Market fund should provide a little better diversification.)



Note: Target Retirement funds have nothing to do with retirement accounts. You can withdraw money as you please.

[fanmail]

What do you guys think of these 3 Vanguard index funds? I've got about 25K to invest soon. More to come later.

Vanguard REIT Index Fund Investor Shares (VGSIX)
Vanguard European Stock Index Fund Investor Shares (VEURX)
Vanguard Mid-Cap Index Fund Investor Shares (VIMSX)

[gull]

fanmail, are you considering adding those funds to your portfolio? Or are you considering making a portfolio composed of those three funds?

[ilikeaces86_]

Just put it in total stock market and total international. Bingo bango bongo.

[fanmail]

Adding to a small portfolio with 2 funds.