Whats my next index?

[ChromePony]

So right now I a large chunk of my poker savings in a Vanguard account and I think I'm ready for another purchase. My current holdings consist of about 70% S&P index and 30% emerging markets index, I kinda thought the emerging markets one would be a nice hedge against a US decline but apparently when things crashed a bit last week that was no exception...shows what I know.

I have an amount equal to my emergings markets 30% available to invest, which will make it about 22% 22% 56%. I was looking at small or mid cap funds, but I wouldnt mind something international that is less risky...developed markets fund maybe. Anyway, obviously my portfoilo isnt as diversified as it could be but we arent talking about massive sums of money here so I cant break it up as much as I might like.

[Scott Y.]

Check out their Int'l Value fund. It's been beaten up a little this month, but it's real solid IMO. I prefer it to the Total Int'l fund. I'd also recommend a target IRA.

[kuboa]

Dude! The FIRST question you must ask yourself when investing is "What is my time horizon?" or in it's other form, "What is this money to be used for?" Are we talking retirement? House downpayment? It matters. Mutual funds are designed for the long-term, so be sure not to get caught caring about short-term fluctuations.

PS The dollar will go into freefall soon enough. When boomers retire, the national debt devours your generation like the Mother of all Sneaker Waves, and world oil markets shift to the euro, the greenback becomes toilet paper- so DO keep a finger in the international pie.

[ChromePony]

Yeah sorry, I should have mentioned that I am a 22 year old college student who will be starting in the working world this year with a reasonable income...the point being that I dont need this money for anything in particular. I guess the main goal is growth maybe on the 10 year horizon, I kinda have this idea that it would be cool to use my poker cash money for a down payment on a house someday. Either way I dont have a ton of faith in the ol US right now so international looks good to me, I checked out the value fund and I think its a winner, thanks for the tip.

[mwgr5]

First, your emerging markets allocation is too large. To maintain your interntaional allocation of 30%, I would reduce the emerging markets fund to about 10% and invest the remaining 20% in a more diversified fund, such as the total interntaional stock market index.

Second, are these investments in taxable accouts or non-taxable accoutns, such as an IRA? This is very important because you need to have your least tax efficent funds in the non-taxable accounts.

If you dont have an IRA, I would open a ROTH IRA. I would make the maximum investment in the small cap index. The small cap index actually has mid cap exposure, so by holding this fund you be better diversified and have a more aggressive and historically better performing portfolio.

Also, make sure to contribute to your employeer retirement program, if available. Try to treat all of your investements in different accounts as 1 portfolio. So if you can contribute to an employeer plan, again make sure you are investing in a fund that is not tax efficent.

[Sciolist]

How about keeping the other 30% in something not tied to the indices? Bonds? Regular savings account? I am no expert though.

[ChromePony]

[ QUOTE ]
First, your emerging markets allocation is too large. To maintain your interntaional allocation of 30%, I would reduce the emerging markets fund to about 10% and invest the remaining 20% in a more diversified fund, such as the total interntaional stock market index.

Second, are these investments in taxable accouts or non-taxable accoutns, such as an IRA? This is very important because you need to have your least tax efficent funds in the non-taxable accounts.

If you dont have an IRA, I would open a ROTH IRA. I would make the maximum investment in the small cap index. The small cap index actually has mid cap exposure, so by holding this fund you be better diversified and have a more aggressive and historically better performing portfolio.

Also, make sure to contribute to your employeer retirement program, if available. Try to treat all of your investements in different accounts as 1 portfolio. So if you can contribute to an employeer plan, again make sure you are investing in a fund that is not tax efficent.

[/ QUOTE ]

Thanks for the solid advice, I was actually just reading more about emerging market volitility and am planning on re-allocating some of that now, the only problem is that I only have so much money and there are fund minimums that must be met. Its probably true that with a relatively small amount like this I should stick more to bonds and savings, but like I said earlier its money from poker so in that spirit I don't mind gambling with it a little for some slightly higher risk/reward.

As for the IRA, I havent actually started my job yet, but as soon as that gets going I will be opening a roth IRA and maxing it out for the 2006 year. I am sadly somewhat clueless about which funds are more or less tax efficient so any help people can offer about that would be great.

My employer does offer a relatively weak 10% 401k match but its still free money so I imagine I'll take some advantage of that too.

[Sciolist]

As my knowledge of investment is down purely to the one book, in the Intelligent Investor, he basically says that 25% bonds and 75% stocks is pretty risky, and 100% of one thing is generally not a good plan

[ChromePony]

So I'm looking at all the different bond options on vanguard, can someone help explain the difference between taxable and tax-exempt ones...is it just as simple as it sounds? How come some are taxed and others arent?

Also, I've heard some talk around here about the target retirement funds, it looks like these are just pre-mixed stock/bonds funds and the later your planned retirement the higher percentage of stocks. Maybe it would make more sense for me to switch to one of these instead of the S&P index and continue my non-domestic diversification separately with the afore mentioned international funds.

[mwgr5]

Here is a 4-step rule for fund placement:

1. Put your most tax-Inefficient funds in 401Ks, 403Bs, Traditional IRAs and similar retirement accounts. When full..

2. Put your next most tax-Inefficient funds in your Roth(s). When your Roth(s) are full--

3. Put what's left into your taxable account.

4. Try to use only tax-Efficient funds in taxable accounts.

Here is a list of securities in approximate order of their tax-efficiency. (Least tax-efficient at the top.):

Hi-Yield bonds
TIPS
Taxable bonds
REIT stocks
Stock trading accounts
Small-Value stocks
Small-Cap stocks
Large Value stocks
International stocks
Large Growth stocks
Most stock index funds
Tax-Managed funds
EE and I-Bonds
Tax-Exempt bonds


You may want to reorganize your portfolio now. Hopefully you don't have large capital gains created by the funds appreciating above your initial investment. If you do, however, capital gains taxes are at historic lows. If you are in the 15% tax bracket, or lower, you could sell your emerging funds and only have to pay 5% on capital gains, I think.

You can then make a diversified portfolio using your 401K, Roth IRA, and taxable accounts.

If your time horizon is only 10 year, you may want to have a more conservative portfolio, such as 80% stock/ 20% bonds, but that is really a personal decision that depends on your risk tolerance.

The Target Retirement funds are very nice, especially for young investors with limited capital. However, I think these funds are not tax efficient and should be held in an IRA or 401K.