Time to get my feet wet; Vanguard Mutual Funds

[Banditgberg]

Just graduated and now have my first job and would like to
start trying to save some money.

Maybe invest equally in the following Vanguard Mutual Funds:

U.S. Value Fund
Value Index Fund
Equity Income Fund
Windsdor II

thanks in advance for the <u>constructive</u> help...

[jively]

Congrats on finding Vanguard. They are really one of the best mutual fund companies out there. I recommend the index funds there.

It looks like you are comfortable with 100% stock and no fixed income. If so, I'd think about 70% in US stocks and 30% in international stocks (that is if you are a US investor).

You have to consider how much you are saving, and Vanguard's minimums. If you are thinking of 4 funds, I guess you are starting with at least $12,000. Maybe a good starting allocation would be

40% Total Stock Market Index
30% Small Cap Index
30% International Index

I see you like Value funds. I think that is good, that Value stocks have a higher expected return than the market and growth stocks. Your eventual allocation might be something like this:

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

You'd have to figure out how to add funds when you have enough to get over the minimum purchase price.

Good luck,

-Tom

[SocalHoldEem]

What is the difference between the US value fund and the Windsor II?

[jively]

[ QUOTE ]
What is the difference between the US value fund and the Windsor II?

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"Vanguard Value Index Fund" is an index fund, passively managed. The Windsor fund is actively managed. One or more people make decisions on which stocks to buy and which to sell, forecasting which will do better than others.

I believe strongly that people can have *very* successful investing experiences without the need for any forecasts.

-Tom

[SocalHoldEem]

Like Ben graham? [img]/images/graemlins/laugh.gif[/img]

[Newt_Buggs]

[ QUOTE ]
Value stocks have a higher expected return than the market and growth stocks

[/ QUOTE ]
Do all value funds have a higher expected return than market and growth funds in the same market?

[mwgr5]

[ QUOTE ]
[ QUOTE ]
Value stocks have a higher expected return than the market and growth stocks

[/ QUOTE ]
Do all value funds have a higher expected return than market and growth funds in the same market?

[/ QUOTE ]

Value stocks have outperformed growth stocks in the long run in the past. It is important to remember, however, that past performance does not guarentee future performance. People that support the idea that value outperforms growth generally thik that value stocks are fundamentally riskier than growth stocks, and the value premium is compensation for bearing that additional risk. This idea would support the thinking that value will ouperform in the future. It is also imporant to remember that this value premium occurs over the LONG RUN. There have been periods of over 10 years where growth has outperformed value. So if you decide to value tilt is imporant that you stay the coarse and don't chase performance if growth outperforms value over a decent amount of time.

[gull]

Value stocks have more EV. They also have more variance.

The fact that growth stocks have outperformed value stocks for periods over a decade is somewhat meaningless. Tracking error is a necessity of decorrelated assets.

And lastly, remember that growth stocks and value stocks are not opposites. A stock can be both, or neither.

[jively]

[ QUOTE ]
Do all value funds have a higher expected return than market and growth funds in the same market?

[/ QUOTE ]
If a value fund has a huge expense ratio (&gt; 1.5%), or has a very high turnover (&gt; 100% per year), the fund may not have a higher expected return than a blend (S&amp;P 500) fund.

-Tom

[mwgr5]

[ QUOTE ]

The fact that growth stocks have outperformed value stocks for periods over a decade is somewhat meaningless. Tracking error is a necessity of decorrelated assets.


[/ QUOTE ]

Tracking error is a problem. When people see their portflio that is supposed to be riskier than the market and outperform the market underperform for a long period of time they are likley to alter their asset allocation, hurting investment returns.