Seeking some advice on index investing

[Kilted1]

I recently changed employers and would like to roll my 401K into an IRA with T. Rowe Price. I am taking advantage of my new employer's 401k/profit sharing plan, and the majority of the index fund options are with Vanguard, thus my reason to go with TRP for my IRA.

I'd like to build the portfolio around a Total Stock Market Index fund, but I'm concerned about it being heavily weighted toward any given sector, or to larger Cap. companies, even though it is supposed to represent the "total" market.

Should I also add an Extended Market Index fund that would give me more exposure to small/mid cap companies even with a Total Market Index fund?

I will also be investing in an International Stock Index fund, as well as a US Bond Index fund. My primary goal is to keep expenses low while well-diversified. Thank you.

[sweeps]

Re: Seeking some advice on index investing

You certainly can add extra weighting to the Extended Market. Nothing unusual with that.

However I am a little puzzled with your reasoning for going with T Rowe Price. If you like TRP, that's totally fine, but I don't think avoiding a company (in this case Vanguard) just because your 401k is with them makes much sense.

[kv968]

Re: Seeking some advice on index investing

Welcome to the boards kilted.

The Total Stock Market Index is mostly large caps like you said but it also has holdings in mid- and small-caps also (about 28%). I don't know if I would add the Extended Market to that since everything in that fund is ALL mid- and small-caps. If you did, you should only add just a little bit.

If you have it available to you, you should think about getting into the S&P 500 index instead of the Total Stock and add some Extended to that. That would give you a real nice blend of large and small.

A few major questions are, what is your investment horizon and what is your risk tolerance? Those factors will serve as a guide as to how much you should invest in the smaller caps.

Another thing to keep in mind is your IRA with T Rowe. You definitely have to take that into consideration when doing your asset allocation in your 401k.

[Kilted1]

Re: Seeking some advice on index investing

However I am a little puzzled with your reasoning for going with T Rowe Price. If you like TRP, that's totally fine, but I don't think avoiding a company (in this case Vanguard) just because your 401k is with them makes much sense.

Yes, I do like TRP as I have a money market account with them. Also, I'm not really comfortable having all of my retirement assets with one company.

[scfr]

Re: Seeking some advice on index investing

Yes, I do like TRP as I have a money market account with them. Also, I'm not really comfortable having all of my retirement assets with one company.

This was a concern I also had and after discussing it here on the forums and thinking it over we actually decided to move all of our mutual fund accounts to one family (Vanguard).

Here's a link to that thread if you're interested:

http://www.savingadvice.com/forums/showthread.php?t=22599

[meaghanchan]

Re: Seeking some advice on index investing

My biggest suggestion would be to look at all your accounts together. What you choose in your IRA should be dependent on what you've chosen in your new 401(k). For example, if you've invested in a total stock market index in your 401(k), duplicating that in your IRA may not have as much value to you as adding bonds, international, REITs, an extended-market fund, etc.

What I would advise you to do is consider your _total_ desired asset allocation (percent domestic stocks/foreign stocks/bonds) against your available choices.

[kv968]

Re: Seeking some advice on index investing

Yes, I do like TRP as I have a money market account with them. Also, I'm not really comfortable having all of my retirement assets with one company.

I think having all of your retirement assets with one company, especially the bigger ones, shouldn't really be a concern. However, if you feel more comfortable splitting it up then that's what you should do. You should try to keep worrying to a minimum whenever possible with investing.

It would be a lot easier to control your overall asset allocation if you rolled over your 401k to Vanguard but it's not impossible to do with TRP. It'll just require a little more work and attention. The upside to using a different company is you can get some funds that aren't available through your 401k if you'd like.

[Ima saver]

Re: Seeking some advice on index investing

I have most of my IRA money with Vanguard Index 500 and I have been very happy with the results.

[Kilted1]

Re: Seeking some advice on index investing

Thanks for the input everyone. I should point out that my 401K is not administered by Vanguard, it just has a few of the Vanguard index funds (500 Index Admiral Shares, Emerging Market Index, Total Int. Index, Intermed. Bond Index).

Just looking for more diversification in the new IRA with index funds. After comparing expense ratios between TRP and Vanguard regarding index funds, I'm beginning to wonder if Vanguard would be the better choice, even if all of our retirement investments will be with one company.

[Ima saver]

Re: Seeking some advice on index investing

I think Vanguard has lower fees.

[kv968]

Re: Seeking some advice on index investing

Thanks for the input everyone. I should point out that my 401K is not administered by Vanguard, it just has a few of the Vanguard index funds (500 Index Admiral Shares, Emerging Market Index, Total Int. Index, Intermed. Bond Index).

Just looking for more diversification in the new IRA with index funds. After comparing expense ratios between TRP and Vanguard regarding index funds, I'm beginning to wonder if Vanguard would be the better choice, even if all of our retirement investments will be with one company.

Vanguard's index funds are pretty much the cheapest around so, if you're going to go the indexing route, they might be the better company for you.

Looks like even though your 401k isn't run by Vanguard, you've got enough of their index funds to put together quite a nice portfolio just with those. Like you said, you may want a little more small- and mid-cap exposure but those four funds should cover pretty much everything else quite nicely. You may also want to throw about 5-10% in the Emerging Market Index to capture a little of that sector. It's more volatile than the others but it adds to the diversification and can give you some nice gains. Can give you some nice losses too but without some risk comes no gains