How to diversify

[OAB]

Last fall (after the market tanked), I started a Roth IRA with Vanguard by putting $4000 into an S&P 500 index fund. This year I'd like to diversify my holdings some (into bond funds, international, etc). However, most of the Vanguard funds require a $3K minimum investment to open, but I don't have that kind of a lump of cash to put in anymore. I have something like $400 a month to put in. How should I proceed? Keep putting money into the index until it I get $3K saved up and then open another fund? That will throw my allocations way out of whack for a while.

I know I could use one of their target retirement date funds and they will allocate for me, but if I can do it myself and save the (admittedly small) extra fee associated with the target fund, I'd rather do that.

[maat55]

This is why I started my Roths with T. Rowe Price. You can do an asset builder with as little as 50.00 per month per fund.

[mommyof4]

This is why I started my Roths with T. Rowe Price. You can do an asset builder with as little as 50.00 per month per fund.

Is this a target date fund?

[atomicrc11]

I believe with T. Rowe Price it is a Target Date fund. You can also open a SmartStart IRA at Fidelity with a Freedom Fund for $200/month.

When you are young and just starting out, the fund company you pick isn't as important as starting to save the money. So go ahead and start where you can and then you can always move the money later.

As for diversifying. If you're just starting out, then the best bet is probably the Target Date fund until you have accumulated enough cash to purchase multiple funds. The Vanguard 2045 (VTIVX) fund has an expense ratio of 0.19% where as the S&P 500 fund (VFINX) has an expense ratio of 0.15%. In my opinion, saying that you want only the S&P 500 fund due to lower expenses is terrible argument.

First off, at $3000, the ER of 0.19% costs you $5.70 and at 0.15% costs you $4.50. Not really that big of a difference. Even if you diversified by buying some bond funds and international funds, you're only going to raise your ER because bond funds and international funds tend to cost more due to management overhead. Just go with the Target Date fund. It will save you the hassle. Even when you do have more cash to buy more funds, you're average ER is going to go up anyway when you throw in bonds and international funds.

[jIM_Ohio]

It took me close to 7 years for my allocation to be in line with what I wanted when I started investing. I would not expect too many allocations to be "complete" within 2 years of investing- unless you use a fund of funds approach.

[srblanco7]

If you wish to stay w/ Vanguard - one option might be the STAR fund. It has 60-70 exposure to stocks, 20-30% in bonds, and 10-20% in short term investments.

If you look at the top 10 holdings (which are other Vanguard funds) two of the top 10 funds are international growth and international value.

Seems like this may meet your stated objective.

[snafu]

I suggest you re check with Vanguard as you are merely wishing to expand your holdings with a bond fund or an international fund...not making an initial investment with Vanguard.

[OAB]

Thanks for the suggestions. I'll call them and see what my options are. I saw the STAR fund. I'm thinking I may use it as my "holding place" to build up the $3K to open other funds.