Any recommendation on these vanguard funds

**disneysteve** · 09-12-2009, 09:17 AM

The share price of the fund is totally irrelevant and should not enter into your decision in any way.

As for how to invest in the Roth, as I mentioned in the other thread, you need to establish an asset allocation plan. What % in large cap growth. What % in international. What % in bonds. And so forth. Once you've got that determined, you'll be able to answer your own question. You'll look at what you've got in the 401k and combine that with what will be in the Roth and invest in the funds needed to keep to your allocation plan.

As for index vs. active, study after study shows that index funds outperform active funds over the long term and at lower cost.

**aim-high** · 09-12-2009, 09:42 AM

Thanks Steve. I understand your point.

I did see a response from one of the members in my other thread on how I can rearrange my portfolio. I will also wait for your comment. I will take all the inputs and will work on my 401k first keeping in mind what I want to do with vanguard funds.

**kv968** · 09-12-2009, 10:50 AM

I talked about risk in my other posting and that's the biggest difference with these funds. The total stock market index is a great, cheap fund to own but it's ~100% stocks so doesn't have any "safety" with bonds. Whereas the Balanced and Star funds have ~35-40% bonds/fixed.

Going with $3000 in the Total and $2000 in the STAR doesn't sound like a bad idea. Although there will be overlap with equities in the funds, you'll get some bond exposure in the portfolio as a whole but not as high as if you went with the straight STAR fund.

Hope I'm not making this more confusing for you

**aim-high** · 09-12-2009, 11:04 AM

kv968,

Thanks for patiently answering my questions. Every time I read a post here , I am actually getting educated and it is not confusing at all. When I started posting yesterday, I was thinking it would be an easier task to give me recommendations on where to invest but now I realize that the answer to those recommendations really depends on me and what I currently have.

With respect to comment on choosing between Total stock market vs Balanced vs Star fund, I was mainly concentrating on the top 10 holdings, expense ratio, fees , how they performed in YTD and last few years etc. I was wondering how to figure out whether they are diversified or not and you gave a good piece of info about stocks & bonds percentage and taking a closer look at the the funds, I can see that information.

**disneysteve** · 09-12-2009, 11:24 AM

One thing that can help once you've narrowed your choices is to use the x-ray feature at morningstar.com. That breaks down how funds are invested and can point out if there is a high degree of overlap.

As for kv968's comment about VTSMX being all stock, that is definitely true, but if you have the bond portion of your asset allocation in your 401k, there is no reason why you can't be 100% stock in your Roth (or vice-versa).

Some people prefer to have each account match their allocation. I think it is far easier to look at the big picture and just make sure all of your accounts together meet your asset allocation.

**kv968** · 09-12-2009, 02:12 PM

Originally posted by disneysteve View Post

Some people prefer to have each account match their allocation. I think it is far easier to look at the big picture and just make sure all of your accounts together meet your asset allocation.

I agree, it can be much easier to manage the accounts that way. Although you can also use an IRA to take advantage of sectors and markets your 401k may not offer.

I, for example, pretty much use my IRA as an opporunity to invest in sectors that aren't available in my 401k. If you were to look at my IRA holdings, they aren't very diversified at all. However if you look at those combined with my 401k it makes sense (at least to me

). It's just that I have a lot more in my 401k than my Roth so a seemingly large amount in one fund in the Roth isn't much in the overall picture.

**kv968** · 09-12-2009, 02:41 PM

Originally posted by aim-high View Post

With respect to comment on choosing between Total stock market vs Balanced vs Star fund, I was mainly concentrating on the top 10 holdings, expense ratio, fees , how they performed in YTD and last few years etc. I was wondering how to figure out whether they are diversified or not and you gave a good piece of info about stocks & bonds percentage and taking a closer look at the the funds, I can see that information.

There are many things to look at while choosing funds and the criteria you mentioned are all good. The quick way I look at funds is like this:

1) What sector/size am I looking for? (Large/Med/Small Cap, Int'l/Domestic, some bonds/no bonds, specific sector, etc...) Just get a good broad idea of what you want first otherwise you'll never narrow it down.

2) Check to see if it's a load fund. If it is I'm out. Although there are a few funds I may be willing to pay a higher fee for if I feel it's worth it. I wouldn't judge a fund totally on it's expense ratio if it's not that outlandish.

3) Compare them to other funds IN IT'S CATEGORY!!! I emphasize that because too many people just look at returns and they could be comparing apples and oranges which will do nothing for your judgement. For example, if you're comparing a fund that's large-cap domestic against an emerging markets small-cap fund, the numbers you're seeing will be of no good use at all in deciding which is better. Funds will list what style they are considered and if you're comparing like-investing funds then you'll get a more accurate idea of how they've performed amongst themselves. And one big pet peeve of mine that people tend to rely on is the "return since inception" number. That number means absolutely nothing if you ask me. This year proves that. Had a fund started in January and an identical one started in March, the difference in return on those would probably be well over 40%. Just my little rant

4) Look at everything else

(Manager's tenure, returns, holdings, etc...) I know that sounds pretty vague and not of much help but just keep looking, reading and asking questions and it'll come to you. Believe me, when I first really got into investing I was always looking for that one "magic number" that would tell me everything and I hate to break it to you, but there isn't one.

With that said, investing doesn't have to be that hard. It's only as difficult as you make it. Like I said, keep reading and researching things and you'll get a feel for what you want and need. And of course, you can always ask around.

**disneysteve** · 09-12-2009, 06:31 PM

Originally posted by kv968 View Post

And one big pet peeve of mine that people tend to rely on is the "return since inception" number. That number means absolutely nothing if you ask me.

I would disagree that it means nothing, but it needs to be evaluated in the proper context. In your example of funds that were started in Jan. 09 or Mar. 09, I'd agree it means nothing. They haven't been around long enough to have a track record. For actively managed funds, the number needs to be looked at along with tenure of management. I don't want to know how the fund has done over 20 years if the current management team has only been there for 5. I think the "since inception" number is probably most useful for index funds. Many people look at 1, 3, 5 and 10-year numbers. That's fine, but performance over the past couple of years has greatly skewed those numbers downward. Looking at the "since inception" performance over 15 or 20 or more years gives a much clearer picture of how that index has performed over the long haul.

**kv968** · 09-13-2009, 05:19 AM

Originally posted by disneysteve View Post

Looking at the "since inception" performance over 15 or 20 or more years gives a much clearer picture of how that index has performed over the long haul.

Looking at the "since inception" number would make sense in seeing how a fund ITSELF has performed in the long run, but it still wouldn't mean much, no matter how long the period, with COMPARING it to another fund. Unless of course the other fund was started very closely to the one you're monitoring. There are some funds out there with inception times of over 40 years and if you compare them to ones with say 35 years, you're going to get totally different numbers.

I think I know what you mean Steve with using that number to get a look at the fund over the long haul to get a better picture of it. That makes sense. However I feel that using that number to compare it to another fund (even a few months or so off in inception depending on the time frame looked at) could mean absolutely nothing.

**disneysteve** · 09-13-2009, 01:15 PM

Originally posted by kv968 View Post

There are some funds out there with inception times of over 40 years and if you compare them to ones with say 35 years, you're going to get totally different numbers.

I think I know what you mean Steve with using that number to get a look at the fund over the long haul to get a better picture of it. That makes sense. However I feel that using that number to compare it to another fund (even a few months or so off in inception depending on the time frame looked at) could mean absolutely nothing.

Yes, the since inception number isn't of great use in comparing funds. It is more useful in evaluating an individual fund. For example, the Vanguard 500 Index fund has a 1-year return of -18.21% and a 10-year return of -0.86%. One might look at that and think it is a terrible place to invest money. However, the since inception return is an average annual return of 10.28%, even counting the last 10 years, which have been quite an aberration in market returns.

**Broken Arrow** · 09-14-2009, 04:12 AM

aim-high, as it has been mentioned before, please be sure that the asset allocation is appropriate when taken in context of all of your retirement accounts with similar investment goals.

That said, with a $3000 minimum per fund (except STAR), I presume you can only buy one for right now. If this account is for retirement, may I recommend that you also consider Target Retirement as well? They're really not that bad (despite past discussions regarding its flaws).

As I see it, your current options are either to put $3000 into one fund, and leave the other $2000 into their money market fund until you have more money deposited next year for another fund, or you can put all of $5000 into a single fund. Again, what you decide will depend on your investment goal and what your other retirement accounts look like.

Any recommendation on these vanguard funds