gs11rmb
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Post by gs11rmb on Jul 26, 2019 9:12:14 GMT -5
I'm concerned that I need some more diversity in my investments. Through work I contribute to both a 401K and 457B that are provided by SunTrust. Most of the available funds have high costs so both plans are invested in the Vanguard 500 Index Fund. My Roth and taxable accounts are both with Vanguard itself with the Roth invested in their Target Retirement 2040 fund and the taxable in their 500 Index Fund. So three of my four investments are in the same fund.
Does having the Target Date fund provide enough diversity or should I change the taxable account? I don't want to change the 401K and 457B because the fees will be too high.
Any advice?
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MN-Investor
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Post by MN-Investor on Jul 26, 2019 11:14:08 GMT -5
I think you are confused about what diversification means. You are not diversified, for example, if you only own stock in three companies. If you only own stock in Apple, Exxon, and Honeywell, you are not diversified. How do you become diversified? By owning an index fund, such as an S&P 500 index fund. When you own that, you own a piece of 500 companies. You are diversified. The fact that you own an S&P 500 fund from Vanguard in several accounts doesn't change the fact that you are diversified. The target fund merely adds bonds to your portfolio. S&P 500 funds are totally stock funds. Have you decided on what your asset allocation should be? Do you know what I'm asking?
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Tiny
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Post by Tiny on Jul 26, 2019 11:20:21 GMT -5
Perhaps the OP means investing in an International or Global Fund? Or a Small or Mid Cap funds - (I believe the S&P 500 is mostly large Cap stocks) or a Core "cash" fund (government securities?) ?
FYI: it's good to know/understand how the Target Fund "rebalances"....
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gs11rmb
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Post by gs11rmb on Jul 26, 2019 11:24:15 GMT -5
Sorry for the confusion. I did mean diversifying beyond just the S&P500. Should I have index funds that are in different parts of the market rather than just the top 500 companies in the US?
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hoops902
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Post by hoops902 on Jul 26, 2019 11:38:35 GMT -5
Sorry for the confusion. I did mean diversifying beyond just the S&P500. Should I have index funds that are in different parts of the market rather than just the top 500 companies in the US? I like having some international diversification. I have a number of ETFs devoted to certain segments of the market, but I'm also not opposed to having people adopt a 3-fund approach (large broad US market fund, bond fund, international stock fund)
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movingforward
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Post by movingforward on Jul 26, 2019 11:49:39 GMT -5
I like the Vanguard Star fund, which is a fund of mutual funds. There is some international funds mixed in with a small amount of bonds.
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MN-Investor
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Post by MN-Investor on Jul 26, 2019 13:00:27 GMT -5
My DH and I never did buy international stocks. We were of the opinion that U.S. companies have so much business globally nowadays, that we already have all the international exposure we want.
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souldoubt
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Post by souldoubt on Jul 26, 2019 14:18:03 GMT -5
My DH and I never did buy international stocks. We were of the opinion that U.S. companies have so much business globally nowadays, that we already have all the international exposure we want. This. The companies you own through the 500 index fund have plenty of international exposure. I do invest in international funds which tend to be a bit riskier but if they weren't an option I'd be content with the 500 index fund.
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tskeeter
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Post by tskeeter on Jul 26, 2019 18:01:05 GMT -5
My DH and I never did buy international stocks. We were of the opinion that U.S. companies have so much business globally nowadays, that we already have all the international exposure we want. Do you realize that the US stock market is only about 47% of the world market? Yes, the US has a lot of multinational companies. A few may even get 50% of their revenue from foreign sources. But, owning only domestic stocks is a far cry from having holdings that would mirror a global index.
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MN-Investor
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Post by MN-Investor on Jul 26, 2019 21:56:58 GMT -5
My DH and I never did buy international stocks. We were of the opinion that U.S. companies have so much business globally nowadays, that we already have all the international exposure we want. Do you realize that the US stock market is only about 47% of the world market? Yes, the US has a lot of multinational companies. A few may even get 50% of their revenue from foreign sources. But, owning only domestic stocks is a far cry from having holdings that would mirror a global index. I'm not trying to mirror a global index. Even the large company I worked for - not a mega-conglomerate - had factories internationally and sales internationally. Companies like Apple, Alphabet, and Microsoft? Less than 50% of their revenue comes from the U.S. I'm fine with the international exposure - both in sales and manufacturing - that U.S. companies provide.
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phil5185
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Post by phil5185 on Jul 27, 2019 8:18:23 GMT -5
I'm not trying to mirror a global index.
Even the large company I worked for - not a mega-conglomerate - had factories internationally and sales internationally. Companies like Apple, Alphabet, and Microsoft? Less than 50% of their revenue comes from the U.S.
I'm fine with the international exposure - both in sales and manufacturing - that U.S. companies provide.
Holding international companies adds currency exchange to your risk analysis - eg, the company may make a profit at home, but the currency exchange back into US $ may fall. Additionally, your company will be operating under the foreign laws rather than US Rule of Law. These factors can be either good or bad - in any case they must be a part of your risk evaluation.
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buystoys
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Post by buystoys on Jul 27, 2019 8:40:00 GMT -5
It sounds like you are questioning your asset allocation rather than diversification. Are you concerned that you are too much into equities? How far from retirement are you? I was 95+% in equities until I hit 50. Then I rebalanced into a 65/35 asset allocation. We're retired, so I wanted a little protection from volatility.
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gs11rmb
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Post by gs11rmb on Jul 29, 2019 7:35:57 GMT -5
It sounds like you are questioning your asset allocation rather than diversification. Are you concerned that you are too much into equities? How far from retirement are you? I was 95+% in equities until I hit 50. Then I rebalanced into a 65/35 asset allocation. We're retired, so I wanted a little protection from volatility. I'm 45 so 15-20 years from retirement. I'm comfortable with being in equities because the Target Date Fund contains 15% bonds. It looks like I am asking about asset allocation rather than diversification . I do want to continue with low cost index funds and I'm fine if the advice is just to stick with the S&P 500. I know there's no guarantee but I don't want to be making an obvious error.
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HoneyBBQ
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Post by HoneyBBQ on Jul 29, 2019 10:22:31 GMT -5
International and bonds would be the boglehead 3 fund approach...
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phil5185
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Post by phil5185 on Jul 29, 2019 11:38:48 GMT -5
Risk - law of investing - risk and 'return' are directly proportional. I use a "top down" method for controlling risk. I adjust the top stock/bond ratio of my portfolio. Eg if I want more risk I would shift from 60/40 to 75/25.
Stocks: The SP500 index represents most major commerce, ie it is a valid measure of US business. If you break your portfolio into smaller pieces (such as ETFs) that adds risk - your EFT will either help or hurt your result - and the risk of that industry is added to your SP500 holdings. And when you further break part of your portfolio into individual companies, you add the risk of individual company failure to industry failure Items 2& 3 are uncompensated risks. Ultimately those risks converge into risk #1. So I use only the SP500, ie pure equities.
Bonds: I use only a bond index. I don't buy individual bonds. And, if I want more risk, I never buy "high-yield"(junk bonds). Instead I stay with pure, safe bonds - and use my 'top down' mix to add or decrease my risk level.
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