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Since I've been reading more personal financing info, it raises more questions.

Current question is, Why wouldn't you just put all your money into a fund like the Vanguard Total Stock Index Fund?
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Current question is, Why wouldn't you just put all your money into a fund like the Vanguard Total Stock Index Fund?

VTSMX is possibly the best mutual fund on the planet, but you need more diversification.

Home equity, VTSMX, small and mid cap funds (VTSMX is large cap weighted), CDs, a bond fund, a REIT fund, a foreign stock funds, perhaps a foreign bond fund, a cash reserve, and possibly some art/antiques for your home would be an example of greater diversification.

Nick

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...but you need more diversification.

I think that kind of diversification is only possible in the text books. If you invested in VTSMX, you'd be getting the cheapest diversification possible (almost). Once you start getting into REIT funds and art(?), your commissions will kill the benefits of diversification.

BW
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Current question is, Why wouldn't you just put all your money into a fund like the Vanguard Total Stock Index Fund?

As far as your equity portion of investments, there really is no need to go further. Unless you want to do your own stock picking. Personally, the simplest thing to do is an index fund and CDs.

JLC
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Greetings,

Why wouldn't you just put all your money into a fund like the Vanguard Total Stock Index Fund?

Because you don't want 100% US stocks. If you want some bonds or foreign stocks these aren't to be found in the Vanguard Total Stock Index Fund.

Another rationale is that the Total Stock Index is overweighted in a segment of stocks and to get around this you hold other funds to overweight other sections like small-cap or value. http://www.indexfunds.com/articles/20000810_sliceprimer_iss_alo_JW.htm has some more about this idea.

Lastly, because you believe in your or your advisor's ability to pick stocks or funds that will either do better than the Total Stock Index or be less risky depending on how one views risk.

Regards,
JB
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Once you start getting into REIT funds and art(?), your commissions will kill the benefits of diversification.

Can't agree with this. VGSIX is Vangiard's REIT Indexer. No commission. I am sure the art comment was intended to be humorous, with the germ that if there is something in which you are very knowledgeable and experienced, that you might put a small part of your investments there. Coins, art, collectibles, etc.

As far as your equity portion of investments, there really is no need to go further.


Can't agree with this, either. As has already been noted, VTSMX is heavily weighted in the large caps. I like VEXMX as a diversification into mid- and small caps.

Try the Coffeehouse portfolio: http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B80FBDAC5%2D3089%2D4322%2DA6C8%2D018508DCEB9B%7D

It is diversified, conservative, and meets the needs of many of us lazy, ignorant, but moneyed investors.

cliff
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Why wouldn't you just put all your money into a fund like the Vanguard Total Stock Index Fund?

For the time being, that is what I am doing. My DW and I are still building our foundation, which I have targeted to be 2-3 years of annual salary. Once I have that invested in VTSMX, we will branch out to a few other areas.

I do still hold a few stocks that I have been holding for awhile now and that were purchased prior to my learning about index fund investing. There is no new money going into stocks at this time.

dt
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if there is something in which you are very knowledgeable and experienced, that you might put a small part of your investments there. Coins, art, collectibles, etc.

Yes, I only recommend 1%-2% of your assets in such things, but if you've invested long enough to build substantial wealth, this should be more than enough to beautify your life. Art is one of the things that separates gracious living from the McDonalds/WalMart culture that pervades our country. And you can find stuff that is likely to appreciate in value. I'm into tansu, Japanses prints, some ancient roman items, art eg www.rexray.com, etc. These things don't cost a fortune, and can be bought without paying high commissions (ebay, directly from the artist, auctions, etc).

Nick
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Do my baseball cards count? Just kidding.

Seriously, thanks to all for the info, I'm sure I'll be back.

And I do have collection of local history items. Recently, I found a 1916 diploma of a graduate of our small town high school, looks to be in its original frame. Diploma and frame are 16x20 and was probably hung in the family home back then. Cost me only $15 and its great.
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Can't agree with this. VGSIX is Vangiard's REIT Indexer. No commission.

so you're telling me that every brokerage doesn't have commissions on mutual funds (load or no load)? What if you don't want to open an account with Vanguard?

BW
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so you're telling me that every brokerage doesn't have commissions on mutual funds (load or no load)? What if you don't want to open an account with Vanguard?

Go with Scottrade.

JG
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so you're telling me that every brokerage doesn't have commissions on mutual funds (load or no load)?

You seem to be confusing the need to diversify with the fact that some investment products have high fees and commissions. Who cares? You still need to diversify beyond US common stocks. Just avoid the high fee options.

Nick
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I believe that Vanguard does not charge commissions, if you work with them directly. Someone correct me on this?

www.vanguard.com

If you don't want to go with Vanguard, then I second the Scottrade recommendation. It's an extremely low-commission brokerage.

Zanne
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I believe that Vanguard does not charge commissions, if you work with them directly. Someone correct me on this?

No, you are correct. They do not charge commissions for buying or selling their funds. However, they do have some limits on how many fund exchanges (not purchases) you can do in a single year. They do have charges on funds when you hold less than $10K of any single funds, and when your total account value is less than a certain figure.

I started with VTSMX, and when I got above 10K, I started to add others.

Adenovir
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In addition to diversity you have to look at the goals and risk tolerance for the money. For example if your goal is to invest enough to retire at early at 55 then you may be able to take more risks(and hopefully higher reward) than VTSMX because the downside of underperformance would be that you had to work a few more years but could still retire at a decent age. Similarly if your are investing some ”widow and orphan” money but didn't want to put it all in bonds, then a more conservative index fund would be appropriate.

The real great selling point of the index funds isn't the specific type of investments; it is that their low costs allow them to outperform the majority of other similar risk adjusted funds(and stock pickers). A mixture of several of the Vanguard index funds is a fine way to go.

(Note: I do not personally like the Vanguard target retirement funds. I think they are too conservative and put too much in bonds too early.)

Greg
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