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Author: kook79 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19380  
Subject: How Do I Balance My Risk? Date: 1/7/2008 9:24 AM
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I usually post to the consumer debt board, but am wanting to start 2008 understanding my ROTH IRA, and employer ROTH 401(k) and ECAP. I want to diversify my retirement portfolio some, but am unsure how to do so. Here is what I have.

$32,000 in ROTH IRA (mine) - TEPLX Templeton Growth Fund(currently not paying any fees until my contributions reach $60,000, currently contributed around $15,000)

$4,000 in ROTH IRA (wife) - VEIEX Vanguard Emerging Market Fund (no.low fees)

$9,000 in employer 401(k) - Europacific Fund (employer pays fees)

$4,000 in ROTH 401(k) - Europacific Fund (employer pays fees)

As you can see, I am very heavy in global, and want to diversify. My first act would be to take my $32,000 and split it up into an energy fund. How do I go around doing this? Would I have a tax implication by moving stuff around? I want to be able to look at my retirement funds as one big picture instead of so many individual things.

As I split things up, can I still call my ROTH IRA a ROTH IRA, or does it still all have to be in one fund in order to call it a ROTH IRA? Keep in mind I'm 28 years old as is my wife and we want to make sure we continue getting good growth out of our funds and have the correct funds with the right tax implications in place.
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Author: TurkeyBreath Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12280 of 19380
Subject: Re: How Do I Balance My Risk? Date: 1/7/2008 8:34 PM
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...As I split things up, can I still call my ROTH IRA a ROTH IRA, or does it still all have to be in one fund in order to call it a ROTH IRA?...

You can have as many Roth IRAs as you want.

A Roth IRA and a Roth401k are different animals.

The original Roth IRA does not have the Required Minimum Distributions attached to it.

The Roth-401k has the same RMD as the 401k converted into a traditional IRA.

TB

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Author: CycleGirl One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12281 of 19380
Subject: Re: How Do I Balance My Risk? Date: 1/8/2008 1:30 AM
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An IRA account (Roth or Traditional) can have any number of individual investments within it. If your account type doesn't allow you to hold more than one mutual fund within it, you should be able to call the custodian (Templeton, I assume) and open an account that allows you to invest in any kind of security. Then you can have them to transfer your mutual fund shares into that account.

My IRA is with Fidelity - and I'm not trying to sell them - I just happen to know that they offer IRAs that allow investments in stocks, mutual funds, bonds, ETFs, etc. There are no fees. I expect that Vanguard and other top investment companies have similar offerings.

You should also know that you can transfer your assets from one custodian to another. For example, if you decided that you wanted to go with Vanguard, you can get a form from Vanguard and instruct them to transfer your assets from your old account to your new account. They are SO happy to do so!

WRT to investments, foreign stock funds are certainly important. However, I would recommend that you allocate a percentage of your investments in a few different asset classes. For example

30% Foreign stock
30% Domestic large cap stock
30% Small cap stock
10% Bonds

After you decide what you want your asset allocation to look like, you'll want to find good investments within those asset classes. There are two schools of thought on stock mutual funds.

1. Buy only index funds with extremely low expense ratios. Vanguard index funds (like VFINX) and Fidelity Spartan funds are good examples. This school of thought quotes the statistic that most mutual funds under perform their index.

2. Buy best-in-class managed funds. A 4 or 5-star Morningstar rating is a good starting point. Make sure they're no load and have low expense ratios. Less than a 1% expense ratio is pretty good. I've had good luck with FDFFX. This fund holds both domestic and international stock. A couple of my foreign stock mutual funds are Janus Overseas JAOSX and Fidelity International Discovery FIGRX. All of these funds are no-load, 5-star rated, and have low fees.

Whew! I hope that all of this helps you.

CG

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Author: AngelMay Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12282 of 19380
Subject: Re: How Do I Balance My Risk? Date: 1/8/2008 9:57 AM
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30% Foreign stock
30% Domestic large cap stock
30% Small cap stock
10% Bonds



I think that is WAAAAYYYY too aggressive for someone who is retired.
My own portfolio looks more like:

20% Domestic large cap
15% International
15% Commodities
45% Intermediate Term Bonds
05% Money Market for Cash on hand (which is something EVERYONE should maintain)

And even this portfolio is more aggressive than Bogle recommends.
But everything is at Vanguard with those wonderfully low-low-low management fees - so I get Bogle-Brownie-points for that, at least.

The 30-30-30-10 portfolio above looks more like a portfolio for someone in their twenties or thirties -- not for someone who is retired.

Just sayin'

AM

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Author: AngelMay Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12283 of 19380
Subject: Re: How Do I Balance My Risk? Date: 1/8/2008 10:05 AM
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Oy! This from the original post (I should have been paying attention -- but since this IS the "RETIRED Fools" board, at least I have an excuse for the assumption):

Keep in mind I'm 28 years old as is my wife and we want to make sure we continue getting good growth out of our funds and have the correct funds with the right tax implications in place.


SO - since you are only 28 years old, the 30-30-30-10 portfolio is probably a good one for you. I would personally tweak it a bit: you MUST keep cash on hand in a money market and that will take at least a couple of percentage points, and I would cut down on the small caps myself. While small caps will get you nice gains when the market goes up, they will KILL you on a downturn.

Another thing you might want to consider are the "Target" funds that Vanguard offers. You select your retirement date fund, and Vanguard does the work not only of allocating your investments for you, but RE-allocating to more conservative positions as you age. What could be easier?

AM

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Author: CycleGirl One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12284 of 19380
Subject: Re: How Do I Balance My Risk? Date: 1/8/2008 12:03 PM
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SO - since you are only 28 years old, the 30-30-30-10 portfolio is probably a good one for you. I would personally tweak it a bit: you MUST keep cash on hand in a money market and that will take at least a couple of percentage points, and I would cut down on the small caps myself. While small caps will get you nice gains when the market goes up, they will KILL you on a downturn.

Yes, the small-cap position could definitely be trimmed. Also, the OP mentioned that he was interested in the energy sector. Investing in a single sector is pretty high risk, but if it's less than 5% of your portfolio, you should be okay.

Here's another possibility

30% Large Cap Domestic
30% Foreign Growth
20% Small Cap Growth
10% Bonds
5% Energy Sector
5% Cash (Money Market)

You could use an ETF like XLE for investing in energy.

I'm not really sure if you need cash in your IRAs. I assume that you have cash elsewhere. OTOH, if you have some cash in your IRA, that cash would be available to invest later on if we get a major downturn in either the US and/or global markets.

If you are willing to put in a little more time, you could break your Large Cap Domestic into growth and value holdings. Also, you might want to consider breaking up your Foreign stock into emerging market and global.

CG

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