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Author: squarepegs Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76397  
Subject: Which combo of VG funds for retirement vehicles? Date: 12/2/2004 3:13 PM
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Hello Fools,

I have some fund-picking questions for y'all.

Our current allocations are as follows:

A) 35.9% individual stocks - About 25 companies from MF Hidden Gems, Income Investor, and Inside Value, with the higher-yielding companies in Roth accounts and the others in a no-commission taxable account. This allocation will receive about 55% of future contributions over the next several years, with most of this going into the Roth accounts.

B) 21.8% Vanguard 500 Index - in a Roth IRA. This allocation will receive no further contributions.

C) 19.9% Russell 3000 Index - in an extremely low-cost state retirement plan. This allocation will receive about 20% of future contributions.

D) 9.0% Vanguard 500 Index - in a SEP-IRA. This allocation will receive about 20% of future contributions.

E) 6.7% Vanguard 500 Index - in a 403(b). This allocation will receive no further contributions.

F) 6.6% Russell 2000 Index - in an extremely low-cost state retirement plan. This allocation will receive about 5% of future contributions.

My questions concern vehicles B, D, and E. Together, these three vehicles comprise 37.5% of our portfolio, but this will slowly decline, as only 20% of future contributions are headed to these vehicles.

Each of these three currently consists solely of the Vanguard 500 Index fund. I want that to change. Specifically, I would like to take on a small bond allocation and an international stock allocation. I also have a strong interest in REITs, but I am somewhat concerned about the valuation of the REIT index at this time. I'm sticking with Vanguard, regardless. My short-term target (say, the next 5-10 years) for my overall portfolio would be something like this:

Bonds ~10%
International stock ~10% (to include exposure to emerging markets)
REIT ~10%
US stock indexes ~25%
Individual stocks ~45%

These percentages are just ballpark numbers. I've considered just investing all three of these vehicles in the LifeStrategy Growth Fund (VASGX) to capture some bond and international stock exposure, and to relieve myself of concern over the fact that the SEP-IRA will be receiving contributions while the other two accounts will not. I'm curious what folks think about the fact that VASGX invests 25% of its assets in the Asset Allocation Fund. Is there a common opinion of that fund here? It's not an index fund, but I'm not sure I mind for such a small slice of my portfolio.

I could also go with the LifeStrategy Moderate Growth Fund. My beef with that fund is the small international stock investment (~10%). On the other hand, there is still the 25% Asset Allocation Fund investment, which may allow for international stock investments (does anybody know about that one?). And this one would give me about 10% in bonds overall, versus 3% from VASGX (sorry, thinking out loud now).

A possible concern with both of these funds is that the bond allocations are in the Total Bond Market Index. I've seen numerous posts recently that indicated a strong preference for the Intermediate Term Bond Index. This is just one of several concerns (along with the absence of an REIT position, for example) that makes me wonder if I should select separate funds for each of the Vanguard vehicles.

I'll stop there. I appreciate your having read this far, and I look forward to your input.

-squarepegs



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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43385 of 76397
Subject: Re: Which combo of VG funds for retirement vehic Date: 12/2/2004 3:25 PM
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Greetings squarepegs,

I've considered just investing all three of these vehicles in the LifeStrategy Growth Fund (VASGX) to capture some bond and international stock exposure, and to relieve myself of concern over the fact that the SEP-IRA will be receiving contributions while the other two accounts will not. I'm curious what folks think about the fact that VASGX invests 25% of its assets in the Asset Allocation Fund. Is there a common opinion of that fund here?

IIRC, this is one of those funds that some Vanguard Diehards loathe. The fund invests in a combination of large-cap stocks, long-term Treasury bonds or cash depending on which allocation a market timing suggests. Like I said, this isn't a well liked fund though some accept that sometimes you can't always get what you want. *sigh*

I could also go with the LifeStrategy Moderate Growth Fund. My beef with that fund is the small international stock investment (~10%). On the other hand, there is still the 25% Asset Allocation Fund investment, which may allow for international stock investments (does anybody know about that one?).

As noted above, the Asset Allocation fund doesn't do international. STAR though would do international and has some bonds if you're willing to take on a combination of actively managed funds, fwiw.

My temptation would be to use the Roth IRA for a bond fund which could be any of the Intermediate-Term Bond Index, GNMA, or TIPS funds that would likely be good options, IMO. As for the others, the 403(b) I would make international stock as a base and then use the SEP to overweight whichever may need it. This is just a "What I would do if I were you" suggestion.

Regards,
JB

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43386 of 76397
Subject: Re: Which combo of VG funds for retirement vehic Date: 12/2/2004 4:33 PM
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The life strategy funds are marketing gimmicks. Vanguard just wanted to keep pace with the traditional brokers who were offering these types of services, with huge fees attached. You get the same thing with Vanguard, only without the huge fees. All and all, I think they suck big time, as our Vice Pres would say.

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Author: squarepegs Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43387 of 76397
Subject: Re: Which combo of VG funds for retirement vehic Date: 12/2/2004 4:36 PM
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Hi JB,

Thanks for the response. So you're proposing a more finely-tailored strategy, I see. That actually suits my very hands-on style quite well. I'll look into those three bond funds and see which one looks best. I'll also check out the STAR fund in case that one solves my problems in one fell swoop. Maybe I could even combine your ideas and put bonds in the Roth, international stock in the 403(b), and STAR in the SEP.

Thanks for the information and the suggestions.

Regards,
squarepegs




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Author: squarepegs Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43388 of 76397
Subject: Re: Which combo of VG funds for retirement vehic Date: 12/2/2004 4:40 PM
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Hi Res (no pun intended),

Thanks for the no-holds-barred commentary! I'm definitely leaning away from the lifestrategy idea now. I'm glad I posted here. I had been hitting the different ideas around for so long that I almost caved in and took the simple way out. The flip side of "buy and forget" is that you give up chances to learn along the way.

Hey, thanks again.

-squarepegs


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