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My employer offers two index funds (S&P 500 and Russell 2000). Would it be more Foolish to invest half in each or all in one?
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My employer offers two index funds (S&P 500 and Russell 2000). Would it be more Foolish to invest half in each or all in one?

The S&P 500 is a large cap index, while the Russell 200 is a small cap index. A mixture of both is used in a lot of portfolios. I don't think half and half is recommended. I believe it's more like 15% small cap. Everyone has their own opinion on that. Ask for recommendations on portfolio allocation. That'll help you decide better.
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Greetings jameyer23,

My employer offers two index funds (S&P 500 and Russell 2000). Would it be more Foolish to invest half in each or all in one?

I think the better question is whether you understand the differences between the two indices and how each covers a very different part of the market since S & P also has a Small-cap 600 and Russell has a Russell 1000 for their large-cap index.

Secondly, depending on your strategy and other holdings either may make sense. For example if you have a taxable account that holds a lot of large-cap exposure then it could well make sense to overweight the small-cap fund here or if the employer plan is everything then a more moderate approach of say 66/33 or 75/25 may make more sense. Remember, no one can say which mix is optimal before the returns are known, eg it is much easier to see what you should have held in the 1990s but not so easy for 2002-2012.

JB
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Well, the 5 year returns for each look like this:

S&P - 9.55%
Russell - 3.51%

I also have an IRA that I'm probably going to move into an Index fund and will be purchasing some Dow Stocks. I have a pretty high tolerance for risk, just want to make sure I"m putting the right amounts in these index funds for my 401K.
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Greetings jameyer23,

Well, the 5 year returns for each look like this:

S&P - 9.55%
Russell - 3.51%


But are the next years going to be like the past 5 years or are they going to be much different? I'd also note that there are some historic times where small-caps were much better than large-caps so that over time it could be that a mixture re-balanced annually could do better. Given the volitility that exists for small-caps at times referred to as the 'small-cap premium' that was part of the work done by Fama and French and others. If you'd like more look at "The Intelligent Asset Allocator" by William Bernstein or his site at www.efficientfrontier.com that discusses various asset allocation strategies.

I have a pretty high tolerance for risk, just want to make sure I"m putting the right amounts in these index funds for my 401K.

How can you know the 'right' amounts? You can estimate and do your best but that isn't quite the same after you have the benefit of hindsight.

Just some food for thought,
JB
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