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Looking for feedback.

Currently, I have 30K in a Vanguard IRA, all in Index 500. I want to shift this money into something more aggressive, as I'm only 30.

I am considering shifting it into Vanguard's Capital Opportunity Fund (5 year holding period or pay a 1% fee on withdrawal). My other choice is to switch a chunk of the fund (20K)to a brokerage account and buy QQQ.

Any thoughts?

Rusty
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No. of Recommendations: 0
Looking for feedback.

Currently, I have 30K in a Vanguard IRA, all in Index 500. I want to shift this money into something more aggressive, as
I'm only 30.

I am considering shifting it into Vanguard's Capital Opportunity Fund (5 year holding period or pay a 1% fee on
withdrawal). My other choice is to switch a chunk of the fund (20K)to a brokerage account and buy QQQ.


Buy the QQQ's.

You buy and sell just like a stock. Therefore you can use limit orders. You do not have to sell/buy and then waite until the end of the day to see if you got hurt by a big market change.
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Keep the VFINX. The market is efficient enough, it's not worth the effort to try to beat it over the long haul. Look at all those professional managers who can't beat an unmanaged average and couldn't beat it even if they refunded all of their management fees (as they should). Skip the trading costs, taxes on realized capital gains, and research costs. It worked for me, when I finally gave up trying to beat the market.
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Vanguard has good index funds, but if you are
looking for something aggressive they really
don't have funds that fit the bill.

The stock "Foolish" answer would be to avoid funds
aren't low-cost index funds. I don't always agree
with that, but I do agree that it isn't easy finding
good-quality aggressive funds to hold for a
reasonably long period of time. Finding good
stocks is probably easier because you don't have
to worry about a fund manager doing something
stupid on you. The question then comes down to
determining if you have enough money to diversify
to the degree that makes you feel safe.

Funds and index shares definitely get you more
diversification with a lower IRA balance. However,
concerns about bozo fund managers I find pushes you
to diversify across funds as much as you would
want to diversify across shares. As a result,
with a low IRA balance I think the next step
after an index fund is to look at an index share
for a sector you have faith in. QQQ is an
obvious candidate if you have faith in large-cap
technology stocks. There are other Nasdaq index
shares for S&P sector components that you might
want to look at too. Just remember not to rely
too much on history; the last couple of years for
QQQ have been awesome, but interest rates were
dropping at the same time the technology sector
really heated up. This year may not look as
good because large-caps tend to be interest
sensitive, but personally I think QQQ is a great
long-term hold.

It seems your IRA balance is large enough that you
might want to also look at some individual stocks.
I'd suggest the next step to consider would be to
look at the Fool 4 and RuleMaker portfolios. Do
your homework and take on the level of risk/reward
you are comfortable with. It's not like you have
to do it all at once; you can transfer money to
your brokerage account a bit at a time as your
experience and risk tolerance grows.

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Do you worry at all that all the money is flowing out of Blue Chips and into Technology? Is the meteoric rise of QQQ a self fulfilling prophecy, so to speak? Meaning that, people are jumping on the tech wagon, so they dump money into QQQ, thus fueling an increase (likewise NASDAQ) while the rest of the market tanks.
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!Do you worry at all that all the money is flowing out
!of Blue Chips and into Technology? Is the meteoric !rise of QQQ a self fulfilling prophecy, so to speak?
!Meaning that, people are jumping on the tech wagon,
!so they dump money into QQQ, thus fueling an increase
!(likewise NASDAQ) while the rest of the market tanks.

If I were looking for a short-term investment then
sure I'd be worried. Of course, no matter what the
investment is, the shorter your time horizon the
more you worry about whether or not you made the
right decision. We are all human; nobody would be
be happy to dump a bunch of money into QQQ on a high
and have it sink down the next week in a major market
correction. It helps a bit if you gradually extend
your position to average out if the price goes down
(or, alas, to average up if QQQ keeps going up).
That said, I'll give you a little bit of personal
historical perspective.

Last August everybody could see that interest rates
were becoming an issue. I had been planning on
transferring some money into some tech-sector
funds (I can't purchase individual stocks in my
401k) and I was hung up waiting for a relevant piece
of account paperwork to go through. I did the 'wise'
thing and put some of my money in a money-market
fund instead of leaving it in the index fund. The stupidity of market timing being what it is, I
lost about 5% in comparison to where I would have
been if I'd just left things alone. I finally
was able to transfer into the tech funds I wanted
in September/October, and the market was still a
bit rocky. I just ignored it, figured I was there
for the long haul. Turned out to be a pretty good
decision; I was up about 50% in 5 months.

I find things turn out better when I do my homework
and make decisions. The results aren't so good when
I get caught up in reacting like the rest of the
market cattle. Last summer I sat myself down and
said 'Reid, where do you think the growth will
be, and why do you believe that?'. Here were my
answers (which only apply to me; you will have to
find your own answers):

- Technology, broadly defined, has been fueling
growth for a long time. No matter what the
short-term market bounces may be, for any company
in any industry to perform better in the future,
chances are that company will look to a technology
solution to give them a new edge. I see no reason
for the situation to change in the next 10 years.

- Health care, broadly defined, has tended to do
well and will grow as the baby-boomer population
ages. Often it isn't the red-hot sector that
technology is, but I think the fundamentals
are there.

- Financials, broadly defined, also tend to play
a big role in economic growth. Why? No matter
who is making money at the moment, the financial
community will be there taking a cut of the
action one way or another.

So, with those decisions in hand, I did a lot of
homework and spread money across some tech-heavy
funds I thought were good choices. I didn't have
enough money to tackle health care and financials
yet, and I wasn't sure it was a good time to start
on them anyways (and I was really right about
one of those, and really wrong about the other).
Fund managers, being average beasts, gave me
results that averaged out to a bit better than
the increase in the Nasdaq, which is the target
I was shooting for. I force myself to only
transfer money into these funds at the start of
the month, to have a more mechanical discipline
of investing.

So, should you worry about the price of QQQ?
No. You should decide what it is about a stock
or fund that would make you want to put your
money there. Don't focus on the short-term
results. Focus on the quality of the
implementation. Don't say "I want this to
go up 25%". Say "I want to do at least as
well as the sector I believe in" (or some
other qualitative notion relevant to your
financial views). Then look at individual
investments and ask "am I am seeing a good
tool for achieving my objective?". Do you
want technology-based growth, diversification,
and low costs? If those are your criteria
then ask yourself if QQQ meets those criteria
or not.

Just remember, a bad investment at a good price
is a still a bad investment. A good investment
at a bad price, held long enough, generally still
turns out to be a good investment. Long-term
market behaviour is your friend.

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