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Hi all,

I would like your expert advice of allocating my rollover IRA. now is it in Vanguards so I would like to buy Vanguard funds or other funds without transaction fee charged by Vanguards.

Thanks a lot.

Jane
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Jane, who manages your IRA now? Have you checked with Vanguard on their transaction fees? Its news to me that Vanguard charges transaction fees. Usually that comes up when you own a brokerage account and then choose to buy certain mutual funds.

If your account is very small (usually below $10K), sometimes Vanguard has extra fees for that. But start by finding out what fees Vanguard would charge for an IRA in their mutual fund account.

If your account is too small for Vanguard, then you may want to consinder an account at a discount broker. Check for their annual maintenace fees. Some have had no maintenance fees, but these policies seem to change. ETrade, Scottrade, and TDWaterhouse are the ones most often recommended on these boards. I use a Fidelity brokerage account. Vanguard may also have brokerage accounts. Bank of America just announced no commissions for accounts over $25K.

In a brokerage account you will want to fully understand which funds you can buy with no fees, and which ones require transaction fees. If you find suitable funds without transaction fees, fine. Otherwise, paying brokers commission for ETF's might be best. SPY is the S&P 500 tracking stock. QQQQ is the NASDaq 100 tracking stock. There are many others.

Decide what is best for you to invest in and then choose the custodian with the best fee/service package for your needs.

Good luck.
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Hi,
My IRA asset is big enough that Vanguard does not charge any fee. But Vanguard does charge transaction fee if I buy fund like "fidelity fund" through fundAccess.

Could you give me some asset allocation model?

Thanks,
Jane
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Assuming you are more than 10 years from retirement, Fools would usually suggest that you be 100% in equities. The basic one is an S&P 500 Index Fund, but some now prefer a Total Market Index fund (due to the better return offered by small caps in recent years).

This basic fund can be 100% of your assets, but as your assets grow and as you gain more experience most would diversify. That would mean keeping a minimum of 50% of your funds in that basic investment, but then dividing the rest among say 3 other funds or investments. Those should be selected from an international fund, a REIT fund, a hot performing sector fund, a growth fund, or carefully selected individual stocks. Conservative investors could include bonds, CDs, or other fixed income investments in this list.

As your assets grow past say a year's pay, you can add more investments. As you grow in experience, you will develop your own investment style. But keep the investments manageable considering the time you have available to watch them.
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Could you give me some asset allocation model?

Hi Jane...

You may want to take a look at Vanguard's line of "Target Retirement" Funds to get an idea of various ways to allocate your assets depending upon your current age and retirement goal:

http://tinyurl.com/n56kh

When you select one of these funds, click on its "Holdings" to see the breakdown of underlying funds and their percentages.

My thoughts are that one of these funds is a good starting point - especially if you are rather new to investing, like the idea of lower expenses and also don't want to spend a lot of time tending to your investments.

Regards,
Bill
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>>Assuming you are more than 10 years from retirement, Fools would usually suggest that you be 100% in equities.<<

I wouldn't ever go with more than 75-80 percent equities in a retirement portfolio. The extra potential return for that last 20-25 percent in equities isn't worth the volatility. See Benjamin Graham's "The Intelligent Investor" and William Bernstein's "Four Pillars of Investing," among other sources that speak to this. I think this is more "usual" advice, though obviously, one size does not fit all.

A new investor in particular might find a portfolio of 100 percent equities mighty hard to stomach.

Soooz
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I agree with the Snooz.

If you have some cash in a money market funds be sure to include that in your allocation.

buzman
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A new investor in particular might find a portfolio of 100 percent equities mighty hard to stomach.

I've not read the books, but I plan to do some reading this winter. Does a less than 100% equities tend to offer higher returns long term or does it merely save on PeptoBismal?

-murray
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I've not read the books, but I plan to do some reading this winter. Does a less than 100% equities tend to offer higher returns long term or does it merely save on PeptoBismal?

Typically, equities have the highest long-term returns. Adding other asset classes (such as fixed income/bonds) will usually reduce the long-term returns, but it will also reduce the fluctuation in returns from year to year. So you are giving up growth to gain consistency.

It is easy for someone to say, "I have a long time, I want to go for the maximum growth." And they will feel great while the market runs up. But when the market turns south, a lot of these people will pull their money out of the market -- very often right before the next big run up.

For this reason, many people suggest a nice balanced portfolio that has money in multiple asset classes...US equities, foreign equities, bonds, real estate, etc. Then they suggest you develop a plan and stick with it for the long-term.

Acme
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>>Does a less than 100% equities tend to offer higher returns long term or does it merely save on PeptoBismal?<<

Generally, the higher the risk the higher the returns. Equities are risky investments, bonds are less risky and CD's / savings are generally lowest risk because of insurance up to $100K. That is why you should require higher returns for equities. That's why banks charge someone with a FICO of 600 more on a loan than someone with an 800...they are riskier...

I would take a lower risk 8% return over a high risk 12% return any day....life is too short as it is in worrying over volatility in equities..

d'man
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In the future, you should reply to the person that actually wrote the text you are quoting...

Acme
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I would take a lower risk 8% return over a high risk 12% return any day....life is too short as it is in worrying over volatility in equities..

I don't necessarily agree/understand. Are you talking risk or volatility?

IMHO

Risk = Chance you will lose money.
Volatility = Fluctuating returns, both positive and negative.

Over periods of 10 years or more, index funds have very low risk, though they still have volatility. OTOH, if you pick a specific date in the near future, there is a good chance that your return is negative.

Yes, if the investor is going to get cold feet at the first sign of a downturn, equities is not the place for them. OTOH, I've been nearly 100% in equities since I started my 401k in 1989. My overall return is over 9% including the bad years in the early part of this decade.

How would bonds/CDs help me?

-murray
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How would bonds/CDs help me?

-murray

------------------------------------------------------------------------

CDs likely little but Bond mutual funds would have increased your return.

From 1989-2005 an 80/20 portfolio of DFA funds returned 11.9% annually.

Also, adding high yield bond funds in a tax deferred account makes a ton of sense.

buzman
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"Does a less than 100% equities tend to offer higher returns long term or does it merely save on PeptoBismal?"

Fixed income investments tend to stabilize your investment. When stocks are doing well, they hold down your rate of return. When stocks are going down, they tend to retain the value of portfolio. Hence they reduce volatility. Nothing more; nothing less.

Every investor has to find a portfolio that matches his (or her) willingness to accept risk. But for say a 30 year old, I would say bonds are a foolish waste of time. You are probably at the low end of your lifetime earnings scale. You are stuggling to get your first year of earnings into savings. That is the best time for you to take risk. Because the funds are easily replaced. So they are best off to do 100% equities.

As you get closer to retirement, people should increase their fixed income proportion. And of course those who can live on something like 2% of their invested assets can be 100% in fixed incomes. The rest of us are forced to take some risk.

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"I wouldn't ever go with more than 75-80 percent equities in a retirement portfolio."

It's a fundamental tenet of Fooldom that the S&P 500 Index is a relatively conservative investment, even though it technically is an equity. The long term trend is upward. Average return runs 10 to 11%. Corrections happen, but usually recover within 3 years.

Hence, by sticking to your allocation of S&P Index funds, investors can hold higher equity positions.

Yes, that is quite a change from the old recommendations which would have you put at least your age in fixed incomes.

Everyone has to decide how much risk they can tolerate. But that is a personal decision. Most people we are told are too conservative in the investments they choose for their 401K plans. For those who contribute, it is the most common error.
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>> Everyone has to decide how much risk they can tolerate. But that is a personal decision. Most people we are told are too conservative in the investments they choose for their 401K plans. For those who contribute, it is the most common error. <<

There certainly is truth to the old saying that "sometimes the biggest risk is in not taking enough risk."

Though I personally have about 30% in fixed income and cash despite being only 41 and being probably 10-12 years from full retirement. I did well enough investing my 401Ks and IRAs -- and funding them heavily even in my 20s -- that I can afford to reduce the risk somewhat and still meet my goals. If that means 7-8% instead of 9-10%, so be it. I'm to the point where I'm no longer trying to maximize my retirement savings; I'm now trying to minimize the chances of not meeting my target and in a position to invest slightly more defensively.

#29
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From 1989-2005 an 80/20 portfolio of DFA funds returned 11.9% annually.

This is a case where the legal rider "past performance is not a guarantee of future returns" or however they word things is really key.

Interest rates have fallen *dramatically* in the last 17 years. A huge portion of the returns you are referring to are due to that decrease. Since they cannot do the same thing over the next 17 years, it is pretty much a lock that bond funds will not have similar returns going forward.



Also, adding high yield bond funds in a tax deferred account makes a ton of sense.

On the Bonds and Fixed Income Investments board (http://boards.fool.com/Messages.asp?mid=24774516&bid=100135), it is generally agreed that bond mutual funds are a bad idea...especially in a low interest rate environment like we currently have. Basically, you should be able to beat the Lehman index by putting money into CDs...and your risk will actually be lower in the CDs...

Acme
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murrayS:

My comment relates to my risk profile only. Everyone needs to decide their own risk profile.

Equities carry risk, period. They can loss all their value...that is risk. Volatility creates risk as well because people tend not to like it and it makes them make rash, quick, or un-analyzed decisions. Volatility also creates opportunity for those who understand it and trade options, etc..or who employ market timing strategies.

I applaud your long term buy and hold philosophy...but the key difference between you and I is that I tend to research and purchase individual stocks rather than index funds...thus, with my risk profile and tolerance, I diversify outside of stocks into bonds and cash more than it seems you do.

This works for me but may not for you. If you are 100% comforable with your all equity portfolio, then stick with it.

d'man
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>>From 1989-2005 an 80/20 portfolio of DFA funds returned 11.9% annually<<

This is a case where the legal rider "past performance is not a guarantee of future returns" or however they word things is really key.

Interest rates have fallen *dramatically* in the last 17 years. A huge portion of the returns you are referring to are due to that decrease. Since they cannot do the same thing over the next 17 years, it is pretty much a lock that bond funds will not have similar returns going forward.

------------------------------------------------------------------------

The post responded to reflected that time frame.

>>Also, adding high yield bond funds in a tax deferred account makes a ton of sense.<<

On the Bonds and Fixed Income Investments board (http://boards.fool.com/Messages.asp?mid=24774516&bid=100135), it is generally agreed that bond mutual funds are a bad idea...especially in a low interest rate environment like we currently have. Basically, you should be able to beat the Lehman index by putting money into CDs...and your risk will actually be lower in the CDs...

Acme

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Well if it was posted on an internet message board it must be the Gospel. <grin>

Over the long term diversifying a bond portfolio-high yield, US. Short term bonds, US intermediate term bonds, TIPS, and international bonds-will outperform CDs. Actually we have had a RISING interest rate environment which means bond funds don't do as well

CDs are less volatile than bond funds but CDs also are more suseptible to inflation risk.

We use both, fwiw.


buzman...
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The post responded to reflected that time frame.

It did no such thing. The post you responded to asked how bonds/CDs would help him...that's going forward not looking in the past.



Over the long term diversifying a bond portfolio-high yield, US. Short term bonds, US intermediate term bonds, TIPS, and international bonds-will outperform CDs.

I do not agree with this in the least. Will is far too strong a term. With interest rates still well below historical averages, why would you count on *any* NAV appreciation from a bond fund? Without NAV appreciation, how will today's bond funds beat 5-year CDs that are yielding as much as 6% if you look around and buy when they go on sale?



Actually we have had a RISING interest rate environment which means bond funds don't do as well

Do you believe this? Or are you just trying to make statements hoping people will accept them? Because the facts are definitely not in your favor.

You quoted 17-year returns for a bond fund. During that 17-year period, interest rates have fallen dramatically -- see http://www.naic.org/svo_research_historical_treasury_rates.htm for proof. Sure, they have gone up in the last 2 years, and bond funds have suffered for it. But they have not gone up nearly enough in the last 2 years to overcome to dramatic fall of the prior 15 years.

Overall, rates have fallen significantly in the period you quoted and that increased the returns of the bond funds. It would be virtually impossible for the same things to happen in the next 17 years, so it is insane to use the past 17 years as even a remote indicator of the returns you can expect from bonds/bond funds going forward.

In fact, I would say it is insulting to even try...

Acme
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The post responded to reflected that time frame.

Let me re-address this issue because I think it is important to distinguish between the way I read the post and the way you seem to...

The poster mentioned his returns for the last 17 years...and then asked how bond funds would help him. I read that as meaning forward looking...you, evidently, read it as backward looking. Fair enough.

But quoting the stats for the past 17 years when the next 17 virtually cannot do the same...the least you could have done is provide a rider to that effect.

Acme
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Yes, if the investor is going to get cold feet at the first sign of a downturn, equities is not the place for them. OTOH, I've been nearly 100% in equities since I started my 401k in 1989. My overall return is over 9% including the bad years in the early part of this decade.

How would bonds/CDs help me?

-murray posted

buzman answered>>>The post responded to reflected that time frame.

It did no such thing. The post you responded to asked how bonds/CDs would help him...that's going forward not looking in the past. Amce said.

------------------------------------------------------------------------

Can I be anymore clear? He referred to a specific timeframe and I offered a counterpoint.

Regards,

buzman






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In fact, I would say it is insulting to even try...

Acme

Whatever...let me try this very slowly.

A. Short term bonds historically outperform CDs, but if you want buy CDSs, knock yourself out.
B. It's painfully obvious it is preferable to diversify a bond portfolio across credit quality, countries, and maturities. If you think CDs will outperform that long term, knock yourself out.

C. A CD ladder might do just as well but it is much less liquid than short term bond funds. If you don't believe that knock yourself out.



buzman




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Whatever...let me try this very slowly.

If the best you can do is to...

1. Pompously insult the other side; and
2. Change the terms of the comparison (i.e. from bond funds to bonds)

...then it is pretty much worthless to even try and debate anything with you. Unfortunately, you say things with such conviction that less educated people might be inclined to assume you actually know what you are talking about...

Acme
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Equities carry risk, period. They can loss all their value...that is risk.

On the contrary, a diversified index fund has NEVER lost all of it's value. Could it happen? Yes, I guess it's possible, but I'll bet your other lower "risk" investments wouldn't have much value when the S&P is worthless.

I'm not saying I'm right, I'm just wondering if there is a method to increase your return by having a lower percentage of equities.

-murray
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murray:

I agree that no index fund has ever lost all of its value...but I bet the owners of Enron, Worldcom, airlines, etc and the investors in Amaranth hedge fund used to think they were bullet proof as well. Equities are 100% at risk, even if they never lose 100% of their value.

and you even stated the facts yourself...."I bet your other lower 'risk' investments wouldn't have much value when the S&P is worthless"...if the worst happens, I'll take "not much value" over "worthless" every time.

d'man
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Could you give me some asset allocation model?

Here's a good article about asset allocation models. It even uses Vangard funds for the examples.


PAUL B. FARRELL
'Lazy Portfolios' -- boring midyear winners!
No market timing, no trading, you just beat the S&P 500


http://www.marketwatch.com/news/story/story.aspx?siteid=mktw&guid={DB2FE1FE-444D-4D59-AF7B-3BF006881A2E}
or
http://tinyurl.com/ydl9aq
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Does a less than 100% equities tend to offer higher returns long term or does it merely save on PeptoBismal?

Check it out for yourself, murray. Here's the firecalc link.


http://fireseeker.com/firecalc.php

Vickifool
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I agree that no index fund has ever lost all of its value...but I bet the owners of Enron, Worldcom, airlines, etc and the investors in Amaranth hedge fund used to think they were bullet proof as well.

This is such an apples to oranges comparison. Any individual equity has huge risks. But a large collection of equities has dramatically less risk.



and you even stated the facts yourself...."I bet your other lower 'risk' investments wouldn't have much value when the S&P is worthless"...if the worst happens, I'll take "not much value" over "worthless" every time.

If the S&P500 goes to 0, there would be such anarchy that your "lower risk" holdings would be irrelevant IMO. If every stock in the S&P500 goes to 0, then the bonds of these companies would be worthless; to get there, our government would pretty much have to have imploded, so those bonds and worthless; real-estate values would evaporate because nobody would have any money to exchange.

It is just MHO, but it is folly to look at armageddon scenarios to determine the right assey mix -- because in an armageddon scenario, it will not matter where your money was. Not even the mattress will be a good place to keep you money...

Acme
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Check it out for yourself, murray. Here's the firecalc link

I spent some time with that calculator. It seems to be geared towards investments after retirement, not leading up to retirement.

I fully agree that a 100% equities is not the way to go in retirement since you have no buffer against down years. OTOH, I'll work another year or two if the market goes down before I retire.

-murray
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This reply is not directed at you Acme (just a general reply and I have to give it to someone).

I think the thing that is being slightly glossed over is the fact that risk does not equate to "total loss of principle."

Risk is defined as: "The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. It is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment."

All equities, regardless of how diverse the fund, have significant risk. It is virtually impossible to perdict future returns over the short and intermediate term. I would say the same for long term as well - as we only have past performance as an indicator.

The risk of a well diversified fund going to zero is slim to none but your average conservative investor (in my experience) is as or more concerned that one year from today, that they are not 10% down from the previous year. I don't think many 100% equity funds, if any, can get rid of the risk that such could happen.
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