No. of Recommendations: 0
Hi,
I'm thinking about putting my Roth IRA money into VFINX (Vanguard S&P 500 Index) and VFIIX (Vanguard Ginnie Mae Fund). Please remember that it is for my retirement money, which is very very long term. I'm currently 23 yrs old so another 37 yrs until I can touch that money.

Even if I learned about mutual fund investing, I would feel more comfortable just letting my retirement money sit in index and fixed incom funds. In next 30-40 years, I don't think I can pick actively managed funds that will beat VFINX. Maybe VFIIX though. If you think differently, please share your thougths.

I'm thinking, either 100% in VFINX or 70% in VFINX and 30% in VFIIX. I'm leaning more towards 100% VFINX because, in the long run, VFINX overperformed VFIIX.

Basically, I want to know what people think about this strategy. Also, whether VFIIX is a good idea for stability or if there are other fixed income funds out there which provide better returns with similar risk.

jin
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No. of Recommendations: 4
Hi jin.

Sounds like a good seedling of a plan.

A few thoughts. My first suggestion would be to read Mutual Funds for Dummies and/or Personal Finance for Dummies. Both are by Eric Tyson and both give an excellent foundation of knowledge.

2. Whether or not your asset allocation plan will be 100% stocks, or 70% stocks/30% bonds depends on your risk tolerance. You're young, so 100% stocks is a reasonable allocation UNLESS you are squeamish and will lose sleep at night during a bear market. Only you can assess that. If you call Vanguard and ask them to send you their "Facts on Funds" booklet, there's a little allocation planner quiz you can take that might help. (They might also have it on their website, but I don't know.)

3. If you decide to go with 100% stocks, VFINX is a good choice for a core fund. On the other hand, for your perusal, you might look into the "Total Stock Market Index Fund" (VTSMX). What's nice about this fund, especially if it will be your only stock fund, is that it covers the broad market. In otherwords, you will not only have what is in VFINX, you will also have exposure to mid and small cap stocks as well. It's more diversified.

4. VFIIX. If you go with the bond fund, I hear that GNMA funds are very good, but I'm not familiar with their ups and downs. The other nice choice in the bond category is VBMFX -- Vanguard's Total Bond Market Index. That will give you coverage in corporate and government bonds as well as mortgage-backed bonds.

5. I'm thinking, either 100% in VFINX or 70% in VFINX and 30% in VFIIX. I'm leaning more towards 100% VFINX because, in the long run, VFINX overperformed VFIIX.

This is like comparing apples and oranges as far as which performs better. Try not to base your allocation on the past performance of a fund. Decide what allocation is best for you and then run with it.

Hope this helps. Good Luck,
Caat
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No. of Recommendations: 2
You may want to look your prospective funds up on Morningstar.com. Their profile gives you a pretty good overview and performance analysis.

However, my recent exploration at Vanguard revealed that it can be quite expensive for young people just starting out. While they reduce the minimum startup amount to $1000 (assuming you are making the maximum $3000 contribution for 2002), they do charge a number of fees that will reduce your annual gains. Some of these fees get waived after you reach $10,000, but that will take you a few years.

As was pointed out to me just last Friday by some more foolish than me, ScotTrade is an on-line discount brokerage that allows you to open an IRA, invest in over 8200 different funds (including the Vanguard family) for no extra fees. They do not provide research tools, but a Fool such as yourself can find other ways to remain educated. Good luck, and you are getting a great early start at retiring a millionaire.

David
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