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ok, thanks to all of you who responded to my last post. It gave me some options to think about. One was to open a vanguard account. I have 3 that I think I'm going to purchase. They are:

Value index fund
500 index fund
small-cap index fund

What do you guys think? any suggestions?
Thanks!
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Forget the three funds and just buy one Vanguard fund: VTSMX. Add to it monthly.
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Value index fund
500 index fund
small-cap index fund

What do you guys think? any suggestions?


Since the S&P 500 includes some value stocks, and since rebalancing does the best for you when your investments have the least overlap and are least correlated, you might consider an international fund like an EAFE index fund in place of a value fund.

Also, some people are going to chime in in favor of active management for the small-cap side. I disagree -- small cap returns are generally quite good even without such management and it gives you less to keep an eye on. My favorite small-cap index to track is the S&P Small Cap 600, rather than the Russell 2000, because there's a little bit of S&P selectivity going on in the former yet it still hits a broad swath of the small-cap market. Since inception, the S&P SC 600 has outperformed the Russell 2000, but there's not necessarily enough history to know how that will hold up for the long term.

For me, I have about $1000 in an IRA in a Russell 2000 fund (NAESX) and about $3500 in my taxable account in an S&P Small Cap 600 fund (DISSX).

-- Mark
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Forget the three funds and just buy one Vanguard fund: VTSMX. Add to it monthly.

Bad idea. You give up diversification with a total market index fund like VTSMX because it's capitalization-weighted. So, it's like having 85% of your money in large caps. It's not that much different from putting all your money in an S&P 500 index fund, which is not diversified among asset classes at all.

What you want is a distribution that's much closer to equal between your counterperforming asset classes. That way, when large caps are going down (like the last couple of years) small caps or international stocks or both will go up with a comparable chunk of your portfolio and help even out the loss.

And remember, rebalance frequently. That way, when your small cap holdings outperform the large cap, you take money out of small cap to put into the underperforming large cap (if you're in a nontaxable account) or you put extra into large cap to get the ratio right (if you're in a taxable account, to avoid capital gains.) You'll end up wringing possibly an extra percent of return out of your investment by doing this every six months.

-- Mark
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And remember, rebalance frequently. That way, when your small cap holdings outperform the large cap, you take money out of small cap to put into the underperforming large cap (if you're in a nontaxable account) or you put extra into large cap to get the ratio right (if you're in a taxable account, to avoid capital gains.) You'll end up wringing possibly an extra percent of return out of your investment by doing this every six months.

I always see advice say annual rebalancing but with the volatility in the markets, six months sounds good as long as there are no transaction costs.

IF
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so what funds? Do my original 3 sound ok? diversified enough? That's why I chose a small-cap fund in the mix because I knew that the total market value fund was overwhelmingly large-cap.
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My one caveat is that while Vanguard is well respected for performance, it's fees, even for retirement accounts, eat into any returns you might have. You might want to try an on-line brokerage like Scottrade, which lets you invest in the full Vanguard family of funds without the Vanguard hassle. There is also no transaction fee for purchasing mutual funds through Scottrade. Worth looking into.
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