How is our Portfolio?

[LondonBroil]

Semi-new to the whole investing thing. Started a 401k at work (Fidelity) about 18 months ago, wife started a year ago. I'm 28, she's 26. I also started a Roth IRA through Vanguard this year (haven't gotten the Mrs. to open one yet).

Do we have enough "exposure" to the different asset classes? Do I have to worry about putting anything into bonds/cash when I'm only 28?

My 401K (~$14,500)
Allocations:
35% NTGI Daily Russell 2000® Index Fund
35% NTGI Daily S&P 500® Equity Index Fund
30% NTGI Daily EAFE (Europe Australasia Far East) Index Fund
And my company gives me a match on my first 5% in company stock.

Wife's 401K (~$6000)
She picked something like a "Moderate Growth" option which has a mishmosh of Jennison Groth funds, can't really find out info about them.

IRA (~$4000) $3000 from 2004 and only $1000 from 2005 so far. I know, I know, what am I waiting for.
100% VFINX

[Uglyowl]

First and foremost make sure you are contributing enough to get the full company match. I am amazed at how many people don't take advantage of this.

I like the simplicity of what you are doing, personally I have 5% in bonds at age 29, just to have some.

You will be amazed how quickly your 401K will grow.

[DesertCat]

[ QUOTE ]
Semi-new to the whole investing thing. Started a 401k at work (Fidelity) about 18 months ago, wife started a year ago. I'm 28, she's 26. I also started a Roth IRA through Vanguard this year (haven't gotten the Mrs. to open one yet).

Do we have enough "exposure" to the different asset classes? Do I have to worry about putting anything into bonds/cash when I'm only 28?

My 401K (~$14,500)
Allocations:
35% NTGI Daily Russell 2000® Index Fund
35% NTGI Daily S&P 500® Equity Index Fund
30% NTGI Daily EAFE (Europe Australasia Far East) Index Fund
And my company gives me a match on my first 5% in company stock.

Wife's 401K (~$6000)
She picked something like a "Moderate Growth" option which has a mishmosh of Jennison Groth funds, can't really find out info about them.

IRA (~$4000) $3000 from 2004 and only $1000 from 2005 so far. I know, I know, what am I waiting for.
100% VFINX

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Isn't the S&P 500 index just a subset of the Russell 2000? I'm not sure why you own both, when the Russell 2000 is fine on it's own. Otherwise I like your 401k, esp. the 35% intl exposure.

Does your wife have any index fund options? I always recommend them first over managed funds.

Overall, looks like you are doing fine. At your age you can get by without any bond allocations for quite some time.

russell 2000 is an index of small caps

[buffett]

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russell 2000 is an index of small caps

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which is just now finishing up its 6th consecutive year of outperforming the S&P500, so some people might think that 35% would be too much to be putting into small caps right now.

[DesertCat]

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russell 2000 is an index of small caps

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Oh, gotcha. I was confusing it with the Wilshire 5000, which is basically every U.S. stock. In that case I like the 401k even more. I don't think the OP could have done a better job allocating his passive portfolio, esp. given his age group.

[cdxx]

i like your portfolio. definitely get your sigoth to open an IRA. you can use it to save up for a down payment on a house too.

i have one suggestion though, instead of being caught up in an index fund, which requires no work or insight, you can use the ira to make more intelligent bets. you are already doing that in your 401k, since you picked Intl (there's a lot of markets that are much better than US market right now).

for example, a position in an energy fund would have netted you very good returns YTD. right now, i am considering a position in technology, such as BUFTX or JAGTX (the only thing that's stopping me are my huge positions in tech stocks already).

the reason to do it in your IRA is that IRAs are much more flexible than 401k. you get to buy whatever fund you want, as well as stocks and etf's, and more closely match the sectors you want, as well as asset classes.

[DesertCat]

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i have one suggestion though, instead of being caught up in an index fund, which requires no work or insight, you can use the ira to make more intelligent bets. you are already doing that in your 401k, since you picked Intl (there's a lot of markets that are much better than US market right now).

for example, a position in an energy fund would have netted you very good returns YTD. right now, i am considering a position in technology, such as BUFTX or JAGTX (the only thing that's stopping me are my huge positions in tech stocks already).

[/ QUOTE ]

What makes you think either you or OP have any better insight into the best sectors of the future, than is already reflected in current market prices? Academic studies show that chasing "hot funds" or "hot sectors" almost always leads to lousy performance as they typically do much worse going forward.

In the case of OP's intl fund, it's a reasonable hedge against the falling dollar. The beauty of a passive portfolio built around index funds is that OP will never trail the markets. He won't beat them either, but not trailing means he'll beat 95% of actively managed funds over time.

[cdxx]

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What makes you think either you or OP have any better insight into the best sectors of the future, than is already reflected in current market prices? Academic studies show that chasing "hot funds" or "hot sectors" almost always leads to lousy performance as they typically do much worse going forward.

In the case of OP's intl fund, it's a reasonable hedge against the falling dollar. The beauty of a passive portfolio built around index funds is that OP will never trail the markets. He won't beat them either, but not trailing means he'll beat 95% of actively managed funds over time.

[/ QUOTE ]

i didn't say i had better insight, but you strategy doesn't have to be chasing hot funds or hot sectors. it just requires a little foresight. like you mentioned, your positions can be simple hedges against a lot of different factors, rising oil prices, utilities, inflation, real estate appreciation. if all else fails, you can even consult any number of financial advisors (the poo-bahs in this forum certainly have more faith in them than in fund managers).

never trailing the market is great, certainly some of your portfolio should be in that. based on the OP's retirement allocation, i suggest that upto 20% can be in a position that can potentially outperform the market in the next 6-24 months.

[cdxx]

i was thinking about this after the last post. i would say most people in this forum think like this :

BRK.A > BRK.B > financial advisors > index funds > fund managers

i'm just guessing. feel free to correct me, this is all in good fun. /images/graemlins/wink.gif

[Sniper]

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financial advisors (the poo-bahs in this forum certainly have more faith in them than in fund managers).


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Taken out of context, I don't think this statement is true.

If you have a decent sized portfolio to invest, and know virtually nothing about the markets, a conversation with a financial advisor that can evaluate YOUR specific situation, and guide you in thinking about all necessary issues, is certainly useful... But, it is only a starting point!

To anyone that is looking to have a nice sized nest egg built up by the time they retire, investing the time to learn more about the markets is +EV.

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BRK.A > BRK.B > financial advisors > index funds > fund managers

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First, financial advisors and fund managers aren't products that you can invest in... their suggestions or products are... so they don't really fit in this equation.

Second, the specific ranking of investment options will vary based on many varied and specificly individual factors.

Finally, while some of the posters here are very serious supporters of Buffett, I don't think they would blanket recommend that everyone put their whole port in Berkshire stock!

[AceHigh]

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russell 2000 is an index of small caps

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which is just now finishing up its 6th consecutive year of outperforming the S&P500, so some people might think that 35% would be too much to be putting into small caps right now.

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Don't we wanna be in funds that out perform the S&P? I think the Russell is probably a better index.

[buffett]

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Don't we wanna be in funds that out perform the S&P? I think the Russell is probably a better index.

[/ QUOTE ]
This hinges on whether you believe that the powerful concept of reversion to the mean applies in this case. I do, so I expect the Russell 2k to do relatively poorly over the next few years. (I also believe, though, that in the super-long term, small caps will outperform as a matter of course.)

[AceHigh]

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Don't we wanna be in funds that out perform the S&P? I think the Russell is probably a better index.

[/ QUOTE ]
This hinges on whether you believe that the powerful concept of reversion to the mean applies in this case. I do, so I expect the Russell 2k to do relatively poorly over the next few years. (I also believe, though, that in the super-long term, small caps will outperform as a matter of course.)

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So if we both believe Russell will outperform S&P why do you think reverting to the mean applies? Isn't the Russell behaving the way we both predict it will?

[buffett]

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why do you think reverting to the mean applies?

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It's a question of time horizon. I expect near-term (next few years) underperformance and long-term (next few decades) outperformance.

[AceHigh]

But it's already doing as the mean predicts isn't it? So we would expect it to continue wouldn't we?


Or do you think Russell will under perform for some other reason?

[buffett]

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we would expect it to continue wouldn't we?

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Maybe this quote from a recent UBS report (http://financialservicesinc.ubs.com/Home/PWSmain/0,,SE3424-EN3424,00.html) does a better job of articulating my point:

"...small capitalization stocks have outperformed large capitalization stocks for the past six years....such streaks are not unprecedented, but there has been only one other instance in which small caps outperformed large caps for a longer period—a 10-year span that lasted from 1974 to 1983. Over the long term, small-cap stocks, on average, have outperformed large-cap stocks by about 5% per year...By the end of the 1990s, it was much easier to make the case that small-cap stocks were a good value relative to large-cap stocks....Now, after six years of relative outperformance, small caps can no longer be considered "cheap" on a valuation basis. Valuations of small-cap stocks, which were far below their long-term averages at the height of the tech/media/telecom mania, have now reached or slightly exceeded their average valuations relative to large caps."

[AceHigh]

Thanks, I understand that.