Now THIS is the kind of investment research you should be doing
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My friend, “E,” who’s in his mid-twenties, writes me:
I quit my job last week, and I’m loving my new focus on [my own business].
One scary thing about being an entrepreneur is that it’s easy to lose discipline with investing (no automatic opt-in of 401(k) for example). I’m in the process of sorting out my investments and I was hoping to get your help. I plan to roll over my old Fidelity 401(k), which is about $40K, to a mix of Vanguard index funds. My Fidelity account currently has the following mix:
- 70% Fidelity Contrafund
- 30% Fidelity Diversified International
I want to roll over these investments to the following Vanguard investment mix, slightly modified by Swensen’s suggested asset allocation (see below)
- 30% – Domestic Equity- S&P 500 Index
- 15% – Foreign Developed Equity – Total International Stock Index
- 15% – Emerging Market Equity – Emerging Stock Index
- 10% – Real Estate – REIT Index
- 15% – Long-Term Teasury Index
- 15% – US Treasury Inflation Protected Securities
In terms of my own investment profile, I seek a somewhat aggressive portfolio since I plan to invest for the long-term. I would also like to copy this asset allocation to my personal Vanguard investments that are not tax sheltered.
A few questions:
- Your thoughts on the diversification and balance on my suggested asset allocation?
- Am I maximizing my ROI?
- Anything you would change or modify?
Two points from E’s email to me:
- What would you tell him? (Note: Here’s a quick collection of links on asset allocation.)
- Lots of people say they want to invest for themselves, but this is the bare minimum amount of research you should be doing. It’s kinda like when people say they want to write a book, or get 6-pack abs…yes, I want two twins in the back of a limo feeding me grapes (that’s all, Mom!!!) but I don’t necessarily want to do all the work to get them back there.
That’s why, when you invest, you can choose convenience or control. Here’s an excerpt from Chapter 7, “Investing isn’t only for rich people”:
When you order the book, forward your receipt to firstname.lastname@example.org so I can send you spreadsheets, bonuses, a signed nameplate, etc.
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