
20 Comments
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Chetan
Hello Ramit & IWTYTBR Readers, Per Ramit's advice, I've opened a target date retirement fund through Vanguard. I'm self employed, and am able to max out the ROTH IRA. My question for Ramit and the rest of you is what other index funds would you recommend for someone in my shoes? I purchased the Vanguard REIT fund in a regular taxable account and intend to hold it for quite some time. I just didn't want significant overlap in my investments so I wanted to get informed opinions. Thank you in advance.
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Joe
REIT is extremely tax INefficient, which means you'd be much better off investing the fund in tax deferred accounts. You're better off thinking of all of your investments as one large portfolio so you know how when and how to rebalance your portfolio. If you're already sold on index funds, do a google search for 'bogleheads' for additional resources for investing advice.
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Rhon
I suggest you make sure your investment matches your intention. For instance, a REIT gives you a type of real estate exposure but correlates most closely with small cap stocks. Were you looking for RE to supplement your target date or more small cap? Vanguard has some great balanced and target date options for after tax funds. Nice to have a team of professionals determine stock/bond allocations and do all of your rebalancing and dividend reinvesting for you! I use the target date funds for my 401(k), 529 and after tax since it's just me without the monitoring tools or time to devote to reallocating.
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Angela
Chetan, from what I've read elsewhere, if you're buying a target retirement fund, it's not a good idea to mix other index funds with it, because the target retirement fund has a set allocation that most likely includes a mix of index funds, and by buying other index funds, you're messing with the allocation. For example, let's say your target retirement fund has a 60/40 equities/bond mix. By additionally buying other funds, your total portfolio would have a 65/35 mix. Your target retirement fund also automatically rebalances for you, so if you were to buy other funds, you'd have to take rebalancing into account.
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Chetan
Angela & Joe...Thank you for the replies. I've read through Ramit's postings, and maybe I didn't understand some of the advice correctly. He suggested that after you contributed as much as you can to your ROTH IRA & 401k (401 isnt applicable to me), you should invest the remainder in a regular taxable investment account. So, since I had a few funds left over to invest AFTER my Roth IRA (Target Date Retirement Fund), I invested the remainder in a regular taxable account (Vanguard REIT Index Fund). I will not be funding the REIT as aggresively as the ROTH IRA... I did do some reading about the REITs not being tax efficient, however, I've also read on the Boglehead forums that diversifying is key & uncle sam shouldn't be guiding your investment decisions. The reason I invested in the REIT is that they aren't represented in large volume in the Target Date Retirement fund that I have set up (according to Vanguard representatives). The purpose was diversifying... What funds would you recommend for a regular taxable investment account? Current "portfolio": Retirement - ROTH IRA: Target Date Retirement Fund - Vanguard Regular Taxable Investment Account: REIT Index Fund - Vanguard I'm new to this so please excuse the novice questions & reasoning. Thank you very much
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Anca
I just poked around in Schwab for some way to automate rebalancing, but no dice. Definitely seems like a useful tool brokerages could implement. (Maybe Ramit with all his clout could lean on them to get something made?) I guess with a little work I could make a spreadsheet to speed up rebalancing, but wouldn't it be nice to not have to?
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Anca
Follow-up comment for anyone interested in auto-rebalancing: If you use Google Docs search the public templates for "Portfolio Rebalancer Template". Then if you want to make it even easier, in the spreadsheet go to Tools, then Script Gallery and search for the script titled "Stock Price" which will auto-fetch stock prices from Google Finance. Click install then go to the Script Manager, click run, authorize it, and click run again to insert it into the spreadsheet; it will need the first 4 columns empty else it will overwrite them. If the script doesn't auto-update when you open the spreadsheet, run it from the Finance menu drop-down.
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An Anonymous Investment Analyst
This post is very dangerous. The drawdowns (amount lost from the highest point in your equity to the lowest point) can be quite high. Does this limit the amount of volatility in your portfolio? to an extent, yes. The idea that market timing is a fools game is far beyond the truth. There are many advisers and traders that have been very successful in timing the market to some extent. What's important is solid risk management and holding true to it. Simply buying and index fund and saying "well that's as good as it gets" is absurd. If you can't afford an investment adviser then try websites like covestor.com or wealthfront.com (I have no affiliation with either of these by the way) to find an investment style that works for you. If you had bought that passive index fund tracking the S&P 500 back in 2000, then you are still waiting to see a positive return. Ramit, you're better than a post like this.
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Vincenzo
i looked through your article and have the same issue with tim ferris as thats how i came through to you. the book is based from the US and so much is based toward the talk and products and links. Is there not a way to start up some new books in the UK. I notice you have put your effort into youngsters and i think you are great. Could you do the same in the UK. Have you any friends over here that think the same way. Vinnychoff
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jack foley
yea it is a problem -selling low and buying high i advise my buy and hold investors to turn off their pc when they have entered a position. Once emotions get involved such as fear, one doesnt think clearly..
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Nunzio Bruno
I'm a huge fan of automation - protecting people from themselves. Automating your portfolio is a great way to manage risk levels and keep consitency through those more volatile times.
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Paula
Hello All & Happy Holidays, I'm self-employed, have been for over 10 years. I've received advice from many sources, some cost me money and some saved me money. I created 2 target funds from separate indexes with a five year gap between the two. I arranged them this way because with all the info available I'm scared of retiring too soon or too late, I know I want the money available when I'm ready with no penalty. Rebalancing was something I learned the hard way, that's why I took my investing in my own hands. Loosing a bulk of your money and having an investor tell you they don't know why or how is a perfect reason rebalancing should be done more sooner than later.Everyone has had great input thanks for the useful information.
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sal
Inspirational,educatioal and a priceless lesson. Keep up the excellent work,kudos. Thank you,in sincerest appreciation.
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Sarah
Bonds for this crowd? Could we get a post from Ayres & Nalebuff, please? Something that views risk--like the risk of not retiring with enough cash--in a more comprehensive light? Saying "invest in a broad index fund--people can't pick sectors" begs the question of which countries to invest in. Even the international indices choose some arguably arbitrary weights by which to invest. That said, the big issue here is that people might think they're diversified if they're 100% invested in the U.S. It helps that many U.S. companies are multinationals, but that's still a big bias.
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Jimmy
Hello, I'm interested in moving funds from my online savings account to a brokerage account to apply the 60/40 practice. I would like to pose a question, is there a fund out there that allocates the same 60/40 percentage of US & International stocks and rebalances accordingly? Thx.
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David @ yesiamcheap
I really like your Venn diagram. We should focus on what we can control in life. Sadly, so many of our economic decisions are based on fear.
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John Ouellette
Hi All, It is possible (and highly rewarding) to invest in single great companies. I am a fan of Phil Town's books: http://philtown.com/. I have done so and happy with the results as I now take control of my own investing. I used to buy S/P 500, but it if you get to the root of knowing what a company is worth you come out ahead and it's fun too! Same principles apply of not having fear when others are running scared. Not to mention although the S/P 500 is diversification, it is still guessing, as you don't really ever get a handle on much. All the best and thanks for the post! John
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Hdhfbfjjfc
Buy stuff in greece now!
Comments are closed.
Maxime
Hi Ramit, That is a great post to give us work before Christmas. I just bought the book. One question : Carl says to sell high to buy low when rebalancing. In your book, page 205 in my version, you said you hate selling while rebalancing. Did you change your mind or do you still encourage us to buy more of the underperforming assets? If so, when do we sell high if we never sell? Merry Christmas, Maxime