2

I'm currently putting 8% of my income into my 401k (through Vanguard) but the funds that are available to us pretty much suck. We're limited to about 20 funds and I've got myself covered in terms of allocating my funds among large cap, bonds, mid-cap, and small. What I was thinking of doing is putting money into a Roth IRA and try to hit up a few more concentrated areas, say "Emerging Markets" and "Health Care." There are a few other areas I'm interested in but I don't want to spread too much.

Which areas, in terms of ETFs, should I consider researching? There is tech, BRIC, health care and energy. I was thinking of sticking with two and splitting my funds between two ETFs.

  • Sorry, but requests for specific buy/sell advice are off-topic per the FAQ. – JohnFx Dec 3 '11 at 2:41
  • 1
    If OP has large, mid, and small cap funds, purchases such as healthcare or energy will likely create a disproportionate amount in those sectors. 20 Vanguard funds seems too many choices, not too few. – JoeTaxpayer Dec 3 '11 at 4:26
  • 1
    I agree with JoeTaxPayer, you don't really need that many different options. I like Index funds myself for their low fees which really save you money over the long haul. You should definitely max out your IRA every year if you can. – kingkool68 Dec 3 '11 at 17:17
  • 1
    FWIW: Many 401K plans (including mine) intentionally limit the number of investment choices because there is a lot of evidence that giving too many options causes people stress and makes them LESS likely to invest in the 401K. – JohnFx Feb 20 '12 at 20:45
1

Yep, most 401k options suck. You'll have access to a couple dozen funds that have been blessed by the organization that manages your account. I recently rolled my 401k over into a self-directed IRA at Fidelity, and I have access to the entire mutual fund market, and can trade stocks/bonds if I wish.

As for a practical solution for your situation: the options you've given us are worryingly vague -- hopefully you're able to do research on what positions these funds hold and make your own determination. Quick overview:

Energy / Utilities: Doing good right now because they are low-risk, generally high dividends. These will underperform in the short-term as the market recovers.

Health Care: riskier, and many firms are facing a sizable patent cliff. I am avoiding this sector.

Emerging Markets: I'm also avoiding this due to the volatility and accounting issues, but it's up to you. Most large US companies have "emerging markets" exposure, so not necessary for to invest in a dedicated fund in my unprofessional opinion.

Bonds: Avoid. Bonds are at their highest levels in decades. Short-term they might be ok; but medium-term, the only place to go is down.

All of this depends on your age, and your own particular investment objectives. Don't listen to me or anyone else without doing your own research.

1

Without making specific recommendations, it is worthwhile to point out the differing tax treatments for a Roth IRA: investments in a Roth IRA will not be taxed when you withdraw them during retirement (unless they change the law on that or something crazy). So if you are thinking about investing in some areas with high risk and high potential reward (e.g. emerging market stocks) then the Roth IRA might be the place to do it. That way, if the investment works out, you have more money in the account that won't ever be taxed.

We can talk about the possible risks of certain kinds of investments, but this is not an appropriate forum to recommend for or against them specifically. Healthcare stocks are subject to political risk in the current regulatory climate. BRICs are subject to political risks regarding the political and business climate in the relevant nations, and the growth of their economies need not correspond with growth in the companies you hold in your portfolio. Energy stocks are subject to the world economic climate and demand for oil, unless you're talking alternative-energy stocks, which are subject to political risk regarding their subsidies and technological risk regarding whether or not their technologies pan out.

It is worth pointing out that any ETF you invest in will have a prospectus, and that prospectus will contain a section discussing the risks which could affect your investment. Read it before investing! :)

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .