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My knowledge of mutual fund investments is 1 month old. I have $15000 on top my emergency savings and I max out my Roth IRA in addition. So this money is just there earning 1% APY in a savings account.

I wanted to give it a try and to make my first investment with cash.

After I reading a lot of information online, I have come to the conclusion that most major investment companies are relatively similar. Some are cheaper, some are more expensive. So I picked up Vanguard and chose 5 mutual funds:

VIVAX - Vanguard Value Index Inv

NAESX - Vanguard Small-Cap Index Fund Investor Shares

VIMSX - Vanguard Mid Cap Index Inv

VDIGX - Dividend Growth Fund

VISGX - Vanguard Small Cap Growth Index Inv

Each of these will receive $3K and will be left there for 5+ years.

My goal is to find an alternative for to keeping $15K in 1% APY savings account and I do not need this money very soon.

I picked these funds because:

1) they cover major categories

2) their expense ratios are low

3) I am ok with the risk

I would like to ask experienced investors if

(a) 5 funds for $15K is not too many or too few ?

(b) Have I diversified my portfolio too much or not enough ? Perhaps I am missing something that would be recommended for the portfolio of this kind with this goal.

(c) If not my choice of my portfolio, where would you invest $15K under similar circumstances and similar goals.

  • How is the Roth IRA invested? I haven't looked at the funds, I assume that the minimum investment for each fund is 3K or less. Do you also have a 401K? – mhoran_psprep Jan 11 '14 at 18:59
  • My Roth is with TIA-CREF, I am self employed, so I only have ROTH now. – AstroSharp Jan 11 '14 at 19:05
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    But how is the money invested: stock funds, bond funds, international, fixed income. Your 5 choices from Vanguard have to be looked at in combination with your Roth IRA. – mhoran_psprep Jan 11 '14 at 19:08
  • It's 90% Russell 1000 Growth Index 3 (CREF Growth) and 10% real estate. I am 35 y.o. – AstroSharp Jan 11 '14 at 19:15
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I looked a bit at the first 3, .24% expense. There's a direction to not discuss individual investments here, so the rest of my answer will need to lean generic.

I see you have 5 funds. I'm surmising it's an attempt at 'diversifying'. I'll ask you - what do these five, when combined, offer that a straight S&P 500 index (or some flavor of extended market) doesn't? I've gone through the exercise of looking at portfolios with a dozen funds and found overlap so great that 2 or 3 funds would have been sufficient. There are S&P funds that are as low as .05%. this difference may not seem like much, but it adds over time.

To your last point, I'd consider a Solo 401(k) as you're self employed. One that offers the Roth option if you are in the marginal 15% bracket.

  • here is the reason I picked these fives. I ran a simulation to what would happen if I buy all these on 1/1/2013 and sell on 1/1/2014 here is a result: i.imgur.com/dOmK5k1.png I compared these funds with their actively managed counterparts and the performances were very similar over a year. Considering the expense ration factor, I picked the index funds. – AstroSharp Jan 12 '14 at 19:34
  • As far as Solo 401(k) is concerned, I don't want this money to be a part of my retirement portfolio, since I want to have an access to it in a few years. This is a free cash that I am willing to gamble with on the market, hence I am looking to invest in mutual funds. – AstroSharp Jan 12 '14 at 19:36
  • What we still don't know is the level of overlap between these funds. – JoeTaxpayer Jan 13 '14 at 0:36
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(a) 5 funds for $15K is not too many or too few ?

A bit high as I'd wonder if you've thought of how you'll rebalance the funds over time so you aren't investing too much in a particular market segment. I'd also question if you know what kinds of fees you may have with those funds as some of Vanguard's index funds had fees if the balance is under $10K that may change how much you'll be paying.

From Vanguard's site:

We charge a $20 annual account service fee for each Vanguard fund with a balance of less than $10,000 in an account. This fee doesn’t apply if you sign up for account access on Vanguard.com and choose electronic delivery of statements, confirmations, and Vanguard fund reports and prospectuses. This fee also doesn’t apply to members of Flagship®, Voyager Select®, and Voyager Services®.

So, if you don't do the delivery this would be an extra $100/year that I wonder if you factored that into things here.

(b) Have I diversified my portfolio too much or not enough ? Perhaps I am missing something that would be recommended for the portfolio of this kind with this goal.

Both, in my opinion. Too much in the sense that you are looking at Morningstar's style box to pick a fund for this box and that which I'd consider consolidating on one hand yet at the same time I notice that you are sticking purely to US stocks and ignoring international funds. I do think taxes may be something you haven't considered too much as stocks will outgrow most of those funds and trigger capital gains that you don't mention at all.

(c) If not my choice of my portfolio, where would you invest $15K under similar circumstances and similar goals.

What is the goal here? You state that this is your first cash investment but don't state if this is for retirement, a vacation in 10 years, a house in 7 years or a bunch of other possibilities which is something to consider.

If I consider this as retirement investments, I'd like pick 1 or 2 funds known for being tax-efficient that would be where I'd start.


So, if a fund goes down 30%, that's OK? Do you have a rebalancing strategy of any kind? Do you realize what taxes you may have even if the fund doesn't necessarily have gains itself? In not stating a goal, I wonder how well do you have a strategy worked out for how you'll sell off these funds down the road at some point as something to ponder.

  • My goal is to avoid this money being in a savings account and earning 1%. I am ok with a little gamble here meaning I am OK with the risk. I don't want this to be retirement since I am already maxing out my retirement contributions and I want to have access to this money before I retire without any penalties. I am well aware about electronic deliveries and this is not going to be a problem. As far as fees are concerned, I ran simulations on these funds as if I bought them exactly one year ago: i.imgur.com/dOmK5k1.png and I analyzed fees here: apps.finra.org/fundanalyzer/1/fa.aspx – AstroSharp Jan 12 '14 at 19:31
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As these all seem to be US Equity, just getting one broad based US Equity index might offer similar diversification at lower cost.

Over 5 years, 20 basis points in fees will only make about 1% difference. However, for longer periods (retirement saving), it is worth it to aim for the lowest fees.

For further diversification, you might want to consider other asset classes, such as foreign equity, fixed income, etc.

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