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I recently rolled over an IRA had to select how to divvy up my portfolio and choose securities. I largely stuck with index funds but I have to be honest I wasn't exactly sure what I was doing/choosing.

How can one navigate which fund to choose when presented with so many options? What should one look out for if they are a conservative investor wanting moderate growth without sacrificing principle.

The amount I rolled over was only a few thousand dollars but it does represent all the retirement funds I have (25 years old).

My portfolio break down looked something like this:

55% Domestic Fixed Income

24% Domestic Equity

10% International Fixed Income

10% International Equity

1% Specialty

An example of a fund I picked for each category would be (I picked multiple funds in each category):

DFI Delaware National High Yield Municipal Bond Fund Institutional Class (DVHIX)

DE 500 Index Fund Signal Shares (VIFSX)

IFI Ivy Global Bond Fund Class I (IVSIX)

IE Tax-Advantaged Global Dividend Opportunities Fund (ETO)

S PIMCO CommodityRealReturn Strategy Fund Class D (PCRDX)

I am not looking for people to tell me if these funds are bad or good (unless they are terrible and will cause me to lose everything then tell me)

But rather as you can see this is what I picked without much knowledge is there significant difference between the plethora of options offered from companies such as TDAmeritrade and how can I best navigate moving forward?

Thanks

  • I agree with the answers at your age you should have less in bonds. But whatever allocation to domestic bonds you choose, in an IRA do NOT choose munis -- they pay lower return relative to risk because of the tax benefit to most investors, but in an IRA you don't get that benefit. – dave_thompson_085 Nov 17 '16 at 8:34
  • what would you suggest @dave_thompson_085 my options are choosing single etfs, equity, close end funs, premier mutual funds, mutual funds no load, and mutual funds no load no transaction fees. – gwar9 Nov 17 '16 at 14:48
  • Those aren't really direct alternatives. Equities (or stocks) are one class of actual investments, that usually on average make money; ETFs, closed-end funds and traditional mutual funds are ways of making actual investments through a fund manager with some cost but definitely less hassle and usually less risk. I'm sorry but if you don't understand these basic concepts you need much more than I can put in comments. – dave_thompson_085 Nov 20 '16 at 22:20
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I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds.

I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds.

Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726

Expense ratio   0.05%    

Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices:

enter image description here

Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY.

  • @chilli555 thank you for your answer this is more what i was looking for! what would be considered a high expense ratio? Is it taken out each quarter or year? – gwar9 Nov 16 '16 at 2:27
  • Please see: money.stackexchange.com/questions/30689/… As to the size of the fee, in my opinion, if it over 0.5%, then I need to see superior performance. In other words, in order to consider a fund with a 1%+ fee, I want to see performance that out-strips its benchmark by 1%+. – chili555 Nov 16 '16 at 14:11
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One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance.

As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.

  • Thanks for your response. I will definitely look into taking more risks in the future I am just extremely wary of the markets right now considering the recent elections and climate. I would like to get a sense of how they may perform in a few months. But as far as choosing a fund, is there any rhyme or reason why a Vanguard Index Ret 2050 would be better than say any other of the plethora of index funds offered? (aside from fees or minimums) – gwar9 Nov 15 '16 at 20:33
  • Vanguard has offered low cost funds for many decades and is well run. I preferentially use Vanguard funds when making up my portfolio. You can use their funds to make up many different risk and reward profiles and taylor it to best suit your conditions. – zeta-band Nov 15 '16 at 20:37
  • @gwar9: a 'target date' fund like 'Retirement 2050' is normally a broad mainstream fund with the feature that over time it gradually becomes more conservative; as a simple example it might start 70% stock 30% bond when you are 40 years out and shift about 1% a year to reach 40% stock 60% bond at your nominal retirement age when you need to start taking the money out. All the fund families now have these, although I concur with zeta that Vanguard is solid and reliable -- and IME their website has good explanations so you can start simple and learn along the way. – dave_thompson_085 Nov 20 '16 at 22:33

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