Starting to Invest 15K-Heres the split up. How does it look?

Question

Hi...I am a new investor and willing to try my luck with my 15K savings. Here's how I am planning to invest:
$4000 in a Roth IRA with Vanguard Star Fund.
$3000 in T Rowe Price 2040 Retirement fund.
$3000 in Fidelity Balanced Mutual fund.
$2500 in Vanguard 500 Index Mutual Fund
$2500 in HSBC online Savings with 5.05% APY (Emergency Fund)

I plan to add atleast a couple of hundred bucks to each fund every month so that I know my savings are diversified.

How does this look? I am not a risk taker nor have the time to research stocks or buy real estate(my company provides me housing plus utilities). Some have suggested ETF's but since I will be investing small chunks every month the fees will eat up my gains.

Any advice is appreciated. Again I am new to this, so I may seem novice.

Answer 1

I appreciate that you are not a risk taker and your selections certainly mirror that philosophy. I do however think you should consider a little more agressive approach with at least 3k of your money. I would suggest opting out of the T Rowe Price retirement fund and instead invest in foreign stock fund of some sort. Here is the deal. You want to protect yourself some against the falling value of the dollar. I can not recommend any open ended mutual funds but I do know that Vanguard, T Rowe Price and Fidelity all have selections. Personally I like SWZ, TDF, CHN, and IIF all closed end funds. For a conservative minded investor SWZ would be the ticket. For someone that wants to share in the potential future of the next two superpowers, TDF, CHN, and IIF.

Answer 2

Not bad for a newbie! You won't get hurt with this strategy. You're also luckier than you know because the information that you get in a forum like this would not generally be of much use to you. Perhaps you were looking for the rare opinion(s) that can pop up where you least expect them?

I would like to caution you that over diversification can be almost as harmful as taking more risk. Without a doubt, you are running the risk of missing out on potential growth with the Fidelity Balanced Fund allocation. In the first place, you are probably a little late getting into balanced funds. This is not the climate where they can perform. With a dividend rate under 2% and next to zero growth for the past eight months, your 20% of allocation to that fund is what I call "money in the wind".

You made some fine choices with the other allocations. Boost your holdings where your strength lies - in the Retirement Fund (has international exposure) and the 500 Index Fund by an additional $2000 and $1000, respectively. You are likely to benefit from an additional 6-10% annual growth in your portfolio and you will remain extremely diversified. All the best!

Hawk

Answer 3

the whole point of a 2040 fund is that you are diversified in one fund, troweprice invests in a bunch of different funds to fit the year you plan on retiring, have you checked the overlap at all between those funds?

and why go through all different companies? is this a brokerage account? if you go through one company you can move money to different funds if you want without extra expenses

not saying this is bad, just wondering on a couple things

how old are you? do you have an emergency fund? if you are young and have a fund, then i think you have way too much in cash and bonds for a long term investment, nearly 40% i would put more in the 2040 fund and less in bonds, (maybe less in the fidelity balanced fund and the savings fund) the balanced fund is good,but you dont need a ton of bonds , even dropping the balanced fund and putting 6k in the 2040 fund would make you at 12% bonds and 12% foreign stock, not bad numbers, though having all the investments (besides the cash) in the 2040 fund then you are at 5% bonds,16% stock, still almost 20% cash, nice and aggressive if you have 30 years or so,except the large cash %

again,hard to say without knowing your age and risk tolerance

EDIT: rabbit, he says he is investing small chunks every month, a couple hundred bucks, the commissions would make it expensive to do that, he could buy one 10k etf now and park it for 30 years, then use the other 5k to put it in a fund though,but monthly investing i wouldnt use an etf, though he did say a couple hundred in each, if he picked out one or two funds it may make the commissions less on a percentage basis

EDIT AGAIN: shoot, for some reason i missed that part where you said you dont like risks, so i didnt take that into consideration, still though you have the risk of your investments not growing enough for retirement , though if you are adding a few hundred to each one each month you should be fine

Answer 4

Sure it looks good, but something you need to look at again is the thing on ETFs. The fees are far, far SMALLER with an ETF than a mutual fund. You have that part backwards.

While the traditional mutual fund has managers to shepherd things along the ETFs are an almost automatic market share, $x comes in from all new money sources, it immediately goes to buy or balance the preselected holdings. Balance is the whole issue, even if that means buying sinking stocks, but that is what a mutual fund does anyway. Consider this piece from the Consumer Federation of America at the link below.

Either way, I'm not criticizing your admirable and ambitious plan, it is just that you need to take another look at ETFs if you are worried about costs.

Answer 5

You have a strong start. If you have over 15 years before retirement, I suggest $0 in the cash account. You have more than enough fixed investments in your 2040 fund and your balanced fund.

You need a strong international/global fund. Don't choose a country specific fund, that would have more risk than you have indicated you are looking for. By diversifying into other countries you will be spreading out your risk instead of focusing on the US market.

Answer 6

Yes, all very cautious and they won't need much watching...but I agree with the "birder" that somewhere in there you have to find room for some " global" investments......The world is "catching up" and in many ways outpacing the U.S....get a little part of it!!
Maybe something as simple as Fidelity's "Global Balanced" fund instead of the " balanced"....or just put the $2500 into FEMKX ( an emerging mkt fidelity fund) and then don't add to it every month...add to the other three.......see what kind of results you've got in 9 months or a year. ( I don't think you'll be unhappy)
Good luck....you've got a plan...you're way ahead of half the people in this country already!

Answer 7

Index funds are the best in my opinion (and Ben Stein's too). If you don't want to have to spend time investigating individual stocks or managers at mutual fund companies, they are the way to go. They have lower fees than mutual funds, which means they don't have to make as much for you to make money. Also, with many discount brokerages the commissions are lower for index funds (etf's specifically) than for mutual funds. I would put some money into different indexes (ie. international, small cap, large cap). I would avoid any commodities such as gold (it doesn't really have that great of a return over the long run no matter what the gold bugs say).

Answer 8

it's not bad. May be a little weak on International. It's a basic no-work type of plan... which is very good for most of us.

I also think your "emergency fund" is pretty weak. That's the most dangerous part (here). I also don't love the Fidelity Balanced Fund..... but you could do worse.

Answer 9

It looks good. And you most definitely got the right idea by emphasizing spending as little as possible on commissions.