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  • 100% Index Funds

    I've read varying opinions on this topic.  At age 35, having 100% of assets invested in low expense ratio index funds (FUSEX and VFIAX), advisable or not?

  • #2
    Are you asking whether having all your money in index funds and none in actively managed funds is okay? Or are you asking if investing in just two mutual funds is okay? Or are you asking if holding 100% stocks at 35 is okay? Or are you asking if FUSEX and VFIAX are the best two funds you could be holding? I've got different answers to all of those questions. Here are some preliminary thoughts:

    1) 100% index over active is just fine. Been doing it for years essentially.

    2) Two funds is okay too. But I see no point to owning two funds that all own the same stocks (those are both 500 index funds, one VG and one Fidelity.)

    3) 100% stocks at 35 might be okay, but I'd have to watch your behavior in a bear market to know for sure. Personally, I think everyone ought to put at least a little in bonds, and that you ought to err on the side of being a little less aggressive until you know how you behave in a bear market. Far better to have slightly lower returns due to 20-40% bonds in the portfolio than to sell out at the bottom of a bear.

    4) I see no reason to own a 500 index fund if you could own a total stock market fund instead. And if I were going to add on a second fund, it would probably be a bond fund or an international index fund, not another 500 index fund.

    Hope that helps.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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    • #3
      Thanks, any suggestions on the international index funds?

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      • #4
        My favorite international fund is Vanguard Total International Stock Market Index Fund.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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        • #5
          Index funds can be an excellent option for those still contributing to their nest egg. You get broad diversification, low expenses, and can take advantage of dollar-cost-averaging (assuming your adding funds on a periodic basis).

          However, index funds can be a detriment to those who have reached the decumulation phase of life, where they need to begin taking money out of their nest-egg.

          First off, index funds track the index, so when the market is in decline there is nobody trying to manage the portfolio to minimize the damage inside the fund. In addition, this means that if you're taking a monthly distribution - each month you are selling more and more shares at worse and worse prices. Picture how this would have worked out between August 2008 and March 2009! Not exactly the prescription for sound financial planning.

           

          But, at age 35, I think index funds are an excellent option. However, I would recommend diversification beyond the S&P 500 funds you referenced.

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          • #6
            I have invested during a bear market.  I tend to buy more.

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            • #7




              Index funds can be an excellent option for those still contributing to their nest egg. You get broad diversification, low expenses, and can take advantage of dollar-cost-averaging (assuming your adding funds on a periodic basis).

              However, index funds can be a detriment to those who have reached the decumulation phase of life, where they need to begin taking money out of their nest-egg.

              First off, index funds track the index, so when the market is in decline there is nobody trying to manage the portfolio to minimize the damage inside the fund. In addition, this means that if you’re taking a monthly distribution – each month you are selling more and more shares at worse and worse prices. Picture how this would have worked out between August 2008 and March 2009! Not exactly the prescription for sound financial planning.

               

              But, at age 35, I think index funds are an excellent option. However, I would recommend diversification beyond the S&P 500 funds you referenced.
              Click to expand...


              I think you're confusing "index funds" with "S&P 500 tracking index funds" or a "100% equity portfolio." They're not the same thing. There are plenty of index funds, including a 500 index fund, that are appropriate for a retiree to hold. For example, my 70 something parents' all index fund portfolio declined 18% in 2008 when the market was down far more. Why was that? Because some of the index funds invest in bonds.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

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              • #8
                I'm looking at the Vanguard Total International Stock Market Index Fund and the 15 year return is 7.04% with an expense of 0.18%.  The Vanguard 500 Index Fund Admiral has a 15 year return of 8.61% with an expense of 0.04%.

                I still don't understand why I shouldn't go all in on that kind of Index 500 Fund.

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                • #9
                  International funds are generally more expensive than us based funds.  Also small cap funds are generally more expensive.  The s&p 500 is large cap and us based.  Vtiax is totally different.  You are comparing apples to oranges. Yes pay attention to er but also to diversification.  Performance matters but so does diversification.

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                  • #10




                    I’m looking at the Vanguard Total International Stock Market Index Fund and the 15 year return is 7.04% with an expense of 0.18%.  The Vanguard 500 Index Fund Admiral has a 15 year return of 8.61% with an expense of 0.04%.

                    I still don’t understand why I shouldn’t go all in on that kind of Index 500 Fund.
                    Click to expand...


                    This is actually a REALLY important lesson. You don't drive while looking in the rear view mirror, not should you select investments primarily by choosing the ones with the best past performance, especially the best recent past performance. It's called performance chasing, and doesn't end well. There's a reason that mutual funds are required by law to state that "past performance does not indicate future performance." Because it's true.

                    You're making the classic mistake of assuming that what did well in the past will do well in the future. Wish that were true. Investing would be super easy.

                    As you learn, you'll start asking yourself "why did the 500 index fund beat the total international fund over the last 15 years?" And what you'll discover is that US stocks outperformed international stocks over that time period. That is not the case for many other time periods.
                    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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