I bought Vanguard 2045, Should I........?

[Guest Exivate]

I bought Vanguard 2045 Fund for my Roth Ira, but I only spent $1000. That leaves me with $2000 more to spend on other funds. Should I just contribute the $2000 to the Fund I already have (Vanguard 2045) or should I go for something more aggressive, like a total stock market type fund. Im 23 years old and that's why I'm thinking about something more risky. Is it good to have a few different funds in an IRA or should I just stick with one fund(Vanguard 2045)? Any suggestions on funds would be appreciated.

Thank you.

[John G]

My response based upon a quick look....

Vanguard says:

Vanguard® Target Retirement® 2045 Fund invests in other Vanguard mutual funds... designed for investors planning to retire around 2045. The fund's asset allocation will become more conservative over time. Within five years after 2045, the fund's asset allocation should be similar to that of the Target Retirement® Income Fund. The current four funds:

72% Vanguard® Total Stock Market Index Fund

10% Vanguard® Total Bond Market Index Fund

13% Vanguard® European Stock Index Fund

05% Vanguard® Pacific Stock Index Fund

The fund's indirect stock holdings consist substantially of large-capitalization U.S. stocks....

Its indirect bond holdings are a diversified mix of investment-grade taxable U.S. government, U.S. agency, and corporate bonds, as well as mortgage-backed securities, all with maturities of more than 1 year.

Average Weighted Expense ratio as of 08/31/2004 0.21%

Inception date 10/27/2003

FEES: Roth $10 a year for each fund account having a balance of less than $5,000, although we automatically waive this fee if you have assets totaling $50,000 or more at Vanguard

I say....

Vanguard is no load, no expense... that is good.

This is a very new fund... but it is really a composite of funds that have been around for a while.

You want to go more aggressive on a total stock market fund? Did you know that 2045 is 72% total stock market? Total stock market gives you market performance, I would not call that very aggressive since total market includes utilities, railroads, basic materials, and is mostly large size (cap or capitalization) companies. If you want to be slightly more aggressive, mid or small cap growth would be expected to give you slightly better returns.

Why have multiple accounts when this account already covers four areas - three accounts are $20 higher in fees then if you have only 1 account. For the moment you only are talking about $3,000. The fees are inconsequencial later on when you assets grow... note above 5k and Vanguard does not charge any annual fee. If you want to have three funds to see how they perform.... then have three funds and skip the multiple fund composits.

Second, this is a awfully conservative portfolio for someone investing for the next 4 decades. It should do the job, but I would be inclined to bias your portfolio more heavily on growth. This assumes you understand the short run fluctuations and have no problems with the risks. You shouldn't have problems with risk if you understand the long term trends in stocks. Good years out number bad years by 5:1 or better and the good years tend to be more up than the worse years are down.

Pick one fund this year. Either fund it again next year, or choose a second fund. Do not go fund happy, there is a lot of overlap in fund holdings. You may never need more than a few general purpose funds. There is a lot to keeping your investments simple.

[Guest Exivate]

Thank you, I really appreciate the advise. As you can see, I am a very new investor.

[John G]

Yes, I assumed that from the dollars and the age. You are way ahead of most folks your age... maybe ten years ahead.

Don't worry a lot about your investment choice right now. In a bad year, consider the loss the "Tuition" you are paying in the real world. Some of my bad years could pay for 4 years at Princeton, but you want to understand enought to realize that your good years will over the long haul be more common and get you that long term 10% or better.

Do embark on perhaps 2 hours a month devoted to reading about investing, finance, home ownership, credit, etc. Kiplinger Financial mag is probably the best choice for 20 somethings - and a year costs about $15. You will get many good ideas and save more than that for sure.