Target Date?

[dvd7e]

I'm pretty young so right now I have a small 401k balance of around $6000, which due to my 401k holding options is invested in a mixture of large/mid/small US and Foreign equities, and US bonds - there are no "diversifiers" like commodities, emerging markets, REITS etc.

I want to take advantage of the 2009 IRA contribution limit of $5,000, so im looking to open up an IRA account. Ideally I would like to place a proportionate (based on my target allocations) amount of money into these diversifies because they are not otherwise available, but with a $3000 minimum opening balance per account this isn't really possible - the minimum is a pretty large percentage of my overall portfolio value.

So one idea i'm considering is to put the full 5k into a target date fund which has these diversifiers, and leave my 401k balances with a similar asset allocation (minus the diversifiers) so that the sum total asset allocation across the two accounts is something similar to my overall target.

1) Does this make financial sense? Or should I consider another option?

and...

2) If I invest in the target date fund in order to get the diversifiers UNTIL my total portfolio is big enough that the account minimum of $3000 is an acceptable percentage of my portfolio, can I transfer funds out of the target date fund and into individual holdings? Are there transfer fees associated with this? I want to minimize expenses as much as possible.

Thank you!

[safari]

You might consider ETF's instead of mutual funds. ETF's don't have minimum balance requirements and you can diversify your small portfolio by purchasing different ETF's. Fidelity doesn't charge any broker fees on 25 iShare ETF's, so that would be a good option for you.

[jIM_Ohio]

My opinion is that while you are accumulating, the diversification you mentioned (real estate and commodities) is less help than if you were drawing down a portfolio in retirement.

My other comment is what you said makes sense- as long as it makes sense to you, that is what counts. It does make sense to me anyway, but I am not the one managing your accounts.



I did not add those asset classes until I had between 150k and 200k invested, and then at that point RE+commodities might be 2% of my portfolio right now- and 2% would be high.

In some target date fund (like 2030) I have seen, those funds hold 5% in real estate and 5% in commodities. If your portfolio is holding more than 5% of these asset classes, it is my opinion that it will hurt returns over the long term not help. Unless you are willing to rebalance when silver or gold return 100%+ in a year, I don't think you will gain much by adding them. If the fund balance prevents a rebalance (meaning selling gold cannot be done because you would go below fund minimum) I would wait to hold off adding them until you have 10k-100k invested.

Then at that time consider a 1% position in a different asset class.

Here's a devil's advocate question- rare art, gold, real estate, swiss francs and football cards are all good diversifiers. Why? Because when the value of one thing goes up (like the Joe Namath 1965 football card), that has no effect on the performance of the gold market or the performance of swiss francs. When the price of a Picasso goes down, that does not mean the real estate bubble burst.

My point is that would you own all the assets I mentioned? (if you find that Namath card, tell me). Just because something diversifies you does not mean you need to add it and keep it in portfolio all the time. If a person has large cap stocks, small cap stocks, foreign stocks, government bonds and corporate bonds, they are diversified to me while accumulating.

Once the stability of a portfolio becomes more important than growing the portfolio, add gold, silver, real estate, and try to find that Joe Namath football card too.