Can you please help me with asset allocation & diversification

[Buyingahome]

Late in 2013 I started to invest in my retirement by opening a Roth IRA. The only thing I have in the account for now is Vanguard Total Stock Market Index Fund. I am interested in investments with very low fees. It is my understanding that I should also have bond or bond funds and also international investments (my thought was an international index fund). Am I missing anything? Do I need to diversify further with domestic index funds? Does anyone suggest investing in commodities or other areas? I am in my late 20s and married, if that matters.

[snafu]

Welcome to SA. Good on you for starting a retirement plan with an excellent company's Index Fund while in your 20's. Is there a company match from employment? In my opinion your age, the current low payout of Bonds, the likelihood of interest rates increasing [means Bonds bought now will lose value with every downward tick], your existing plan is quite new and the positive outlook for the USA stock market all combine to make your initial choice the best for now. It would be good to watch a European fund but that economy is still problematic...unemployment running @ 25%. You need to assess your tolerance for risk. For example, if there was a 20% drop in value of a chosen investment, what would you likely do?

[feh]

Late in 2013 I started to invest in my retirement by opening a Roth IRA. The only thing I have in the account for now is Vanguard Total Stock Market Index Fund. I am interested in investments with very low fees. It is my understanding that I should also have bond or bond funds and also international investments (my thought was an international index fund). Am I missing anything? Do I need to diversify further with domestic index funds? Does anyone suggest investing in commodities or other areas? I am in my late 20s and married, if that matters.

You are describing the 3 fund portfolio, which is an excellent plan. Even though you are young, I suggest 10-20% in bonds. Ignore the noise about interest rates - when you are investing for the long haul (as you are), what happens to interest rates in the next 2-5 years is irrelevant.

Start your education here:

http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

http://www.bogleheads.org/wiki/Three-fund_portfolio

[disneysteve]

You are describing the 3 fund portfolio, which is an excellent plan. Even though you are young, I suggest 10-20% in bonds. Ignore the noise about interest rates - when you are investing for the long haul (as you are), what happens to interest rates in the next 2-5 years is irrelevant.

I agree. I think a 3-fund portfolio is a great way to go.

1. Total US Stock Index - You've already got this.
2. Total International Stock Index - VGTSX
3. Total Bond Index - VBMFX

We could argue about all kinds of other things that could be in there but if everyone would do these 3, they'd be in far better shape than most people are currently.

[feh]

I agree. I think a 3-fund portfolio is a great way to go.

1. Total US Stock Index - You've already got this.
2. Total International Stock Index - VGTSX
3. Total Bond Index - VBMFX

We could argue about all kinds of other things that could be in there but if everyone would do these 3, they'd be in far better shape than most people are currently.

The only reason to potentially avoid the 3 fund portfolio is if your balance is too low to get into individual funds; they do have minimum investments. Also, there are different classes of the same funds, so that when your balances grow larger, the expense ratios decrease.

If your balance is low, you could either invest in a target date fund or just use total US market until the balance grows.

[Buyingahome]

I agree. I think a 3-fund portfolio is a great way to go.

1. Total US Stock Index - You've already got this.
2. Total International Stock Index - VGTSX
3. Total Bond Index - VBMFX

We could argue about all kinds of other things that could be in there but if everyone would do these 3, they'd be in far better shape than most people are currently.

thank you both.
i dont want to sound ungrateful but can it be this simple? I don't mind take a more active approach in my retirement investments. If I were interested in diversifying a bit more for added protection, are there any other areas I should look into and educate myself about?
Again though, thank you both for being so helpful so quickly.

[jIM_Ohio]

Late in 2013 I started to invest in my retirement by opening a Roth IRA. The only thing I have in the account for now is Vanguard Total Stock Market Index Fund. I am interested in investments with very low fees. It is my understanding that I should also have bond or bond funds and also international investments (my thought was an international index fund). Am I missing anything? Do I need to diversify further with domestic index funds? Does anyone suggest investing in commodities or other areas? I am in my late 20s and married, if that matters.

The two highest returning assets of the last 100 years are stocks and bonds. Adding commodities, cash, real estate or other securities to your portfolio reduces volatility- great if you are retired, but generally will not increase returns (and would likely decrease returns).

I would make sure you invest in large and small caps, both foreign and domestic, and make sure you have growth exposure to emerging markets, developed markets and multiple continents (Europe, Asia and South America).

[feh]

thank you both.
i dont want to sound ungrateful but can it be this simple? I don't mind take a more active approach in my retirement investments. If I were interested in diversifying a bit more for added protection, are there any other areas I should look into and educate myself about?
Again though, thank you both for being so helpful so quickly.

It really is that simple. Set your asset allocation (and location; that's a topic for another thread) and rebalance as necessary.

The investment companies spend lots of money convincing people that it's more complicated. They do that for a reason, and it isn't for your benefit.

[Petunia 100]

You have already received some top-notch advice.

I would just like to add that while The 3 Fund Portfolio is indeed excellent, fund minimums can represent a challenge when you are just getting started. One solution is to invest in a Vanguard Target Retirement Fund. Each of those invests in the three main index funds.

[GrimJack]

If you are maxing out your Roth IRA and your company offers a 401k/403b with or without a match then take advantage of that plan too. Once you have BOTH set up, then you can think about buying individual stocks in your (or you can open a second one) Roth account. Start small with one years worth; there are so many different ways to research what stocks to buy I might suggest you take a look at fool.com - the free areas will help you understand what the different research styles are and if you like what you see, you can subscribe.

[Snydley]

moving ROTH IRA from one company to another

sorry posted in the wrong place-

[Buyingahome]

I would make sure you invest in large and small caps, both foreign and domestic, and make sure you have growth exposure to emerging markets, developed markets and multiple continents (Europe, Asia and South America).

when investing in foreign small cap and large cap stocks/funds, are you picking specific countries/regions, or are you investing in "Global minus US"?
thank you.

[Buyingahome]

If you are maxing out your Roth IRA and your company offers a 401k/403b with or without a match then take advantage of that plan too. Once you have BOTH set up, then you can think about buying individual stocks in your (or you can open a second one) Roth account. Start small with one years worth; there are so many different ways to research what stocks to buy I might suggest you take a look at fool.com - the free areas will help you understand what the different research styles are and if you like what you see, you can subscribe.

my company does not offer a 401k, but if they did are you saying i can have 2 Roth IRAs? how????

[Petunia 100]

my company does not offer a 401k, but if they did are you saying i can have 2 Roth IRAs? how????

You can have as many Roth IRA accounts as you please. However, the annual contribution limit remains the same. You do not increase your annual limit by opening more than one account.

Once you have maxed your tax-advantaged accounts, you can open regular taxable accounts. You will pay tax as you go along, but there are no contribution limits.

[GrimJack]

my company does not offer a 401k, but if they did are you saying i can have 2 Roth IRAs? how????

I have 2 Roth accounts; one is a Vanguard index account the other is with TDAmeritrade. The TDA account is the one I have individual stocks in (I also have a rollover IRA with them that has stocks - I also have 2 Vanguard index funds and a 403b with TIAA-CREF that I can now transfer to Vanguard (or, maybe, to my current govt TSP account - I gotta look into that possibility). The number of IRA accounts you have is not limited - just the amount that you can contribute each year. Keep in mind that the more accounts you have, the more easily things can get lost. I have multiple account because Vanguard is mostly index funds and I like to play a little in the actual stock market so I keep my TDAmeritrade accounts as a sandbox to play in.