Wednesday, October 17, 2012

5 Easy Funds

Earlier this week, I received my first addition of the Kiplinger's Personal Finance magazine.  I managed to acquire this magazine through a survey I completed which wasn't all that taxing, and provided me with a free year's subscription.  Not too bad if you ask me.  I read through the magazine and was not disappointed.  With all my own personal finance experience, I can sometimes find these kind of subjects a little too basic for me, but Kiplinger's had articles for everyone in their financial journey.  One such article that I found incredibly interesting was the simple portfolio suggestions.  The rest of this article is my take on the investments they subscribe.  Each one is slightly more complex than the previous.  I won't get into too much detail as to whether the funds will provide decent returns.

"The Ultra-Simple Choice"
1.) 60% Vanguard Total World Stock Index (VTWSX)
2.) 40% Vanguard Total Bond Market Index (VBMFX)

This portfolio is about as simple as you can get while achieving maximum diversification.  Expenses are low, and you profit when the world profits.  The only downside is, like any index fund, you get the good with the bad.

"For Small Accounts"
1.) 33% Amana Income (AMANX)
2.) 33% Homestead Small Company Stock (HSCSX)
3.) 33% Schwab International Index (SWISX)

I've been preaching the Schwab funds ever since they made them free for Schwab clients.  They are cheap and easy to diversify your investments.  I like to point out that this portfolio is diversified and only requires $1,500 to create.  Future investments are also cheep. Amana invests according to "Islamic Principles" if that's something you're interested in.

"ETF's for Income"
1.) 30% Vanguard Dividend Appreciation (VIG)
2.) 20% PowerShares International Dividend Achievers (PID)
3.) 20% SPDR Barclays Capital High Yield Bond (JNK)
4.) 30% Pimco Total Return (BOND)

The goal of this portfolio is straight up income, and currently provides a 3.1% annual cash return.  Keep in mind that this portfolio will have some volatility, but none of that really matters if income is your main driver.

"ETF's for Long-Term Growth"
1.) 30% iShares S&P 500 Index (IVV)
2.) 25% iShares Russell 2000 Value Index (IWN)
3.) 30% Vanguard MSCI Emerging Markets (VWO)
4.) 15% SPDR Dow Jones REIT (RWR)

This portfolio is for those that have a long time to wait until retirement.  Due to stock market and real estate fluctuations, you want to hold this portfolio for at least 10 years.  What's nice about it is that you get some more exposure to small cap stocks through the value fund, emerging markets through the Vanguard fund, and real estate through the REIT fund.

"A Kipliger 25 Package"
1.) 25% Fidelity Contrafund (FCNTX)
2.) 15% Akre Focus (AKREX)
3.) 10% Haror International (HIINX)
4.) 10% T. Rowe Price Emerging Markets Stock (PRMSX)
5.) 40% Harbor Bond Institutional (HABDX)

I'm not too familiar with most of these funds, but Kiplinger's recommends them based on the the skill of the fund managers.  Overall, it still maintains the 60/40 stock to bond split.

Generally speaking, I find all of these funds a little too conservative for me.  Starting in your 30's with a Stock to Bond mix of 80/20, you should increase your bond exposure by 10% each decade you live.  That means, in your 60's you would only have 50% of your income in stocks.  Let's face it.  You could live to be 100 years old, and you should start investing like it's possible.

I'm still digging through the magazine, but overall, I give it an 8/10.

Wonderful Moment of the Day: Fall leaves.

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