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Where they are now: Julie and Brian are in their early 30s
and are fairly new to investing. They knew
they didn't have the time or expertise to
invest in individual stocks, so they chose to
invest in mutual funds instead. They learned
enough online to create what they thought
were diversified portfolios for each of their
IRAs. They included an S&P 500 Index fund,
a bond fund, and a money market fund in
each. They have equal percentages in each
category. They feel diversified but are now
wondering if their asset mix is appropriate.
What they might do differently:Fortunately, Julie and Brian have recognized the value of not putting both of their IRAs in one asset category. Many investors at their age overlook this and place 100% of their money in stocks. However, Julie and Brian could make a couple adjustments. First, they limited themselves to a large cap fund (since the S&P 500 Index fund invests only in the 500 largest U.S. companies), so they missed out on the added potential growth of small and mid cap stocks. In addition to adding funds from these categories, they might also consider including a mix of growth and value funds in these categories, as well as an international fund for overseas exposure.Now let's take a look at their asset mix. Is it appropriate for their current situation? Julie and Brian do not anticipate retiring for at least another 20 years. Their current asset mix is 33% stock, 33% bond, and 33% cash. Because their goal is a couple decades away, they could afford to be more aggressive. One way to do this would be to exchange a portion of their cash and bond investments for some small and mid cap stock funds, as well as an international fund. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. |
