query: How do I research, analyze, and choose the right mutual fund for a roth ira?

positive: "There is a lot of interesting information that can be found in a fund's prospectus. I have found it very helpful to read books on the issue, one I just finished was ""The Boglehead's Guide to Investing"" which speaks mostly on mutual and index funds. Actively managed funds mean that someone is choosing which stocks to buy and which to sell. If they think a stock will be ""hot"" then they buy it. Research has shown that people cannot predict the stock market, which is why many people suggest index based funds. An index fund generally tracks a group of companies. Example: an index fund of the S&P 500 will try to mimic the returns that the S&P 500 has. Overall, managed funds are more expensive than index funds because the fund manager must be paid to manage it. Also, there is generally more buying and selling so that also increases the tax amount you would owe. What I am planning on doing is opening a Roth IRA with Vanguard, as their funds have incredibly low fees (0.2% on many). One of the most important things you do before you buy is to figure out your target allocation (% of stocks vs % of bonds). Once you figure that out then you can start narrowing down the funds that you wish to invest in."

negative: "So many complicated answers for a straight forward question. First to this point ""I am failing to see why would a person get an IRA, instead of just putting the same amount of money into a mutual fund..."" An IRA can be invested in a mutual fund.  The IRA benefit over standard mutual fund is pre-tax contribution lowering your current tax liability. The advantage of an IRA over a 401k is control.  Your employer controls where the 401k is invested, you control where your IRA is invested.  Often employers have a very small number of options, because this keeps their costs with the brokerage low. 401k is AMAZING if you have employer matched contributions.  Use them to the maximum your employer will match.  After that OWN your IRA.  Control is key when it comes to your money. On IRA's. Buy ROTH first.  Contribute the calendar maximum.  Then get a traditional.  The benefit of ROTH is that you already paid taxes on the contribution so your withdrawal is not taxed AND they do not tax the interest earned like they do on a standard mutual fund."

negative: Most people carry a diversity of stock, bond, and commodities in their portfolio.  The ratio and types of these investments should be based on your goals and risk tolerance.  I personally choose to manage mine through mutual funds which combine the three, but ETFs are also becoming popular. As for where you keep your portfolio, it depends on what you're investing for.  If you're investing for retirement you are definitely best to keep as much of your investment as possible in 401k or IRAs (preferably Roth IRAs).  Many advisers suggest contributing as much to your 401k as your company matches, then the rest to IRA, and if you over contribute for the IRA back to the 401k.  You may choose to skip the 401k if you are not comfortable with the choices your company offers in it (such as only investing in company stock). If you are investing for a point closer than retirement and you still want the risk (and reward potential) of stock I would suggest investing in low tax mutual funds, or eating the tax and investing in regular mutual funds.  If you are going to take money out before retirement the penalties of a 401k or IRA make it not worth doing. Technically a savings account isn't investing, but rather a place to store money.

negative: Rolling a 401(k) to an IRA should be your default best option. Rolling a 401(k) to another 401(k) is rarely the best option, but that does happen.  I've done it once when I started a job at a company that had a great 401(k) with a good selection of low-cost mutual funds. I rolled the 401(k) from one previous job in to this 401(k) to take advantage of it.  In all other cases, I rolled 401(k)s from previous jobs to my Rollover IRA, which gave me the most freedom of investment options. Finally, with 401(k)-to-Roth IRA rollovers, it's important to decouple two concepts so you can analyze it as a sum of two transactions:

negative: Adapted from an answer to a somewhat different question. Generally, 401k plans have larger annual expenses and provide for poorer investment choices than are available to you if you roll over your 401k investments into an IRA. So, unless you have specific reasons for wanting to continue to leave your money in the 401k plan (e.g. you have access to investments that are not available to nonparticipants and you think those investments are where you want your money to be), roll over your 401k assets into an IRA. But I don't think that is the case here.  If you had a Traditional 401k, the assets will roll over into a Traditional IRA; if it was a Roth 401k, into a Roth IRA. If you had started a little earlier, you could have considered considered converting part or all of your Traditional IRA into a Roth IRA (assuming that your 2012 taxable income will be smaller this year because you have quit your job). Of course, this may still hold true in 2013 as well.  As to which custodian to choose for your Rollover IRA, I recommend investing in a low-cost index  mutual fund such as VFINX which tracks the S&P 500 Index. Then, do not look at how that fund is doing for the next thirty years.  This will save you from the common error made by many investors when they pull out at the first downturn and thus end up buying high and selling low. Also, do not chase after exchange-traded mutual funds or ETFs (as many will likely recommend) until you have acquired more savvy or interest in investing than you are currently exhibiting. Not knowing which company stock you have, it is hard to make a recommendation about selling or holding on. But since you are glad to have quit your job, you might want to consider making a clean break and selling the shares that you own in your ex-employer's company. Keep the $35K (less the $12K that you will use to pay off the student loan) as your emergency fund. Pay off your student loan right away since you have the cash to do it.

negative: "You can have as many IRA accounts as you want (whether Roth or Traditional), so you can have a Roth IRA with American Funds and another Roth IRA with Vanguard if you like. One disadvantage of  having too many IRA accounts with small balances in each is that most custodians  (including Vanguard) charge an annual fee for maintaining IRA accounts with small balances but waive the fee if the balance is large. So it is best to keep your Roth IRA in just one or two funds with just one or two custodians until such time as investment returns plus additional contributions made over the years makes the balances large enough to diversify further. Remember also that you cannot contribute the maximum to each IRA; the sum total of all your IRA contributions (doesn't matter whether to Roth or to Traditional IRAs) for any year must satisfy the limit for that year. You can move money from one IRA of yours to another IRA (of the same type) of yours without any tax issues to worry about. Such movements (called rollovers or transfers) are  not contributions and do not count towards the annual contribution limit. The easiest way to do move money from one IRA account to another IRA account is by a trustee-to-trustee transfer where the money goes directly from one custodian (American Funds in this case) to the other custodian (Vanguard in this case). The easiest way of accomplishing this is to call Vanguard or go online on their website, tell them that you are wanting to  establish a Roth IRA with them, and that you want to fund it by transferring money held in a Roth IRA with American Funds. Give Vanguard the account  number of your existing American Funds IRA, tell them how much  you want to transfer over -- $1000 or $20,000 or the entire balance as the case may be -- and tell Vanguard to go get the money.  In a few days' time, the money will appear in your new Vanguard Roth IRA and the American Funds Roth IRA will have a smaller balance, possibly a zero balance, or might even be closed if you told Vanguard to collect the entire balance.  DO NOT approach American Funds and tell them that you want to transfer money to a new Roth IRA with Vanguard: they will bitch and moan and drag their heels about doing so because  they are unhappy to lose your business, and will probably screw up the transfer. Talk to Vanguard only. They are eager to get their hands on your IRA money and will gladly take care of the whole thing for you at no charge to you. DO NOT cash in any stock shares, or mutual fund shares, or whatever is in your Roth IRA in preparation for ""cashing out of the old account"". There is a method where you take a ""rollover distribution"" from your American Funds Roth IRA and then deposit the money into your new Vanguard Roth IRA within 60 days, but I recommend most strongly against using this because too many people manage to screw it up. It is 60 days, not two months; the clock starts from the day American Funds cuts your check, not when you get the check, and it is stopped when the money gets deposited into your new account, not the day you mailed the check to Vanguard or the day that Vanguard received it,  and so on. In short, DO NOT try this at home:  stick to a trustee-to-trustee transfer and avoid the hassles."

negative: "The receiving Roth IRA custodian will almost certainly not charge you anything; they are eager to get their hands on the money. In fact, the easiest and most efficient way is to fill out the forms for opening a Roth IRA account with the new custodian (most of this can be done online, but it might be necessary to print out a paper form, sign it and send/fax it to the company), tell them that the Roth IRA will be funded by a trustee-to-trustee transfer from the current custodian, and tell them to go get the money from the online bank who is the current custodian of your Roth IRA account. Don't approach your online bank and tell them to send the money to your new Roth IRA custodian; it will cost money and take more time and the likelihood of a screw-up is way too high. The current custodian might charge you a fee for closing the account, or for ""breaking a CD"" if that savings account is a CD and you are withdrawing the money before the maturity date of the CD. This will be spelled out in the Roth IRA custodial agreement that you accepted when you opened the account (but most likely did not read in full when you received it, and might even have discarded). One final note: with just $11K, please do not open a brokerage account for your Roth IRA and invest in stocks, bonds etc.  For now, invest all your Roth IRA in a single low-cost mutual fund (preferably an index fund such as the Vanguard S&P 500 Index fund or Fidelity Spartan 500 fund); you can branch out into more funds when you have more money in your Roth IRA. Investing in these funds does not need you to have a brokerage account; you can do it directly on the fund's website. Avoid (for now) the siren song of Exchange-Traded Funds (ETFs) because you need to have a brokerage account to buy and sell them.  When you have more money in your Roth IRA account, say in ten years' time, you can start investing in individual stocks, ETFs and the like through a brokerage account, but don't do it now."

negative: For the Roth the earnings: interest, dividends, capital gains distributions and capital gains are tax deferred. Which means that as long as the money stays inside of a Roth or is transferred/rolled over to another Roth there are no taxes due. In December many mutual funds distribute their gains. Let's say people invested in S&P500index fund receive a dividend of 1% of their account value. The investor in a non-retirement fund will be paying tax on that dividend in the Spring with their tax form. The Roth and IRA investors will not be paying tax on those dividends. The Roth investor never will, and the regular IRA investor will only pay taxes on it when they pull the money out.

negative: May I suggest putting it in a Roth IRA ($5,500 per year.  Right now you can contribute to both 2015 and 2016 so that's $11K.)?  Based on your description it sounds like your tax rate is very low, so it is awesome to put it away now and avoid taxes later on any gains you make on it.  You can use Roth IRA money to pay for college, a home, or retirement. Within your Roth IRA, any of the investment options mentioned here will work. For example, CD's or money market accounts if you just want it to grow in a pretty much savings-account-like manner.  You could also buy diversified mutual funds or have some fun buying individual stocks with some of it. I'm sorry to say that in the current market conditions you are not going to find a completely safe, cash-like investment or account that makes your money grow substantially.  To do that you have to bear risk by buying risky stuff like stocks.

negative: I know in the instance that if my MAGI exceeds a certain point, I can   not contribute the maximum to the Roth IRA; a traditional IRA and   subsequent backdoor is the way to go. My understanding is that if you ever want to do a backdoor Roth, you don't want deductible funds in a Traditional account, because you can't choose to convert only the taxable funds. From the bogleheads wiki: If you have any other (non-Roth) IRAs, the taxable portion of any   conversion you make is prorated over all your IRAs; you cannot convert   just the non-deductible amount. In order to benefit from the   backdoor, you must either convert your other IRAs as well (which may   not be a good idea, as you are usually in a high tax bracket if you   need to use the backdoor), or else transfer your deductible IRA   contributions to an employer plan such as a 401(k) (which may cost you   if the 401(k) has poor investment options).

negative: You can put them in a 5 years CD and getting a maximum of %2.5 APY if you're lucky. If you put 15k now, in 5 years you'll have $1.971. If it sounds good then take a look at the current inflation rate (i'm in usa)... If you want to think about retirement then you should open a Roth IRA. But you won't be able to touch the money without penalties (10% of earnings) before you get 59 1/2 years old. Another option would be to open a regular investment account with an online discounted broker. Which one? Well, this should be a totally separate question... If you decide to invest (Roth IRA or regular account) and you're young and inexperienced then go for a balanced mutual fund. Still do a lot of research to determine your portfolio allocation or which fund is best suited for you. Betterment (i never used it) is a no brainer investment broker.  Please don't leave them in a generic checking or low interest savings account because you'll save nothing (see inflation again)...

negative: Why is that? With all the successful investors (including myself on a not-infrequent basis) going for individual companies directly, wouldn't it make more sense to suggest that new investors learn how to analyse companies and then make their best guess after taking into account those factors? I have a different perspective here than the other answers.  I recently started investing in a Roth IRA for retirement. I do not have interest in micromanaging individual company research (I don't find this enjoyable at all) but I know I want to save for retirement. Could I learn all the details? Probably, as an engineer/software person I suspect I could. But I really don't want to. But here's the thing: For anyone else in a similar situation to me, the net return on investing into a mutual fund type arrangement (even if it returns only 4%) is still likely considerably higher than the return on trying to invest in stocks (which likely results in $0 invested, and a return of 0%). I suspect the overwhelming majority of people in the world are more similar to me than you - in that they have minimal interest in spending hours managing their money. For us, mutual funds or ETFs are perfect for this.

negative: The simplest solution to fire-and-forget is to pick something like a Target Date mutual fund made up of low-overhead index funds (within your 401k or a Roth IRA, perhaps) and set up automatic purchase to that.  If you're talking about limit orders and so on, that ain't simple.

negative: "This is not a direct answer to your question, but you might want to consider whether you want to have a financial planner at all. Would a large mutual fund company or brokerage serve your needs better than a bank? You are still quite young and so have been contributing to IRAs for only a few years. Also, the wording in your question suggests that your IRA investments have not done spectacularly well, and so it is reasonable to infer that your IRA is not a large amount, or at least not as large as what it would be 30  years from now. At this level of investment, it would be difficult for you to find a financial planner who spends all that much time looking after your interests. That you should get away from your current planner, presumably a mid-level employee in what is typically called the trust division of the bank, is a given.  But, to go to another bank (or even to a different employee in the same bank), where  you will also likely be nudged towards investing your IRA in CDs, annuities, and a few mutual funds with substantial sales charges and  substantial annual expense fees, might just take you from the frying pan into the fire. You might want to consider transferring your IRA to a large mutual fund company and investing it in something simple  like one of their low-cost (meaning small annual expense ratio) index funds. The Couch Potato portfolio suggests equal amounts invested in a no-load S&P 500 Index fund and a no-load Bond Index fund, or a 75%-25% split favoring the stock index fund (in view of your age and the fact that the IRA should be a long-term investment).  But the point is,  you can open an IRA account, have the money transferred from your IRA account with the bank, and make the investments on-line all by yourself instead of having a financial advisor do it on your behalf and charge you a fee for doing so (not to mention possibly screwing it up.) You can set up Automated Investment too; the mutual fund company will gladly withdraw money from your checking account and invest it in whatever fund(s) you choose.  All this is not complicated at all.  If you would like to follow the Couch Potato strategy and rebalance your portfolio once a year, you can do it  by yourself too. If you want to invest in funds other than the S&P 500 Index fund, etc. most mutual fund  companies offer a ""portfolio analysis"" and advice for a fee (and the fee is usually waived when the assets increase above certain levels - varies from company to company).  You could thus have a portfolio analysis done each year, and hopefully it will be free after a few more years.  Indeed, at that level, you also typically get one person assigned as your advisor, just as you have with a bank. Once you get the recommendations, you can choose to follow them  or not, but you have control over how and where your IRA assets are invested.  Over the years, as your IRA assets grow, you can branch out into  investments other than ""staid"" index funds, but right now, having a financial planner for your IRA might not be worth it. Later, when you have more assets, by all means if you want to explore investing in specific stocks with a brokerage instead of sticking to mutual funds only but this might also mean phone calls urging you to sell Stock A right now, or buy hot Stock B today etc. So, one way of improving your interactions and have a better experience with your new financial planner is to not have a planner at all for a few years and do some of the work yourself."

negative: Start a Roth IRA. Keep it in low risk, short term money market or CDs. At this stage, stocks may be premature. As you build up the account, up to $5000/year, at some point, you should start buying an index mutual fund, say one following the S&P.  When you are out of school and working for real money, save an emergency account outside the IRA and shift that Roth IRA to be fully invested.  My 13 year old has her emergency account, and her Roth IRA to deposit her baby sitting money. It's never too soon to start.

negative: Disclaimer - I am 51. Not sure how that happened, because I remember being in my late teens like it was yesterday.  I've learned that picking individual stocks is tough. Very tough. For every Apple, there are dozens that go sideways for years or go under.  You don't mention how much you have to invest, but I suggest (A) if you have any income at all, open a Roth IRA. You are probably in the zero or 10% bracket, and now is the time to do this. Then, invest in ETFs or Index Mutual Funds. If one can get S&P minus .05% over their investing life, they will beat most investors.

negative: "As other people have indicated, traditional IRAs are tax deductable for a particular year. Please note, though, that traditional IRAs are tax deferred (not tax-free) accounts, meaning that you'll have to pay taxes on any money you take out later regardless of why you're making the withdrawal. (A lot of people mistakenly call them tax free, which they're not). There is no such thing as a ""tax-free"" retirement account. Really, in terms of Roth vs. Traditional IRAs, it's ""pay now or pay later."" With the exception of special circumstances like this, I recommend investing exclusively in Roth IRAs for money that you expect to grow much (or that you expect to produce substantial income over time). Just to add a few thoughts on what to actually invest in once you open your IRA, I strongly agree with the advice that you invest mostly in low-cost mutual funds or index funds. The advantage of an open-ended mutual fund is that it's easier to purchase them in odd increments and you may be able to avoid at least some purchase fees, whereas with an ETF you have to buy in multiples of that day's asking price. For example, if you were investing $500 and the ETF costs $200 per share, you could only purchase 2 shares, leaving $100 uninvested (minus whatever fee your broker charged for the purchase). The advantage of an ETF is that it's easy to buy or sell quickly. Usually, when you add money to a mutual fund, it'll take a few days for it to hit your account, and when you want to sell it'll similarly take a few days for you to get your money; when I buy an ETF the transaction can occur almost instantly. The fees can also be lower (if the ETF is just a passive index fund). Also, there's a risk with open-ended mutual funds that if too many people pull money out at once the managers could be forced to sell stocks at an unfavorable price."

negative: I assume that with both companies you can buy stock mutual funds, bonds mutual funds, ETFs and money market accounts. They should both offer all of these as IRAs, Roth IRAs, and non-retirement accounts.  You  need to make sure they offer the types of investments you want. Most 401K or 403b plans only offer a handful of options, but for non-company sponsored plans you want to have many more choices. To look at the costs see how much they charge you when you buy or sell shares. Also look at the annual expenses for those funds. Each company website should show you all the fees for each fund. Take a few funds that you are likely to invest in, and have a match in the other fund family, and compare. The benefit of the retirement accounts is that if you make a less than perfect choice now, it is easy to move the money within the family of funds or even to another family of funds later. The roll over or transfer doesn't involve taxes.

negative: You have three options. If you follow the procedures outlined by the IRA trustee there should not be any problems. There will not be any taxes involved, unless as part of the process you change non-Roth funds  to Roth funds, or you don't follow the procedures. In my experience the IRA companies know how to handle the transfer. In some cases the check must be sent to you, and then you send it to the IRA company, but they will tell you exactly how the check is to be made out to. I would start by talking to the IRA trustee they are likely to have seen it all, and can guide you through the process.

negative: Your question indicates confusion regarding what an Individual Retirement Account (whether Roth or Traditional) is vs. the S&P 500, which is nothing but a list of stocks. IOW, it's perfectly reasonable to open a Roth IRA, put your $3000 in it, and then use that money to buy a mutual fund or ETF which tracks the S&P 500. In fact, it's ridiculously common...  :)

negative: Then buy an indexed ETF or mutual fund that tracks the S&P 500 and leave your money there until you need it. If you can (there are restrictions for income, etc.), try and setup a retirement vehicle, such as a Roth IRA to get tax advantages.

negative: Let’s compare your target fund, FFFFX to a well-known ETF, SPY; SPDR S&P 500 ETF. Source: Yahoo Finance The difference in performance over a longer time-frame is significant, You can and should carefully research better funds in order to improve performance. FULL DISCLOSURE: My own IRA is at Fidelity. Less than 10% of my IRA is in Fidelity mutual funds. None is in FFFFX.

negative: "401(k) doesn't have a ""return rate"", because 401(k) is not a type of investment -- it is a vehicle for investment, with certain tax treatments. Just like your money that's not in a 401(k), you can invest it in either the bank, a CD, stocks, mutual funds, bonds, etc., you can similarly (depending on the options given to you by your 401(k) plan) invest the money in the 401(k) in a cash account, buy stocks, mutual funds, etc. Your return is dependent on how you invest your money, not whether it's in a 401(k) or not. Whether it's in a (Roth or Traditional) 401(k) simply affects when and how it gets taxed. (It is true that most 401(k) plans offer little variety in types of investments you can choose; however, this is not a big deal, as chances are that in a few years, you will leave your company, at which point you are able to rollover the 401(k) into an IRA, at which point you will have many, many options for how to invest it.) To make a valid comparison, you should be comparing the same type of investment in both cases. That means, you should assume the same return for both the money outside the 401(k), and the money inside the 401(k), and only consider the taxes and penalties (if you plan to withdraw early)."

negative: They are mutually exclusive.  Provided you meet the income limits you can contribute to both.  Employer match do not count toward the 18K.   On the other hand traditional IRA and Roth IRA are inclusive.  So if single and making having a MAGI under 118K, you could do the 18K of your own money into a 401(k), and $5,500 into a Roth. You can put in $23,500 of your own money with the employer match on top of that.

negative: "Unquestionably I think the priority should be funding retirement through ROTH/IRA/401K over HSA extra.  Obviously you need to fund your HSA for reasonable and expected medical expenses.  Also there is some floor to your more traditional retirement funding. Beyond that what does one do with excess dollars?  Given the lack of flexibility and fees, it seems clear to do ROTH IRA and 401K. Beyond that what then?  You may want to decide to ""take some money home"" and pay taxes on it.  Do you have a desire to own rental property or start/purchase a business?  Upgrade your home? etc... If all those things are taken care of, only then would I put money into an HSA. YMMV but most people, maxing a ROTH IRA alone, will have plenty of money for retirement given a reasonable rate of return."

negative: You asked specifically about the ROTH IRA option and stated you want to get the most bang for your buck in retirement.  While others have pointed out the benefits of a tax deduction due to using a Traditional IRA instead, I haven't seen anyone point out some of the other differences between ROTH and Traditional, such as: I agree with your thoughts on using an IRA once you maximize the company match into a 401k plan.   My reasoning is: I personally prefer ETFs over mutual funds for the ability to get in and out with limit, stop, or OCO orders, at open or anytime mid-day if needed.  However, the price for that flexibility is that you risk discounts to NAV for ETFs that you wouldn't have with the equivalent mutual fund.  Said another way, you may find yourself selling your ETF for less than the holdings are actually worth.  Personally, I value the ability to exit positions at the time of my choosing more highly than the impact of tracking error on NAV. Also, as a final comment to your plan, if it were me I'd personally pay off the student loans with any money I had after contributing enough to my employer 401k to maximize matching.  The net effect of paying down the loans is a guaranteed avg 5.3% annually (given what you've said) whereas any investments in 401k or IRA are at risk and have no such guarantee.  In fact, with there being reasonable arguments that this has been an excessively long bull market, you might figure your chances of a 5.3% or better return are pretty low for new money put into an IRA or 401k today.  That said, I'm long on stocks still, but then I don't have debt besides my mortgage at the moment.  If I weren't so conservative, I'd be looking to maximize my leverage in the continued low rate environment.

negative: It is not necessarily proportional. 401k are all unique per the plan and how they are set up. It is impossible to find any two exactly alike. You should have separate buckets of the money types. Pre tax, after tax, roth, employer contribution,etc... If the plan is good you may have a Source Specific Withdraw option which allows you to take only roth or pretax at your choosing. They should track the growth of each bucket separately. It does indeed appear complicated but just think of it as different buckets of cash store in the same vault. Most people end up rolling over the 401k into an ira when they retire for flexibility to get out from under the plan rules. When you do this you will create a roth ira and a traditional ira. Then you can pick and choose when you want to take what type of money.

negative: If I were in your shoes (I would be extremely happy), here's what I would do: Get on a detailed budget, if you aren't doing one already. (I read the comments and you seemed unsure about certain things.)  Once you know where your money is going, you can do a much better job of saving it. Retirement Savings: Contribute up to the employer match on the 401(k)s, if it's greater than the 5% you are already contributing. Open a Roth IRA account for each of you and make the max contribution (around $5k each).  I would also suggest finding a financial adviser (w/ the heart of a teacher) to recommend/direct your mutual fund investing in those Roth IRAs and in your regular mutual fund investments. Emergency Fund With the $85k savings, take it down to a six month emergency fund.  To calculate your emergency fund, look at what your necessary expenses are for a month, then multiply it by six.  You could place that six month emergency fund in ING Direct as littleadv suggested.  That's where we have our emergency funds and long term savings.  This is a bare-minimum type budget, and is based on something like losing your job - in which case, you don't need to go to starbucks 5 times a week (I don't know if you do or not, but that is an easy example for me to use).  You should have something left over, unless your basic expenses are above $7083/mo. Non-retirement Investing: Whatever is left over from the $85k, start investing with it. (I suggest you look into mutual funds) it.  Some may say buy stocks, but individual stocks are very risky and you could lose your shirt if you don't know what you're doing.  Mutual funds typically are comprised of many stocks, and you earn based on their collective performance. You have done very well, and I'm very excited for you. Child's College Savings: If you guys decide to expand your family with a child, you'll want to fund what's typically called a 529 plan to fund his or her college education.  The money grows tax free and is only taxed when used for non-education expenses.  You would fund this for the max contribution each year as well (currently $2k; but that could change depending on how the Bush Tax cuts are handled at the end of this year). Other resources to check out: The Total Money Makeover by Dave Ramsey and the Dave Ramsey Show podcast.

negative: "I think it would be worth it for you to look into something called a ""Self-directed IRA"" before you make any decisions. Sometimes the costs can be a little higher, but you may find the flexibility worth it. Basically, instead of being limited to a small set of mutual funds from which to choose, having the money in a self-directed IRA would let you branch out into real estate, gold, or other vehicles that aren't part of the usual 401K landscape. And count me as another vote for not taking the cash. MrChrister is right, there are plenty of other ways to pay that off without the penalty."

negative: Since the I in IRA is individual. The retirement money from your accounts will end up in one or more IRAs. The retirement money from your spouses retirement accounts will end up in one or more IRAs owned by your spouse. How many IRA each will need depends on if the retirement fund contains pre-tax, post-tax, Roth and company match; and if you want to do any conversions.

negative: Your 401k IRA will now have three different sub-accounts, the one holding your Traditional (pre-tax) 401k contributions, the one holding your Roth 401k contributions, and the one holding the employer match contributions (which, as has been pointed out to you, cannot be considered to be Roth 401k contributions). That is, it is not true that So my next month's check shows $500+$500 going to the regular 401k, and $82+$82 going to the Roth 401k. Your next month's paystub will show $500 going into the regular 401k, $100 going into the Roth 401k, and if employer matching contributions are listed on the paystub, it will still show $600 going into the employer match. If you have chosen to invest your 401k in mutual funds (or stocks), shares are purchased when the 401k administrator receives the money and are also segregated in the three subaccounts. If you are paid monthly, then you will know on a month-by-month basis how many shares you hold in the three  separate subaccounts, and there is no end-of-year modification of how many shares were purchased with Roth 401k contributions versus how many were purchased with  pretax contributions or with employer matching funds as you seem to think.

negative: I would personally suggest owning Mutual Funds or ETF's in a tax sheltered account, such as a 401k or an IRA, especially Roth options if available.  This lets you participate in the stock market while ensuring that you have diversified portfolio, and the money is managed by an expert.  The tax sheltered accounts (or tax free in the case of Roth accounts) increase your savings, and simplify your life as you don't need to worry about taxes on earnings within those accounts, as long as you leave the money in. For a great beginner's guide see Clark's Investment Guide (Easy).

negative: The investments offered in 401K are usually limited to a selection of mutual funds offered by a 401K provider.  The 401K providers and the mutual funds charge fees.  The mutual fund industry has a lobbying group that will push for increased 401K contributions to direct money into their mutual funds to collect fees.  The top 401 K provider in 2005 was fidelity.  It managed $337 billion in 401Ks of which $334 billion was directed into mutual funds. Although I would have to use some of the same providers to open an IRA, I would not have to invest in the providers' mutual funds when I open an IRA.  I can buy a stock and hold onto it for 10, 20, 50 years inside of my IRA.  Thus, the only fee the investment company would collect from me would be from when I purchased the stock and when I sold the stock.  Not nearly as profitable as mutual fund fees.


query: What is the difference between fund and portfolio?

positive: "A ""Fund"" is generally speaking a collection of similar financial products, which are bundled into a single investment, so that you as an individual can buy a portion of the Fund rather than buying 50 portions of various products. e.g. a ""Bond Fund"" may be a collection of various corporate bonds that are bundled together. The performance of the Fund would be the aggregate of each individual item. Generally speaking Funds are like pre-packaged ""diversification"". Rather than take time (and fees) to buy 50 different stocks on the same stock index, you could buy an ""Index Fund"" which represents the values of all of those stocks. A ""Portfolio"" is your individual package of investments. ie: the 20k you have in bonds + the 5k you have in shares, + the 50k you have in ""Funds"" + the 100k rental property you own. You might split the definition further buy saying ""My 401(k) portfolio & my taxable portfolio & my real estate portfolio""(etc.), to denote how those items are invested. The implication of ""Portfolio"" is that you have considered how all of your investments work together; ie: your 5k in stocks is not so risky, because it is only 5k out of your entire 185k portfolio, which includes some low risk bonds and funds. Another way of looking at it, is that a Fund is a special type of Portfolio. That is, a Fund is a portfolio, that someone will sell to someone else (see Daniel's answer below). For example: Imagine you had $5,000 invested in IBM shares, and also had $5,000 invested in Apple shares. Call this your portfolio. But you also want to sell your portfolio, so let's also call it a 'fund'. Then you sell half of your 'fund' to a friend. So your friend (let's call him Maurice) pays you $4,000, to invest in your 'Fund'. Maurice gives you $4k, and in return, you given him a note that says ""Maurice owns 40% of atp9's Fund"".  The following month, IBM pays you $100 in dividends. But, Maurice owns 40% of those dividends. So you give him a cheque for $40 (some funds automatically reinvest dividends for their clients instead of paying them out immediately). Then you sell your Apple shares for $6,000 (a gain of $1,000 since you bought them). But Maurice owns 40% of that 6k, so you give him $2,400 (or perhaps, instead of giving him the money immediately, you reinvest it within the fund, and buy $6k of Microsoft shares). Why would you set up this Fund? Because Maurice will pay you a fee equal to, let's say, 1% of his total investment. Your job is now to invest the money in the Fund, in a way that aligns with what you told Maurice when he signed the contract. ie: maybe it's a tech fund, and you can only invest in big Tech companies. Maybe it's an Index fund, and your investment needs to exactly match a specific portion of the New York Stock Exchange. Maybe it's a bond fund, and you can only invest in corporate bonds. So to reiterate, a portfolio is a collection of investments (think of an artist's portfolio, being a collection of their work). Usually, people refer to their own 'portfolio', of personal investments. A fund is someone's portfolio, that other people can invest in. This allows an individual investor to give some of their decision making over to a Fund manager. In addition to relying on expertise of others, this allows the investor to save on transaction costs, because they can have a well-diversified portfolio (see what I did there?) while only buying into one or a few funds."

positive: "A fund is a portfolio, in that it is a collection, so the term is interchangeable for the most part.  Funds are made up of a combination of equities positions (i.e., stocks, bonds, etc.) plus some amount of un-invested cash. Most of the time, when people are talking about a ""fund"", they are describing what is really an investment strategy.  In other words, an example would be a ""Far East Agressive"" fund (just a made up name for illustration here), which focuses on investment opportunities in the Far East that have a higher level of risk than most other investments, thus they provide better returns for the investors.  The ""portfolio"" part of that is what the stocks are that the fund has purchased and is holding on behalf of its investors.  Other funds focus on municipal bonds or government bonds, and the list goes on. I hope this helps. Good luck!"

positive: "Oddly enough, in the USA, there are enough cost and tax savings between buy-and-hold of a static portfolio and buying into a fund that a few brokerages have sprung up around the concept, such as FolioFN, to make it easier for small investors to manage numerous small holdings via fractional shares and no commission window trades. A static buy-and-hold portfolio of stocks can be had for a few dollars per trade.  Buying into a fund involves various annual and one time fees that are quoted as percentages of the investment.  Even 1-2% can be a lot, especially if it is every year.  Typically, a US mutual fund must send out a 1099 tax form to each investor, stating that investors share of the dividends and capital gains for each year. The true impact of this is not obvious until you get a tax bill for gains that you did not enjoy, which can happen when you buy into a fund late in the year that has realized capital gains.  What fund investors sometimes fail to appreciate is that they are taxed both on their own holding period of fund shares and the fund's capital gains distributions determined by the fund's holding period of its investments. For example, if ABC tech fund bought Google stock several years ago for $100/share, and sold it for $500/share in the same year you bought into the ABC fund, then you will receive a ""capital gains distribution"" on your 1099 that will include some dollar amount, which is considered your share of that long-term profit for tax purposes. The amount is not customized for your holding period, capital gains are distributed pro-rata among all current fund shareholders as of the ex-distribution date. Morningstar tracks this as Potential Capital Gains Exposure and so there is a way to check this possibility before investing. Funds who have unsold losers in their portfolio are also affected by these same rules, have been called ""free rides"" because those funds, if they find some winners, will have losers that they can sell simultaneously with the winners to remain tax neutral.  See ""On the Lookout for Tax Traps and Free Riders"", Morningstar, pdf In contrast, buying-and-holding a portfolio does not attract any capital gains taxes until the stocks in the portfolio are sold at a profit.  A fund often is actively managed.  That is, experts will alter the portfolio from time to time or advise the fund to buy or sell particular investments. Note however, that even the experts are required to tell you that ""past performance is no guarantee of future results."""

negative: Generally a diversified portfolio will give you a better overall return --a couple of factors that may address what you are looking at - 1) Correlation - The correlation between your two funds is still very high -- it's partially a function of how global economies are related and many companies are now multi-national.  It may help if you diversified into other types of products.   2) Diversification - Following up from before, you may want to also look into diversifying into some bonds, commodities, reits, etc.  They will have a much smaller correlation with a total domestic stock fund. 3) Returns - I'm not sure if by dominate you mean that it has better overall returns, but the point of diversification is to to get you the highest returns.  It's really the ability to limit the risk for the returns - this really translates to limiting the volatility.  This may mean that overall your max returns could be lower-- ie: maybe VTSAX  gives potential average returns between 3%-11%.  A diversified portfolio may give you potential average returns of 5%-9%.  A similar article debating the merits of 'smart beta ETFs' if you are curious. Hope that helps.

negative: What is the question?  A total return fund seeks to just maximize total returns, as opposed to benchmark tracking, low vol, high vol, sectoral, whatever, this is just a name you gotta read the long prospectus to see how they are supposed to go about doing it.  Fixed income investing DOES NOT rely on on interest rates, it relies on the movements of interest rates (this is a key difference).  When economies are doing poorly, there is a flight to quality (everyone is scared and lends only to governments) driving government interest rate downs and increasing the spread between government rates and corporates.  My usual advice is There is never a good time to buy a mutual fund :P, better to buy an ETF or a portfolio of ETF's that correspond to your views.  You need to sit down and ask yourself what type of risk tolerances you're willing to take as mutual funds by construction deliver negative alpha due to fees.

negative: For a non-technical investor (meaning someone who doesn't try to do all the various technical analysis things that theoretically point to specific investments or trends), having a diverse portfolio and rebalancing it periodically will typically be the best solution. For example, I might have a long-term-growth portfolio that is 40% broad stock market fund, 40% (large) industry specific market funds, and 20% bond funds.  If the market as a whole tanks, then I might end up in a situation where my funds are invested 30% market 35% industry 35% bonds.  Okay, sell those bonds (which are presumably high) and put that into the market (which is presumably low).  Now back to 40/40/20.   Then when the market goes up we may end up at 50/40/10, say, in which case we sell some of the broad market fund and buy some bond funds, back to 40/40/20.  Ultimately ending up always selling high (whatever is currently overperforming the other two) and buying low (whatever is underperforming).   Having the industry specific fund(s) means I can balance a bit between different sectors - maybe the healthcare industry takes a beating for a while, so that goes low, and I can sell some of my tech industry fund and buy that.   None of this depends on timing anything; you can rebalance maybe twice a year, not worrying about where the market is at that exact time, and definitely not targeting a correction specifically.  You just analyze your situation and adjust to make everything back in line with what you want. This isn't guaranteed to succeed (any more than any other strategy is), of course, and has some risk, particularly if you rebalance in the middle of a major correction (so you end up buying something that goes down more).  But for long-term investments, it should be fairly sound.

negative: On what basis did you do your initial allocation of funds to each stock?   If you are 're-balancing' that implies returning things to their initial allocation.  You can do this without any research or recommendations. If you started out with say 10 stocks and 10% of the funds allocated to each stock, then re-balancing would simply be either buying/selling to return to that initial allocation.  If you are contributing to the portfolio you could adjust where the new money goes to re-balance without selling.  Or if you are drawing money from the portfolio, then you could adjust what you are selling. If on the other hand you are trying to decide if you want to alter the stocks the portfolio is HOLDING, then you have an entirely different question from 're-balancing'

negative: Before investing, absolutely follow the advice in mbhunter's answer. There is no safe investment (unless you count your mattress, and even there you could find moths, theives, or simple inflation taking a chunk out of your change).  There is only maximizing your reward for a given level of risk - and there is always risk. This question should be enshrined somewhere on the Q&A site for its comprehensive list of sources for information on asset allocation.  The tag is also going to have tons of good information for you. To answer your question on what slice of the pie is devoted to what, you can check out some common portfolios given by U. S. experts for U. S. investors - these should be convertible into Australian funds. Another portfolio that is, like all those above, loosely based on Modern Portfolio Theory for maximizing reward for a given level of risk is the Gone Fishin' Portfolio. A common denominator amongst these portfolios is that they emphasize index funds over mutual funds for their long-term performance and preference lazy management (yearly rebalancing is a common suggestion as the maximum level of involvement) over active management.  You can see more Lazy Portfolios.

negative: You are diversified within a particular type of security. Notably the stock market. A truly diversified portfolio not only has multiple types of holdings within a single type of security (what your broad market fund does) but between different types. You have partially succeeded in doing this with the international fund - that way your risk is spread between domestic and international stocks. But there are other holdings. Cash, bonds, commodities, real estate, etc. There are broad index funds/ETFs for those as well, which may reduce your risk when the stock market as a whole tanks - which it does on occasion.

negative: "Typical Human Advisor: Advantages: They can recommend funds and allocations that fit to your portfolio. Disadvantages: Those who are just fund salespeople in disguise will usually recommend poor-performing funds for higher commission pay. Their advice will not be much different from random person internet advice. When your portfolio drops, they still get paid, and they don't care because they are not a fiduciary. Robo-Advisor: Advantages: Rules are automated, and typically based on crunched numbers. Somebody else executes the trades, and remembers to rebalance your portfolio when you'd usually forget to. Disadvantages: Not always accurate, usually relies on momentum from popularity. No one at the helm to adjust for risk. If you follow, you'll usually just lag behind. Yet, those with simple, low-cost diversified ETF portfolios can be attractive. Market ETFs: Advantages: Low cost funds that typically match the market. High performance. Easy to sell when you need to, zero decision making required, and you will be sure to nearly match the general market. Disadvantages: Boring. You need to enter your own orders, but you won't be doing that too often. No thrill except counting all the commas in your account. No wacky stories to wow your friends and family about your gambling addiction. Seriously, some people just can't help but take the high risk route. Newsletter / Portfolio / Online ""Expert"": Advantages: They usually have some idea of what indicators to look for and can make predictions about price movements. Disadvantages: Predictions are as frequently wrong as they are right. Good ones won't have much to say, and incompetent ones will write multi-paragraph essays about Fibonacci sequences, resistance levels, trends RSI, ROIT, everything that might show an indicator in some direction maybe... and it's usually forgotten by the next newsletter."

negative: Finance encompasses many disciplines. What aspect of finance would you like to work in? A hedge fund analyst is very different from a portfolio manager who is also very different from an accountant. All of those would technically fall under finance, but your background for those careers would be very different.

negative: A strategy of rebalancing assumes that the business cycle will continue, that all bull and bear markets end eventually.  Imagine that you maintained a 50% split between a US Treasury bond mutual fund (VUSTX) and an S&P 500 stock mutual fund (VFINX) beginning with a $10,000 investment in each on January 1, 2008, then on the first of each year you rebalanced your portfolio on the first of January (we can pretend the markets are open that day). The following table illustrates the values in each of those funds with the rebalancing transactions: This second table shows what that same money would look like without any rebalancing over those years: Obviously this is cherry-picking for the biggest drop we've recently experienced, but even if you skipped 2008 and 2009, the increase for a rebalanced portfolio from 2010-2017 is 85% verses 54% for the portfolio that is not being rebalanced in the same period. This is also a plenty conservative portfolio. You can see that a 100% stock portfolio dropped 40% in 2008, but the combined portfolio only dropped 18%. A 100% stock portfolio has gained 175% since 2009, compared to 105% for the balanced portfolio, but it's common to trade gains for safety as you get closer to retirement. You didn't ask about a 100% stock portfolio in your initial question. These results would be repeated in many other portfolio allocations because some asset classes outperform others one year, then underperform the next. You sell after the years it outperforms, then you buy after years that it underperforms.

negative: The default of the country will affect the country obligations and what's tied to it. If you have treasury bonds, for example - they'll get hit. If you have cash currency - it will get hit. If you're invested in the stock market, however, it may plunge, but will recover, and in the long run you won't get hit. If you're invested in foreign countries (through foreign currency or foreign stocks that you hold), then the default of your local government may have less affect there, if at all. What you should not, in my humble opinion, be doing is digging holes in the ground or probably not exchange all your cash for gold (although it is considered  a safe anchor in case of monetary crisis, so may be worth considering some diversifying your portfolio with some gold). Splitting between banks might not make any difference at all because the value won't change, unless you think that one of the banks will fail (then just close the account there). The bottom line is that the key is diversifying, and you don't have to be a seasoned investor for that. I'm sure there are mutual funds in Greece, just pick several different funds (from several different companies) that provide diversified investment, and put your money there.

negative: Contrary to what you might have heard, moving money between mutual funds, whether or not in the same family of funds, is a taxable event, assuming, of course, that the funds are not in tax-deferred retirement accounts. About the only thing that is not taxable is moving funds between share classes in the same mutual fund, e.g. a conversion from what Vanguard refers to as Investor Shares to Admiral Shares in the same fund. In some cases, the Admiral Shares may have a considerably different price (for example, Vanguard Health Care Fund Investor Shares (VGHCX) and Admiral Shares (VGHAX) are priced at $215.83 and $91.04 respectively and so changing from one class to the other changes the number of shares owned considerably while the net value of the investment remains unchanged.

negative: @Victor above has provided a very good answer, I shall try and highlight some differences. The differences are specific to a country, however, it does offer some insight regarding the difference between investing in retirement fund vis-a-vis investing in stock directly: In many countries the retirement fund is mandated by the govt. and has to be invested in (in form of direct deduction from salary) ~ Investing in stock is up to the individual In many cases (if not most) capital gain/interest accrual in retirement funds are not taxable ~ Depending upon current laws capital gain (long term/short term) from stocks are taxable Retirement funds are managed and are (in general) more stable in their returns ~ Returns from direct stock investments are dependent on investment decisions of the investor Retirement funds tend to, (though this is very country specific) return somewhat less than market, as an example, in India Public Provident Fund (PPF)/Employee Provident Fund (EPF) return 8.68% tax free ~ As for direct investment on stocks, Nifty has returned approx. 17% CAGR over 15-20 years. Given the above, if you can invest in stock by taking informed calls and you have a good understanding of the financial markets and their underpinning and (probably) looking at long term investment, then investing directly in stock could fetch returns that might not be paralled by retirement funds. If on the other hand, if you feel investing in stock is not for you, then it probably is better to stick with retirement funds and other low risk investments. Either way, you probably have to (and may be you should) carry some portion of your portfolio as retirement funds.

negative: I am a firm believer in TD's e-series funds.  No other bank in Canada has index funds with such low management fees.  Index funds offer the flexibility to re-balance your portfolio every month without the need to pay commission fees.  Currently I allocate 10% of my paycheck to be diversified between Canadian, US, and International e-series index funds. In terms of just being for beginners, this opinion is most likely based on the fact that an e-series portfolio is very easy to manage.  But this doesn't mean that it is only for beginners.  Sometimes the easiest solution is the best one! :)

negative: Since you already have twice your target in that emergency fund, putting that overage to work is a good idea. The impression that I get is that you'd still like to stay on the safe side. What you're looking for is a Balanced Fund.  In a balanced fund the managers invest in both stocks and bonds (and cash). Since you have that diversification between those two asset classes, their returns tend to be much less volatile than other funds. Also, because of their intended audience and the traditions from that class of funds' long history, they tend to invest somewhat more conservatively in both asset classes.  There are two general types of balanced funds: Conservative Allocation funds and Moderate Allocation funds. Conservative allocation funds invest in more fixed income than equity (the classic mix is 60% bonds, 40% stocks). Moderate allocation funds invest in more equity than fixed income (classic mix: 40% bonds, 60% stocks). A good pair of funds that are similar but exemplify the difference between conservative allocation and moderate allocation are Vanguard's Wellesley Income Fund (VWINX) for the former and Vanguard's Wellington Fund (VWELX) for the latter. (Disclaimer: though both funds are broadly considered excellent, this is not a recommendation.) Good luck sorting this out!

negative: "Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age.  This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc).  If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans.  (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two.  Start aggressive, and gradually get more conservative as you get older.  You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules.  The idea is to maximize return while accepting a certain amount of risk.  There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept.  #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is ""100 minus your age"".  This means if you are 20, you should have 80% of your retirement portfolio in stocks.  If you are 60, your retirement portfolio should be 40% stock.  Over the years, the ""100"" number has varied.  Some financial advisor types have suggested ""150"" or ""200"".  Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly.  At least once a year, perhaps quarterly if the market is going wild.  Make sure you are still in-line with your desired asset allocation.  If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary.  (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options.  I do suggest that your focus on selecting a ""passive"" index fund, not an actively managed fund with a high expense ratio. Personally, I like ""total market"" funds to give you the broadest allocation of small and big companies.  (This makes your question about large/small cap stocks moot.)  The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision.  A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices.  Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments.  There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio).  However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/"

negative: Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons.  Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference.   Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.

negative: What account you put it in depends on why you have those different accounts.  First, if you have them due to regulatory requirements, then you of course must follow said regulations. I doubt that's the case here.  Otherwise, you might be splitting based on how they trade (ETFs trade as stocks) or you could be splitting based on how you build a portfolio out of them.  When you build a non-speculative stock portfolio, you typically want to limit your holdings in a single stock to a fairly small portion of your portfolio (say, 3%) to limit your exposure to bad stuff happening to a single company. That doesn't apply nearly a much to mutual funds, especially index funds. ETFs are much more like mutual funds here.  You can also, of course, create an ETF account and put them there. You also say you have a market index account, what is that used for?

negative: I think you need a diversified portfolio, and index funds can be a part of that. Make sure that you understand the composition of your funds and that they are in fact invested in different investments.

negative: "I don't like buying individual bonds for my own portfolio.  I actually used to buy long-term government strip bonds (Canadas or provincial bonds) but I stopped.  Here are some reasons why: My broker allows me to purchase bonds via their web application.  However, to sell a bond, I had to call in to the fixed-income trading desk.  That was inconvenient.  (But your broker may be different.) Bonds don't typically trade on a formal exchange.  So, there's no cheap & easy way (as far as I know) to get an independent quote for a bond's value – I had to trust what my broker said my bond was worth when assessing my portfolio performance.   I asked my broker once how they arrive at the ""market value"" shown – i.e. whether it was last bid, ask, or actual trade – and I was told they use a third party bond quotation / valuation information provider for the data, and that quotes are an estimate of what the bond would be worth, based on similar bonds.  I quickly learned that wasn't the value I could actually get when selling it: When you're dealing with your broker to buy and sell bonds, you're likely dealing with theirs or a related investment bank which makes a market for specific issues of bonds.  While I wasn't being charged an explicit commission to buy or sell bonds, it was evident the broker makes money off the spread:  That is, the difference between what they would be willing to sell a bond for and what they would be willing to buy that same bond for.  They will buy your bond back from you cheaper than what they could turn around and sell it to somebody else for.  That's why they don't charge an explicit commission... it's built in and hidden! Anyway, when I finally discovered my broker would seldom actually offer me the ""market value"" quoted for my bonds (typically, it would be bought back for a few percent less than it were theoretically worth), I gave up.  I don't think bonds simply are liquid enough, nor the costs transparent enough for retail investors.  (Or maybe it's just me :-) However, I do think bonds remain an important part of a diversified portfolio:  Bonds ought to be represented in a diversified portfolio using low-cost bond index mutual funds or exchange-traded funds.  Since these funds buy & sell bonds in large quantities, they get a better deal on the spreads.  So, while you do pay an explicit management fee for a fund, you are probably saving since you're not getting shafted on the spreads."

negative: "TD e-series index funds are great for regular contributions every paycheck since there is no trading commission.  The personal finance blog ""Canadian Couch Potato"" has great examples of what they call ""model portfolios"" and one consists of entirely TD e-series index funds.  Check it out:  http://canadiancouchpotato.com/model-portfolios-2/ The e-series portfolio that is described in the Model Portfolios (linked above) made returns of just over 10%.  This is very similar to the ETF Model Portolio.   One thing to remember is that these funds have a 30 day no sell time frame, otherwise a 2% fee is applied to the funds you withdraw."

negative: Diversified is relative. Alfred has all his money in Apple.  He's done very well over the last 10 years, but I think most investors would say that he's taking an incredible risk by putting everything on one stock. Betty has stock in Apple, Microsoft, and Google.  Compared to Alfred, she is diversified. Charlie looks at Betty and realizes that she is only investing in one particular industry.  All the companies in an individual industry can have a downturn together, so he invests everything in an S&P 500 index fund. David looks at Charlie and notes that he's got everything in large, high-capitalization companies.  Small-cap stocks are often where the growth happens, so he invests in a total stock market fund. Evelyn realizes that David has all his money tied up in one country, the United States.  What about the rest of the world?  She invests in a global fund. Frank really likes Evelyn's broad approach to equities, but he knows that some portion of fixed-income assets (e.g. cash deposits, bonds) can reduce portfolio volatility—and may even enhance returns through periodic rebalancing. He does what Evelyn does, but also allocates some percentage of his portfolio to fixed income, and intends to maintain his target allocations. Being diversified enough depends on your individual goals and investing philosophy.  There are some who would say that it is wrong to put all of your money in one fund, no matter what it is.  Others would say that a sufficiently broad index fund is inherently diversified as-is.

negative: I strongly suggest you go to www.investor.gov as it has excellent information regarding these types of questions. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. When you buy shares of a mutual fund you're buying it at NAV, or net asset value.  The NAV is the value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. Different funds may own thousands of different stocks.  In order to calculate the NAV, the fund company must value every security it owns.  Since each security's valuation is changing throughout the day it's difficult to determine the valuation of the mutual fund except for when the market is closed.  Once the market has closed (4pm eastern) and securities are no longer trading, the company must get accurate valuations for every security and perform the valuation calculations and distribute the results to the pricing vendors.  This has to be done by 6pm eastern.  This is a difficult and, more importantly, a time consuming process to get it done right once per day.  Having worked for several fund companies I can tell you there are many days where companies are getting this done at the very last minute. When you place a buy or sell order for a mutual fund it doesn't matter what time you placed it as long as you entered it before 4pm ET.  Cutoff times may be earlier depending on who you're placing the order with.  If companies had to price their funds more frequently, they would undoubtedly raise their fees.

negative: ETFs are both liquid (benefits active traders) and a simple way for people to invest in funds even if they don't have the minimum balance needed to invest in a mutual fund (EDIT: in which purchases are resolved at the end of the trading day). One big difference between ETFs and mutual funds is that you must buy ETFs in whole units, whereas you can add $100 to a mutual fund and the fund will determine -- usually to 4 decimal places -- how many shares you've purchased.

negative: "Yes, the ""based on"" claim appears to be true – but the Nobel laureate did not personally design that specific investment portfolio ;-) It looks like the Gone Fishin' Portfolio is made up of a selection of low-fee stock and bond index funds, diversified by geography and market-capitalization, and regularly rebalanced.  Excerpt from another article, dated 2003: The Gone Fishin’ Portfolio  [circa 2003] Vanguard Total Stock Market Index (VTSMX) – 15%   Vanguard Small-Cap Index (NAESX) – 15%   Vanguard European Stock Index (VEURX) – 10%   Vanguard Pacific Stock Index (VPACX) – 10%   Vanguard Emerging Markets Index (VEIEX) – 10%   Vanguard Short-term Bond Index (VFSTX) – 10%   Vanguard High-Yield Corporates Fund (VWEHX) – 10%   Vanguard Inflation-Protected Securities Fund (VIPSX) – 10%   Vanguard REIT Index (VGSIX) – 5%   Vanguard Precious Metals Fund (VGPMX) – 5%   That does appear to me to be an example of a portfolio based on Modern Portfolio Theory (MPT), ""which tries to maximize portfolio expected return for a given amount of portfolio risk"" (per Wikipedia).  MPT was introduced by Harry Markowitz, who did go on to share the 1990 Nobel Memorial Prize in Economic Sciences.  (Note: That is the economics equivalent of the original Nobel Prize.) You'll find more information at NobelPrize.org - The Prize in Economics 1990 - Press Release. Finally, for what it's worth, it isn't rocket science to build a similar portfolio.  While I don't want to knock the Gone Fishin' Portfolio (I like most of its parts), there are many similar portfolios out there based on the same concepts.  For instance, I'm reminded of a similar (though simpler) portfolio called the Couch Potato Portfolio, made popular by MoneySense magazine up here in Canada. p.s. This other question about asset allocation is related and informative."

negative: There are two independent sets of terms we need to define in order to answer your question.  I am trying to understand the difference between Value, Blend, and Growth These are different categories of mutual funds: Value: discounted or undervalued stocks. This is often measured by a difference between the stock's price and the Net Asset Value (NEV). Growth: stocks that fund managers believe are poised for significant growth (increase in stock price and NEV). Blend: a blend of two categories of stocks. In this context it probably refers to a combination of growth and value stocks, but it just depends on the context.  I want to receive dividend and Growth These are ways to receive earnings from a stock or fund. Dividend: a direct cash payment from owning a stock or a fund. Stocks and funds who pay out 100% of their profits don't have any money leftover to grow themselves and either stagnate or shrink. Growth: an increase manifesting itself in capital gains. If a stock or fund pays out zero dividends, then all profits are invested back into the company for fund, increasing its value. If you intend to automatically reinvest dividends, then receiving dividends is essentially the same as receiving profit through capital gains. If you intend to sell stocks or funds periodically to get some extra spending cash, then receiving profits through capital gains is essentially the same as dividends.

negative: In the past 10 years there have been mutual funds that would act as a single bucket of stocks and bonds. A good example is Fidelity's Four In One. The trade off was a management fee for the fund in exchange for having to manage the portfolio itself and pay separate commissions and fees. These days though it is very simple and pretty cheap to put together a basket of 5-6 ETFs that would represent a balanced portfolio. Whats even more interesting is that large online brokerage houses are starting to offer commission free trading of a number of ETFs, as long as they are not day traded and are held for a period similar to NTF mutual funds.  I think you could easily put together a basket of 5-6 ETFs to trade on Fidelity or TD Ameritrade commission free, and one that would represent a nice diversified portfolio. The main advantage is that you are not giving money to the fund manager but rather paying the minimal cost of investing in an index ETF. Overall this can save you an extra .5-1% annually on your portfolio, just in fees. Here are links to commission free ETF trading on Fidelity and TD Ameritrade.

negative: "One approach is to invest in ""allocation"" mutual funds that use various methods to vary their asset allocation. Some examples (these are not recommendations; just to show you what I am talking about): A good way to identify a useful allocation fund is to look at the ""R-squared"" (correlation) with indexes on Morningstar. If the allocation fund has a 90-plus R-squared with any index, it probably isn't doing a lot. If it's relatively uncorrelated, then the manager is not index-hugging, but is making decisions to give you different risks from the index. If you put 10% of your portfolio in a fund that varies allocation to stocks from 25% to 75%, then your allocation to stocks created by that 10% would be between 2.5% to 7.5% depending on the views of the fund manager. You can use that type of calculation to invest enough in allocation funds to allow your overall allocation to vary within a desired range, and then you could put the rest of your money in index funds or whatever you normally use. You can think of this as diversifying across investment discipline in addition to across asset class. Another approach is to simply rely on your already balanced portfolio and enjoy any downturns in stocks as an opportunity to rebalance and buy some stocks at a lower price. Then enjoy any run-up as an opportunity to rebalance and sell some stocks at a high price.  The difficulty of course is going through with the rebalance. This is one advantage of all-in-one funds (target date, ""lifecycle,"" balanced, they have many names), they will always go through with the rebalance for you - and you can't ""see"" each bucket in order to get stressed about it. i.e. it's important to think of your portfolio as a whole, not look at the loss in the stocks portion. An all-in-one fund keeps you from seeing the stocks-by-themselves loss number, which is a good way to trick yourself into behaving sensibly. If you want to rebalance ""more aggressively"" then look at value averaging (search for ""value averaging"" on this site for example). A questionable approach is flat-out market-timing, where you try to get out and back in at the right times; a variation on this would be to buy put options at certain times; the problem is that it's just too hard. I think it makes more sense to buy an allocation fund that does this for you. If you do market time, you want to go in and out gradually, and value averaging is one way to do that."

negative: If you have 100% of your money in one security that is inherently more risky than splitting your money 50/50 between two securities, regardless of the purported riskiness of the two securities. The calculations people use to justify their particular breed of diversification may carry some assumptions related risk/reward calculations.  But these particular justifications don't change the fact that spreading your money across different assets protects your money from value variances of the individual assets.  Splitting your $100 between Apple and Microsoft stock is probably less valuable (less well diversified) than splitting your money between Apple and Whole Foods stock but either way you're carrying less risk than putting all $100 in to Apple stock regardless of the assumed rates of return for any of these companies stock specifically. Edit: I'm sure the downvotes are because I didn't make a big deal about correlation and measuring correlation and standard deviations of returns and detailed portfolio theory.  Measuring efficacy and justifying your particular allocations (that generally uses data from the past to project the future) is all well and good.  Fact of the matter is, if you have 100% of your money in stock that's more stock risk than 25% in cash, 25% in bonds and 50% in stock would be because now you're in different asset classes.  You can measure to your hearts delight the effects of splitting your money between different specific companies, or different industries, or different market capitalizations, or different countries or different fund managers or different whatever-metrics and doing any of those things will reduce your exposure to those specific allocations.   It may be worth pointing out that currently the hot recommendation is a plain vanilla market tracking S&P 500 index fund (that just buys some of each of the 500 largest US companies without any consideration given to risk correlation) over standard deviation calculating actively managed funds.  If you ask me that speaks volumes of the true efficacy of hyper analyzing the purported correlations of various securities.

negative: according to the SEC: Shareholder Reports A mutual fund and a closed-end fund respectively must provide   shareholders with annual and semi-annual reports 60 days after the end   of the fund’s fiscal year and 60 days after the fund’s fiscal   mid-year. These reports contain updated financial information, a list   of the fund’s portfolio securities, and other information. The   information in the shareholder reports will be current as of the date   of the particular report (that is, the last day of the fund’s fiscal   year for the annual report, and the last day of the fund’s fiscal   mid-year for the semi-annual report).  Other Reports A mutual fund and a closed-end fund must file a Form N-Q each quarter   and a Form N-PX each year on the SEC’s EDGAR database, although funds   are not required to mail these reports to shareholders. Funds disclose   portfolio holdings on Form N-Q. Form N-PX identifies specific   proposals on which the fund has voted portfolio securities over the   past year and discloses how the fund voted on each. This disclosure   enables fund shareholders to monitor their funds’ involvement in the   governance activities of portfolio companies. which means that sixty days after the end of each quarter they will tell you what they owned 60 days ago. This makes sense; why would they want to tell the world what companies they are buying and selling.

negative: "One alternative to bogleheadism is the permanent portfolio concept (do NOT buy the mutual fund behind this idea as you can easily obtain access to a low cost money market fund, stock index fund, and bond fund and significantly reduce the overall cost).  It doesn't have the huge booms that stock plans do, but it also doesn't have the crushing blows either.  One thing some advisers mention is success is more about what you can stick to than what ""traditionally"" makes sense, as you may not be able to stick to what traditionally makes sense (all people differ). This is an excellent pro and con critique of the permanent portfolio (read the whole thing) that does highlight some of the concerns with it, especially the big one: how well will it do in a world of high interest rates?  Assuming we ever see a world of high interest rates, it may not provide a great return. The authors make the assumption that interest rates will be rising in the future, thus the permanent portfolio is riskier than a traditional 60/40.  As we're seeing in Europe, I think we're headed for a world of negative interest rates - something in the past most advisers have thought was very unlikely.  I don't know if we'll see interest rates above 6% in my lifetime and if I live as long as my father, that's a good 60+ years ahead. (I realize people will think this is crazy to write, but consider that people are willing to pay governments money to hold their cash - that's how crazy our world is and I don't see this changing.)"

negative: "You make several good points.  I'll start with Black-Scholes; the arbitrage argument in Black-Scholes is between the option and a hypothetical and unobserved portfolio with identical cash flows (the replicating portfolio).  We then value the replicating portfolio via an equilibrium model.  When you use BS, there isn't necessarily *any* observed security whose is guaranteed not imply some arbitrage opportunity, because BS makes no reference to observed prices.  A no-arbitrage modification might look like this: ""I observe the prices (and implied volatilities) of some options, and use the implied volatilities to price another option (maybe with a different strike).  Doing so ensures that there is no arbitrage between my price and the market prices implied by my model.""  Realistically, the problem arbitrage-free models are addressing is that our models and assumptions are wrong, even though they're reasonable approximations a lot of the time.  A no-arbitrage model removes some set of obvious deficiencies, but at the cost of not being able to explain why things are priced as they are.  So, for instance, Vasicek won't reproduce the observed term structure, and Hull-White fixes this, but Hull-White doesn't explain where the term structure comes from (i.e., what the term structure *should* be)."

negative: Mutual funds are collections of investments that other people pay to join.  It would be simpler to calculate the value of all these investments at one time each day, and then to deem that any purchases or sales happen at that price.  The fund diversifies rather than magnifies risk, looking to hold rather than enjoy a quick turnaround.  Nobody really needs hourly updated price information for an investment they intend to hold for decades. They quote their prices on a daily basis and you take the daily price.  This makes sense for a vehicle that is a balanced collection of many different assets, most of which will have varying prices over the course a day.  That makes pricing complicated.  This primer explains mutual fund pricing and the requirements of the Investment Company Act of 1940, which mandates daily price reporting.  It also illustrates the complexity: How does the fund pricing process work? Mutual fund pricing is an intensive process that takes place in a short time frame at the end of the day. Generally, a fund’s pricing process begins at the close of the New York Stock Exchange, normally 4 p.m. Eastern time. The fund’s accounting agent, which may be an affiliated entity such as the fund’s adviser, or a third-party servicer such as the fund’s administrator or custodian bank, is usually responsible for calculating the share price. The accounting agent obtains prices for the fund’s securities from pricing services and directly from brokers. Pricing services collect securities prices from exchanges, brokers, and other sources and then transmit them to the fund’s accounting agent. Fund accounting agents internally validate the prices received by subjecting them to various control procedures. For example, depending on the nature and extent of its holdings, a fund may use one or more pricing services to ensure accuracy. Note that under Rule 22c-1 forward pricing, fund shareholders receive the next daily price, not the last daily price.  Forward pricing makes sense if you want shareholders to get the most accurate sale or purchase price, but not if you want purchasers and sellers to be able to make precise calculations about gains and losses (how can you be precise if the price won't be known until after you buy or sell?).