query: Are “hard money loans” meant only for real estate?

positive: From Wikipedia: A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers. The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring. This implies to me that these loans are only against real estate. Presumably, because it doesn't move and can't be simply taken away, as in the case where you have say, a high value diamond or painting.

negative: "(Disclosure - PeerStreet was at FinCon, a financial blogger conference I attended last month. I had the chance to briefly meet a couple people from this company. Also, I recognize a number of the names of their financial backers. This doesn't guarantee anything, of course, except the people behind the scenes are no slackers.) The same way Prosper and Lending Club have created a market for personal loans, this is a company that offers real estate loans.  The ""too good to be true"" aspect is what I'll try to address. I've disclosed in other answers that I have my Real Estate license. Earlier this year, I sold a house that was financed with a ""Hard Money"" loan. Not a bank, but a group of investors. They charged the buyer 10%. Let me state - I represented the seller, and when I found out the terms of the loan, it would have been a breach of my own moral and legal responsibility to her to do anything to kill the deal. I felt sick for days after that sale.  There are many people with little credit history who are hard workers and have saved their 20% down. For PeerStreet, 25%. The same way there's a business, local to my area, that offered a 10% loan, PeerStreet is doing something similar but in a 'crowd sourced' way. It seems to me that since they show the duration as only 6-24 months, the buyer typically manages to refinance during that time. I'm guessing that these may be people who are selling their house, but have bad timing, i.e. they need to first close on the sale to qualify to buy the new home. Or simply need the time to get their regular loan approved.  (As a final side note - I recalled the 10% story in a social setting, and more than one person responded they'd have been happy to invest their money at 6%. I could have saved the buyer 4% and gotten someone else nearly 6% more than they get on their cash.)"

negative: Have you considered a self-directed IRA to invest, rather than the stock market or publicly traded assets? Your IRA can actually own direct title to real estate, loan money via secured or unsecured promissory notes much like a hard money loan or invest into shares of an entity that invests in real estate. The only nuance is that the IRA holder is responsible for finding and deciding upon the investment vehicle.  Just an option outside of the normal parameters, if you have an existing IRA or old 401(k) or other qualified plan, this might be an option for you.

negative: You apparently assume that pouring money into a landlord's pocket is a bad thing. Not necessarily. Whether it makes sense to purchase your own home or to live in a rental property varies based on the market prices and rents of properties. In the long term, real estate prices closely follow inflation. However, in some areas it may be possible that real estate prices have increased by more than inflation in the past, say, 10 years. This may mean that some (stupid) people assume that real estate prices continue to appreciate at this rate in the future. The price of real estates when compared to rents may become unrealistically high so that the rental yield becomes low, and the only reasonable way of obtaining money from real estate investments is price appreciation continuing. No, it will not continue forever. Furthermore, an individual real estate is a very poorly diversified investment. And a very risky investment, too: a mold problem can destroy the entire value of your investment, if you invest in only one property. Real estates are commonly said to be less risky than stocks, but this applies only to large real estate portfolios when compared with large stock portfolios. It is easier to build a large stock portfolio with a small amount of money to invest when compared to building a large real estate portfolio. Thus, I would consider this: how much return are you going to get (by not needing to pay rent, but needing to pay some minor maintenance costs) when purchasing your own home? How much does the home cost? What is the annual return on the investment? Is it larger than smaller when compared to investing the same amount of money in the stock market? As I said, an individual house is a more risky investment than a well-diversified stock portfolio. Thus, if a well-diversified stock portfolio yields 8% annually, I would demand 10% return from an individual house before considering to move my money from stocks to a house.

negative: People in the United States in the mid-2000's thought that real estate was safe.  Then they discovered that when the bubble burst the value of their house dropped 10 to 50%. Then they realized that they couldn't sell, even if they had the cash to make the lender whole. Some lost their houses to foreclosure, others walked away and took massive hits to their wealth and credit scores. When it is hard or impossible to sell, that means you can't move to where the jobs are. While it is possible to make money in real estate, treating your house as an investment vehicle means that you are putting not only all your eggs into one basket; you are also living in the basket. In general you should assume that all investment involves risk. So if you are trying to avoid all chances of losing money then the safest form of investment is via your bank account and government bonds. Your national government has a program to insure bank accounts, you need to understand the rules for that program, including types of accounts and amounts. You should also look into your national programs for retirement accounts, to make sure you are investing for the long term. Many people invest via the stock market or the bond market. These investments are not guaranteed, though there may be some protection for fraud. The more specific your investments (individual companies) the more time you need to invest in research and tracking. Many investors do so via mutual funds or Exchange Traded Funds, this involves less of a time investment because you are paying the management comp nay for the fund to do that research for all their investors.

negative: From what I hear, usually not.  Get an amortization schedule for the property, and see what the savings on the interest rate is.  Then see what the interest versus borrowing less is. The consider that you can invest the buy down money, or better yet use it as down payment and borrow less money.  Typically (as experienced by wife who use to be a loan processor) the buy down did not save any money, and just made the broker a bigger commission.

negative: Even after the real estate crash, there are banks that lend money outside of the rules I'll share.  A fully qualified mortgage is typically run at debt to income ratios of 28/36, where 28% of your gross monthly income can apply to the mortgage, property tax, and insurance, and the 36% is the total monthly debt (including the mortgage, etc) plus car loan student loan, etc. It's less about the total loan on the potential than about these ratios. The bank may allow for 75% of monthly rent so until rentals are running at a profit, they may seem a loss, even while just breaking even.  This is just an overview, each bank may vary a bit.

negative: * Yes, you should incorporate if you plan on seriously investing in real estate. This not only limits liability in terms of paying back the debt but also in case your tenants sue you.  * Pass-through entities. Typically an LLC but it depends on the state if they have good or bad LLC laws. Pennsylvania is a state where you would not want to incorporate as an LLC. Other options include S-corps and LPs.  * Loans are taken out by corporations against the property. Typically mortgage loans are non-recourse. If you set up a company for each property, this further insulates you against the bank capturing other properties within the pool. However, recourse carveouts can still end up getting you on the hook personally for the loans. These typically include voluntary bankruptcy. You would very rarely have to file for bankruptcy anyway for your real estate investments. At worst, it will end in foreclosure but banks typically would prefer deed-in-lieu just because it is faster and easier for them too. You just turn over the keys and walk away. It will have very little impact on your personal finances or record. Everyone in real estate walks away from properties and leaves them with the bank. It's a fact of doing business and your lender should have been comfortable owning your property at the basis they lent money to you. If they weren't, they were just stupid.  * Yes, every real estate investment requires equity in the property. Typically it's a 20% equity check but if the lender underwrites the property to a lower value than what you purchased it for, you may have to line up more expensive financing.

negative: The core competency of banks is to lend money from depositors and re-lend that money to borrowers.  They do not have the expertise to develop real estate.   They have trouble evening managing foreclosed real estate, such that they have to sell them at a discount.

negative: Generally speaking, no they won't. In this case, though I haven't done it myself, I was recommended to put the mortgage on the real estate after it's been leased out and has a contract on it.  Then, yes, they will use it for that.  But, ex-ante don't expect any bank to count on income from it because, at that point, there's zero guarantee you'll get it leased, and even if you do, at what rate.

negative: a) He can loan you the money tax free he can even give you and your wife 29k a year tax free.  Many people do a loan for lets say 100k and then they forgive the load 14.5k a year to avoid the taxes.   b) Yes when they see that deposit they will give you a hard time potentially.  I got a hard time for my Real Estate tax refund. c) Just putting stress on the family potentially.

negative: All of this makes perfect sense and I can definitely see the logic behind it.  But I don't think Hedge Funds are the way to go. The real money lies in real estate, more specifically land-banking. The problem, though, is that a lot of land-banking investments are really just scams and it's really hard to tell which ones are real and which ones are fake.

negative: Well, Taking a short position directly in real estate is impossible because it's not a fungible asset, so the only way to do it is to trade in its derivatives - Investment Fund Stock, indexes and commodities correlated to the real estate market (for example, materials related to construction).    It's hard to find those because real estate funds usually don't issue securities and rely on investment made directly with them. Another factor should be that those who actually do have issued securities aren't usually popular enough for dealers and Market Makers to invest in it, who make it possible to take a short position in exchange for some spread. So what you can do is, you can go through all the existing real estate funds and find out if any of them has a broker that let's you short it, in other words which one of them has securities in the financial market you can buy or sell. One other option is looking for real estate/property derivatives, like this particular example. Personally, I would try to computationally find other securities that may in some way correlate with the real estate market, even if they look a bit far fetched to be related like commodities and stock from companies in construction and real estate management, etc. and trade those because these have in most of the cases more liquidity. Hope this answers your question!

negative: buying real estate is for people with sufficient financial resources to cover market downturns. Please read about the 2008 real estate market. Investing in real estate when you are a poor college student is a sure way to become a bankrupt college student. A single word answer to your question: No. Not reasonable. Your best investment is completing college with as little debt as possible and the most practical experience in the market area you are interested in entering.

negative: On a personal Loan Yes. On a business loan, it would depend on the Bank and they would like to understand the purpose of the loan and need it to be secured. They may not even grant such kind of business loan.

negative: You are neglecting a few very important things around real estate transactions in Belgium So in the end a 300K building may cost you more than 340K, let's take some unexpected costs into account and use 350K for remainder of calculation. Even worse if it's newly built (which I doubt) the first percentage is 21% (VAT) instead of 10%. All these costs can be checked on the useful site www.hoeveelkostmijnhuis.be Now, aside from that most banks will and actually have to demand you pay part of all this yourself. So you can't do 5*60K (or 5*70K now). Mostly banks will only finance up to about 90% of the value of the building, so 90% of 300K, which is 270K (5*54K), the other 80K (5*16K) you have to pay yourselves. But it could be the bank goes as low as 80%. Another part to complicate the loan is how much you can pay a month. Since the mortgage crisis they're very strict on this. There are lots of banks that will not allow you to make monthly payments of more than 33% of your monthly income when you are going to live there. This is a nuisance even when buying one house, you want to buy 2. Odds seem low they'll accept high monthly payments because you either need an additional loan or need to pay rent, so don't count on a 5y deal. Now this is all based on a single loan, it will probably be a bit different with multiple loans. However, it is unlikely any bank will accept this, even if all loans are with the same bank. You need to consider the basics of a real-estate loan: A bank trusts you can pay it off and if not they can seize the real-estate hoping to regain their initial investment. It's very hard to seize a complete asset if only one out of 5 loan-takers defected. You could  maybe do this with another less restrictive/higher risk type of loan but rates will be a lot higher (think 5-6% instead of 1.5%). And don't underestimate the running costs: for that price and 5 rooms in that city you're likely looking at an older building. Expect lots of cost for maintenance and keeping the building according to code. Also expect costs for repairs (you rent to students...). You'll also have to pay quite a bit of money on insurances and of course on real estate taxes (which are average in Ghent). Also factor in that currently there is not a housing shortage for Ghent students so you might not always have a guaranteed occupation. Also take into account responsibility: if a fire breaks out or the house collapses or a gas leak occurs, you might be sued. It doesn't matter if you're at fault, it's costly and a big nuisance. Simply because you didn't think of any of this: don't do this. It's better to invest in real estate funds. But if you still think you can do better then all the landlords Ghent is riddled with, don't do it as a personal investment. Create a BVBA, put some investment in here (like 10-20K each), approach a bank with a serious business plan to get the rest of the money as a loan (towards a single entity - your BVBA) and get things going. When the money comes in you can either give yourselves a salary or pay out profits on the shares. You may be confused about how rich you can become because we as a nation tend to overestimate the profitability of real estate. It's really not that much better than other investments (otherwise everybody would only invest in real estate funds). There are a few things that skew our vision however:

negative: This depends on the loan calculation methodology. If it is on reducing balance then yes. Else not much difference

negative: "Historically, Banks are mandated to take relatively safe risks with their money.  In exchange, they gain a de-facto permission to invent new money.  They have regulations about what mix of assets they are permitted to own.  Real estate speculation will be in a different category than a mortgage to someone with good credit. Second, mortgages with a secured asset are pretty safe almost all of the time.  That person might stop paying their mortgage, but it is secured; when that happens, the bank gets the secured asset (the right-to-apartment or house or what have you). In a sense, the bank loses only if both the person paying the mortgage is less creditworthy than they look, and the secured asset cannot recoup their losses. In comparison, the person paying the mortgage loses if the secured asset cannot recoup their losses. The bank is buffered from risk two fold.  What more, the bank uses the customer to determine what to invest in. Deciding what to do with money is expensive and hard.  By both having a customer willing to put their good credit on the line and doing due diligence on the apartment, the Bank in effect uses you as a consultant who decides this may be a solid investment.  Much of the risk of failure is on you, so you have lots of incentive to make a good choice. If the Bank was instead deciding which apartment where worth buying, who would decide?  A bank employee, whose bonus this year depends on finding a ""great apartment to invest in?"", but the consequence of a bad choice doesn't show up for many years?  The people selling the bank the apartments? Such a business can exist.  There are real estate companies that take money, and invest it in real estate.  Often the borrow money from Banks secured against their existing real estate and use it to build more real estate.  (Notice the bit about it being secured against existing real estate; things go south, Bank gets stuff). The Bank's indirect investment in that apartment in the current system is covered by appraisals, the seller, the mortgage holder, and the system deciding that the mortgage holder is creditworthy. Banks sell risk.  They lend you money, you go off and do something risky with it, and they get a the low-risk return on investment of your loan.  Multiple such low-risk investments provides them with a relatively dependable stream of money, which they give out to their bondholders, deposit account customers, shareholders or what have you. When you take a mortgage out for that, you are buying risk from the bank.  You are more exposed to the failure of the investment than they are.  They get less return if things go really well."

negative: "I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip. One of the things he mentioned was that there are so-called ""hard money"" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title. Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business. These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work). That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement."

negative: "Not unless you have something else to put up as collateral. The bank wants a basic assurance that you're not going to immediately move the money to the Caymans and disappear. 999 times out of 1000, the collateral for a home mortgage is the home itself (which you wouldn't be able to take with you if you decided to disappear), so signing up for a 30 year mortgage on a nonexistent house is probably going to get you laughed out of the bank. It's sometimes possible to negotiate something else as collateral; you may, for instance, have a portfolio of securities worth the loan principal, that you can put in escrow for the term of the loan (the securities will stay in your name and make you money, but if you default on the loan the bank goes to the escrow company and takes the portfolio for their own). The bank will consider the risk of value loss on the securities in the portfolio, and may ask for a higher collateral value or only allow a lower loan amount. In all cases, it's usually a bad idea to go into long-term personal debt just to get ""cheap money"" that you can use to beat the interest rate with some business plan or investment. If you have a business plan, take that to the bank with an LLC and ask for a business loan. The business itself, if the plan is sound, should become valuable, and the terms of business loans take that into account, allowing for a ""shrinking collateral"" transferring the initial personal risk of the loan to the business."

negative: Similarly to buying property on your own, REITs cannot get to good returns without leveraging. If you buy an investment property 100% cash only - chances are that 10% ROI is a very very optimistic scenario. If you use leveraging (i.e.: take out a mortgage) - you're susceptible to interest rate changes. REITs invest in properties all around all the time. They invest in mortgages themselves as well (In the US, that's the only security REITs can hold without being disqualified). You can't expect all that to be cash-only, there have to be loans and financing involved. When rates go up - financing costs go up. That brings net income down. Simple math. In the US, there's an additional benefit to investing in REIT vs directly holding real estate: taxes. REITs pay dividends, which have preferential (if qualified) taxation. You'll pay capital gains taxes on the dividends if you hold the fund long enough. If you own a rental property directly, your income after all the expenses is taxed at ordinary rates, which would usually be higher. Also, as you mentioned, you can use them as margin, and they're much much more liquid than holding real estate directly. Not to mention you don't need to deal with tenants or periods where you don't have any, or if local real-estate market tanks (while REITs are usually quite diversified in kinds of real estate they hold and areas). On the other hand, if you own real estate, you can leverage it at lower rates than margin (with HELOCs etc), and it provides some safety net in case of a stock market crash (which REITs are somewhat susceptible to). You can also live in your property, if needed, which is something that's hard to do with REITs....

negative: "The loan is the loan, the down payment is not part of the loan.  The principle amount owed on the loan at the beginning of the loan is the amount of the loan. If your loan amount is $390,000 then that's below the ""jumbo"" classification.  Your down payment is irrelevant. Lenders may want or require 20% (or any other amount) down so the loan will meet certain ""loan to value"" ratio requirements. In the case of real estate the lenders in general want a 20% down side cushion before you're ""upside down"" (owe more than the home is worth). This is not unique to homes and is common in many secured lending instruments; like cars for example."

negative: "If the value of these hard assets is significant you probably have them insured, and for significant art work you should have had them appraised as part of getting them insured. Therefore the process of adding them into the net worth calculation would be trivial.  Your goals should be a mix of liquid assets, and assets that are harder to sell, such as real estate. It should also include those items you are more reluctant to sell. In some cases these ""investments"" do need to be included in official calculations, such as applying for a student loan or financial aid, required financial disclosure statements for some government jobs, or applications for government assistance."

negative: Yes, they do. Generally though you'll only see it on one or two reports. With regards to the impact on your credit score.  Hard inquiries only stay on your credit for 2 years, after that they fall off.  For most credit scores (specifically FICO) they only have an impact for 1 year after their date.  If you have a few in the same 30 day period FICO will lump these into 1 pull to allow you to shop around for credit/loans.  They also have a low to medium impact on your score.

negative: Obviously the best way to consolidate the real-estate loans is with a real-estate loan. Mortgages, being secured loans, provide much better interest rates. Also, interest can be deducted to some extent (depending on how the proceeds are used, but up to $100K of the mortgage can have deductible interest just for using the primary residence as a collateral). Last but not least, in many states mortgages on primary residence are non-recourse (again, may depend on the money use). That may prove useful if in the future your mother runs into troubles repaying it. So yes, your instincts are correct. How to convince your mother - that's between you and her.

negative: "There's a hellova lot to be said for investing in real estate (simple residential real estate), even though it's grandma's advice. The two critical elements are 1) it's the only realistic way for a civilian to get leverage. this is why it almost always blows away ""tinkering in the stock markets"" in the 10-year frame. 2) but perhaps more importantly - it's a really ""enforced"" saving plan. you just have to pay it off every month. There are other huge advantages like, it's the best possible equity for a civilian, so you can get loans in the future to start your dotcom, etc. Try to buy yourself a very modest little flat (perhaps to rent out?) or even something like a garage or storeroom.  Real estate can crash, but it's very unlikely; it only happens in end of the world situations where it won't matter anyway.  When real estate drops say 30% everyone yells about that being a ""crash"" - I've never, ever owned a stock that hasn't had 30% down times. Food for thought!"

negative: "The Answer is yes according to multiple online sources and my local bank. This approach is a common technique to building your own home. You finance the land, build the simplest possible dwelling (say a garage with 1 bathroom/bedroom), refi into a mortgage and get cash back and then build your ""real house"" or add on, etc. This eliminates the banks demands that come with a ""construction loan"" and saves you 10s of thousands in the process (fees, contractors, scheduling, design, etc)"

negative: Not to my knowledge. Often the specific location is diversified out of the fund because each major building company or real estate company attempts to diversify  risk by spreading it over multiple geographical locations. Also, buyers of these smaller portfolios will again diversify by creating a larger fund to sell to the general public. That being said, you can sometimes drill down to the specific assets held by a real estate fund. That takes a lot of work: You can also look for the issuer of the bond that the construction or real estate company issued to find out if it is region specific. Hope that helps.

negative: It's complicated. Really, there's no solid answer for your question. Everybody's risk tolerance and time horizon is going to be different. Those who can take on more risk can take on lower-grade C-G loans at Lending Club. Those with less risk tolerance should emphasize As and Bs.

negative: In real estate,loan consolidation essentially means taking out a large loan on one property from the proceeds of which you pay off all the other mortgages. Unless you are able (or willing) to reveal how much more you can borrow against your home or the third property (who has the remaining interest in the third property, and would they be willing to mortgage the property?) there is no way of discussing how much you might be able to borrow and against what.

negative: Probably.  It sounds like you're looking for a 1031-exchange for stocks and bonds.  From the wikipedia page for 1031-exchanges: To qualify for Section 1031 of the Internal Revenue Code, the properties exchanged must be held for productive use in a trade or business or for investment. Stocks, bonds, and other properties are listed as expressly excluded by Section 1031 of the Internal Revenue Code, though securitized properties are not excluded.  1031-exchanges usually are applicable in real estate.

negative: Impossible to say without knowing more about your situation. Most likely you won't be able to secure a loan for money that you're just going to spend - getting a loan for property is easier because the bank owns the thing that you buy until you pay it back.

negative: Yes, truckloads of cash. /s  It's exactly the same as your example, when people say to pay for a car in cash, they don't meany physical bills, but rather the idea that you aren't getting a loan.   In most acquisitions, the buyer will usually pay with their own stock, pay in cash, or a combination of both.


query: Why are US target retirement funds weighted so heavily towards US stocks?

positive: "Excellent question, though any why question can be challenging to answer because it depends on the financial products in question.  At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The United States (before the last twenty years) has been seen as a country of stability.  This is not true anymore, and it's difficult for my generation to understand because we grew up in the U.S.A being challenged (and tend to think that China and India have always been powers), but when we read investors, like Benjamin Graham (who had significant influence with Warren Buffett), we can see this bias - the U.S.A to them is stable, and other countries are ""risky.""  Again, with the national debt and the political game in our current time, it does not feel this way.  But that bias is often reflect in financial instruments. The US Dollar is still the reserve currency, though it's influence is declining and I would expect it to decline.  Contrary to my view (because I could be wrong here) is Mish, who argues that no one wants to have the reserve currency because having a reserve currency brings disadvantages (see here: Bogus Threats to US Reserve Currency Status: No Country Really Wants It!; I present this to show that my view could be wrong). Finally, there tends to be the ""go with what you know.""  Many of these funds are managed by U.S. citizens, so they tend to have a U.S. bias and feel more comfortable investing their money ""at home"" (in fact a famous mutual fund manager, Peter Lynch, had a similar mentality - buy the company behind the stock and what company do we tend to know best?  The ones around us.). One final note, I'm not saying this mentality is correct, just what the attitude is like.  I think you may find that younger mutual fund managers tend to include more foreign stocks, as they've seen that different world."

positive: A target date fund is NOT a world market index. There is no requirement that it be weighted based on the weights of the various world stock markets. If anything, historically (since the invention of target date funds), a 2:1 ratio is actually pretty low. 6:1 is, or was, probably more common. Just a token amount to non-US investments.

negative: "Use VTIVX. The ""Target Retirement 2045"" and ""Target Retirement 2045 Trust Plus"" are the same underlying fund, but the latter is offered through employers.  The only differences I see are the expense ratio and the minimum investment dollars.  But for the purposes of comparing funds, it should be pretty close. Here is the list of all of Vanguard's target retirement funds. Also, note that the ""Trust Plus"" hasn't been around as long, so you don't see the returns beyond the last few years.  That's another reason to use plain VTIVX for comparison. See also: Why doesn't a mutual fund in my 401(k) have a ticker symbol?"

negative: Can they change the weights? Yes. Will they? It depends. are ETF's fixed from their inception to their de-listing? It's actually not possible for weights to be fixed, since different assets have different returns. So the weights are constantly changing as long as the market is moving. Usually after a certain period or a substantial market move, fund managers would rebalance and bring the weights back to a certain target. The target weights - what your question is really about - aren't necessarily the same as the initial weights, but often times they are. It depends on the objective of the ETF (which is stated in prospectus). In your example, if the manager drops the weight of the most volatile one, the returns of the ETF and the 5 stocks could be substantially different in the next period. This is not desirable when the ETFs objective is to track performance of those 5 stocks.  Most if not all ETFs are passively-managed. The managers don't get paid for active management. So they don't have incentive to adjust the weights if their funds are tracking the benchmarks just fine.

negative: Yours two funds are redundant.  Both are designed to have a mix of bonds and stocks and allow you to put all your money in them.  Pick the one that has the lowest fees and stick with that (I didn't look at the funds you didn't select...they didn't look great either).  Although all your funds have high fees, some are higher than others, so don't ignore fees. When you have decided on your portfolio weights, prioritize your money thus: Contribute enough to your 401(k) to get the full match from your employer Put everything else toward paying off that credit card until you have 0 balance.  It's ok to use the card, but let it be little enough that you pay your statement balance off each month so you pay no interest. Then set aside some savings and invest any retirement money into a Roth IRA.  At your income level your taxes are low so Roth is better than traditional IRA or 401(k).  If you max out your Roth, put any other retirement savings in your 401(k).

negative: Googling vanguard target asset allocation led me to this page on the Bogleheads wiki which has detailed breakdowns of the Target Retirement funds; that page in turn has a link to this Vanguard PDF which goes into a good level of detail on the construction of these funds' portfolios. I excerpt: (To the question of why so much weight in equities:) In our view, two important considerations justify an expectation of an   equity risk premium. The first is the historical record: In the past,   and in many countries, stock market investors have been rewarded with   such a premium.  ... Historically, bond returns have lagged equity returns by about 5–6   percentage points, annualized—amounting to an enormous return   differential in most circumstances over longer time periods.   Consequently, retirement savers investing only in “safe” assets must   dramatically increase their savings rates to compensate for the lower   expected returns those investments offer. ... The second strategic principle underlying our glidepath   construction—that younger investors are better able to withstand   risk—recognizes that an individual’s total net worth consists of both   their current financial holdings and their future work earnings. For   younger individuals, the majority of their ultimate retirement wealth   is in the form of what they will earn in the future, or their “human   capital.” Therefore, a large commitment to stocks in a younger   person’s portfolio may be appropriate to balance and diversify risk   exposure to work-related earnings (To the question of how the exact allocations were decided:) As part of the process of evaluating and identifying an appropriate   glide path given this theoretical framework, we ran various   financial simulations using the Vanguard Capital Markets Model. We   examined different risk-reward scenarios and the potential   implications of different glide paths and TDF approaches. The PDF is highly readable, I would say, and includes references to quant articles, for those that like that sort of thing.

negative: "There are a couple of misconceptions I think are present here: Firstly, when people say ""interest"", usually that implies a lower-risk investment, like a government bond or a money market fund. Some interest-earning investments can be higher risk (like junk bonds offered by near-bankrupt companies), but for the most part, stocks are higher risk. With higher risk comes higher reward, but obviously also the chance for a bad year. A ""bad year"" can mean your fund actually goes down in value, because the companies you are invested in do poorly. So calling all value increases ""interest"" is not the correct way to think about things. Secondly, remember that ""Roth IRA fund"" doesn't really tell you what's ""inside"" it. You could set up your fund to include only low-risk interest earning investments, or higher risk foreign stocks. From what you've said, your fund is a ""target retirement date""-type fund. This typically means that it is a mix of stocks and bonds, weighted higher to bonds if you are older (on the theory of minimizing risk near retirement), and higher to stocks if you are younger (on the theory of accepting risk for higher average returns when you have time to overcome losses). What this means is that assuming you're young and the fund you have is typical, you probably have ~50%+ of your money invested in stocks. Stocks don't pay interest, they give you value in two ways: they pay you dividends, and the companies that they are a share of increase in value (remember that a stock is literally a small % ownership of the company). So the value increase you see as the increase due to the increase in the mutual fund's share price, is part of the total ""interest"" amount you were expecting. Finally, if you are reading about ""standard growth"" of an account using a given amount of contributions, someone somewhere is making an assumption about how much ""growth"" actually happens. Either you entered a number in the calculator (""How much do you expect growth to be per year?"") or it made an assumption by default (probably something like 7% growth per year - I haven't checked the math on your number to see what the growth rate they used was). These types of assumptions can be helpful for general retirement planning, but they are not ""rules"" that your investments are required by law to follow. If you invest in something with risk, your return may be less than expected."

negative: "There's already an excellent answer here from @BenMiller, but I wanted to expand a bit on Types of Investments with some additional actionable information. You can invest in stocks, bonds, mutual funds (which are simply   collections of stocks and bonds), bank accounts, precious metals, and   many other things. Discussing all of these investments in one answer   is too broad, but my recommendation is this: If you are investing for   retirement, you should be investing in the stock market. However,   picking individual stocks is too risky; you need to be diversified in   a lot of stocks. Stock mutual funds are a great way to invest in the   stock market. So how does one go about actually investing in the stock market in a diversified way? What if you also want to diversify a bit into bonds? Fortunately, in the last several years, several products have come about that do just these things, and are targeted towards newer investors. These are often labeled ""robo-advisors"". Most even allow you to adjust your allocation according to your risk preferences. Here's a list of the ones I know about: While these products all purport to achieve similar goals of giving you an easy way to obtain a diversified portfolio according to your risk, they differ in the buckets of stocks and funds they put your money into; the careful investor would be wise to compare which specific ETFs they use (e.g. looking at their expense ratios, capitalization, and spreads)."

negative: You can only contribute up to 5% of your salary? Odd. Usually 401(k) contributions are limited to some dollar amount in the vicinity of $15,000 or so a year. Normal retirement guidelines suggest that putting away 10-15% of your salary is enough that you probably won't need to worry much when you retire. 5% isn't likely to be enough, employer match or no. I'd try to contribute 10-15% of my salary. I think you're reading the rules wrong. I'm almost certain. It's definitely worth checking. If you're not, you should seriously consider supplementing this saving with a Roth IRA or just an after-tax account.  So. If you're with Fidelity and don't know what to do, look for a target date fund with a date near your retirement (e.g. Target Retirement 2040) and put 100% in there until you have a better idea of what going on. All Fidelity funds have pretty miserable expense ratios, even their token S&P500 index fund from another provider, so you might as let them do some leg work and pick your asset allocation for you. Alternatively, look for the Fidelity retirement planner tools on their website to suggest an asset allocation. As a (very rough) rule of thumb, as you're saving for retirement you'll want to have N% of your portfolio in bonds and the rest in stocks, where N is your age in years. Your stocks should probably be split about 70% US and 30% rest-of-world, give or take, and your US stocks should be split about 64% large-cap, 28% mid-cap and 8% small-cap (that's basically how the US stock market is split).

negative: "Stock market indexes are generally based on market capitalization, which is not the same as GDP.  GDP includes the value of all goods and services produced in a country; this includes a large amount of small-scale production which may not be reflected in stock market capitalizations.  Thus the ratio between countries' GDPs may not be the same as the ratio of their total market capitalization.  For instance, US GDP is approximately 3.8 times as much as Japan's (see here), but US total market cap is about 5.5 as much as Japan's (see here). The discrepancy can be even more severe when comparing ""developed"" economies like the US to ""developing"" (or ""less-developed"") economies in which there is less participation in large-scale financial systems like stock markets.  For instance, US GDP is roughly 10 times that of Brazil, but US total market cap is roughly 36 times that of Brazil.  Switzerland has a total market cap nearly double that of Brazil despite its total GDP being less than half of Brazil's.  Since the all-world index includes all investable economies, it will include many economies whose share of market cap is disproportionately lower than their share of GDP. In addition, according to the fact sheet you linked to, that index tracks only large- and mid-cap stocks.  This will further skew the weighting to developed economies and to the US in particular, since the US has a disproportionate share of the largest companies. Obviously one would need to take a more detailed look at all the weights to determine if these factors account precisely for the level of discrepancy you see in this particular index.  But hopefully that explanation gives an idea of why the US might be weighted more heavily in a stock index than it is in raw GDP."

negative: "In a cap-weighted fund, the fund itself isn't buying or selling at all (except to support redemptions or purchases of the fund). As the value of a stock in the index goes up, then its value in the fund goes up naturally. This is the advantage of a cap-weighted fund, that it doesn't have to trade (buy and sell), it just sits on the stocks. That makes a cap-weighted fund inexpensive (low trading costs) and tax-efficient (doesn't trigger capital gains due to sales). The buying high and selling low referred to by ""fundamental indexation"" advocates like Wisdom Tree is buying high and selling low on the part of the investor. That is, when you purchase the market-cap-weighted fund, at that time that you purchase, you will spend more on the higher-priced stocks, just because they account for more of the value of the fund, and less money goes to the cheaper stocks which account for less of the value of the fund. In the prospectus for a fund they should tell you which index they use, and if the prospectus doesn't describe the weighting of the index, you could do a web search for the index name and find out how that index is constructed. A market-cap-weighted fund is the standard kind of weighting which is what you get if you buy the stocks in the index and then hold them without buying or selling. Most of the famous indexes (e.g. S&P500) are cap-weighted, with the notable exception of the Dow Jones Industrial Average which is ""price-weighted"" http://en.wikipedia.org/wiki/Price-weighted_index. Price-weighting is just an archaic tradition, not something one would use for a new index design today. A fund weighted by ""fundamentals"" or equal-weighted, rather than cap-weighted, is effectively doing a kind of rebalancing, selling what's gone up to buy more of what's gone down. Rather than buying an exotic fund, you could get a similar effect by buying a balanced fund (one that mixes stocks and bonds). Then when stocks go up, your fund would sell them and buy bonds, and the fund would sell the most of the highest-market-cap stocks that make up more of the index. And vice versa of course. But the fundamental-weighted funds are fine, the more important considerations include your stocks vs. bonds percentages (asset allocation) and whether you make irrational trades instead of sticking to a plan."

negative: "Okay. Savings-in-a-nutshell. So, take at least year's worth of rent - $30k or so, maybe more for additional expenses. That's your core emergency fund for when you lose your job or total a few cars or something. Keep it in a good savings account, maybe a CD ladder - but the point is it's liquid, and you can get it when you need it in case of emergency. Replenish it immediately after using it. You may lose a little cash to inflation, but you need liquidity to protect you from risk. It is worth it. The rest is long-term savings, probably for retirement, or possibly for a down payment on a home. A blended set of stocks and bonds is appropriate, with stocks storing most of it. If saving for retirement, you may want to put the stocks in a tax-deferred account (if only for the reduced paperwork! egads, stocks generate so much!). Having some money (especially bonds) in something like a Roth IRA or a non-tax-advantaged account is also useful as a backup emergency fund, because you can withdraw it without penalties. Take the money out of stocks gradually when you are approaching the time when you use the money. If it's closer than five years, don't use stocks; your money should be mostly-bonds when you're about to use it. (And not 30-year bonds or anything like that either. Those are sensitive to interest rates in the short term. You should have bonds that mature approximately the same time you're going to use them. Keep an eye on that if you're using bond funds, which continually roll over.) That's basically how any savings goal should work. Retirement is a little special because it's sort of like 20 years' worth of savings goals (so you don't want all your savings in bonds at the beginning), and because you can get fancy tax-deferred accounts, but otherwise it's about the same thing. College savings? Likewise. There are tools available to help you with this. An asset allocation calculator can be found from a variety of sources, including most investment firms. You can use a target-date fund for something this if you'd like automation. There are also a couple things like, say, ""Vanguard LifeStrategy funds"" (from Vanguard) which target other savings goals. You may be able to understand the way these sorts of instruments function more easily than you could other investments. You could do a decent job for yourself by just opening up an account at Vanguard, using their online tool, and pouring your money into the stuff they recommend."

negative: "The question you should be asking yourself is this: ""Why am I putting money into a 401(k)?"" For many people, the answer is to grow a (large) nest egg and save for future retirement expenses. Investors are balancing risk and potential reward, so the asset categories you're putting your 401(k) contribution towards will be a reflection on how much risk you're willing to take. Per a US News & World Report article: Ultimately, investors would do well to remember one of the key tenants   of investing: diversify. The narrower you are with your investments,   the greater your risk, says Vanguard's Bruno: ""[Diversification]   doesn't ensure against a loss, but it does help lessen a significant   loss."" Generally, investing in your employer's stock in your 401(k) is considered very risk. In fact, one Forbes columnist recommends not putting any money into company stock. FINRA notes: Simply stated, if you put too many eggs in one basket, you can expose yourself to significant risk. In financial terms, you are under-diversified: you have too much of   your holdings tied to a single investment—your company's stock.   Investing heavily in company stock may seem like a good thing when   your company and its stock are doing well. But many companies   experience fluctuations in both operational performance and stock   price. Not only do you expose yourself to the risk that the stock   market as a whole could flounder, but you take on a lot of company   risk, the risk that an individual firm—your company—will falter or   fail. In simpler terms, if you invest a large portion of your 401(k) funds into company stock, if your company runs into trouble, you could lose both your job AND your retirement investments. For the other investment assets/vehicles, you should review a few things: Personally, I prefer to keep my portfolio simple and just pick just a few options based on my own risk tolerance. From your fund examples, without knowing specifics about your financial situation and risk tolerance, I would have created a portfolio that looks like this when I was in my 20's: I avoided the bond and income/money market funds because the growth potential is too low for my investing horizon. Like some of the other answers have noted, the Target Date funds invest in other funds and add some additional fee overhead, which I'm trying to avoid by investing primarily in index funds. Again, your risk tolerance and personal preference might result in a completely different portfolio mix."

negative: If you already have 500k in a Schwab brokerage account, go see your Schwab financial consultant. They will assign you one, no charge, and in my experience they're sharp people. Sure, you can get a second opinion (or even report back here, maybe in chat?), but they will get you started in the right direction. I'd expect them to recommend a lot of index funds, just a bit of bonds or blended funds, all weighted heavily toward equities. If you're young and expect the income stream to continue, you can be fairly aggressive. Ask about the fees the entire way and you'll be fine.

negative: Life Strategy funds are more appropriate if you want to maintain a specific allocation between stocks and bonds that doesn't automatically adjustment like the Target Retirement funds which have a specific date.  Thus, it may make more sense to take whichever Life Strategy fund seems the most appropriate and ride with it for a while unless you know when you plan to retire and access those funds. In theory, you could use Vanguard's Total Market funds,i.e. Total Stock Market, Total International, and Total Bond, and have your own allocations between stocks and bonds be managed pretty easily and don't forget that the fees can come in a couple of flavors as betterment doesn't specify where the transaction fees for buying the ETFs are coming out just as something to consider.

negative: As a general rule of thumb, age and resiliency of your profession (in terms of high and stable wages) in most cases imply that you have the ABILITY to accept higher than average level of risk by investing in stocks (rather than bonds) in search for capital appreciation (rather than income), simply because you have more time to offset any losses, should you have any, and make capital gains. Dividend yield is mostly sough after by people at or near retirement who need to have some cash inflows but cannot accept high risk of equity investments (hence low risk dividend stocks and greater allocation to bonds). Since you accept passive investment approach, you could consider investing in Target Date Funds (TDFs), which re-allocate assets (roughly, from higher- to lower-risk) gradually as the fund approaches it target, which for you could be your retirement age, or even beyond. Also, why are you so hesitant to consider taking professional advice from a financial adviser?

negative: "Here's my crude reasoning: Let's say you have just one recently acquired credit card with a $5000 limit. The company that issued the credit card set the $5000 limit based on however they assessed your risk. Now if you're using a significant portion of of the $5000 limit, it means (at least for them) that you are stretching your wallet. Even if you've been paying monthly consistently and since you are heavily using your limit, it also means that if you lose your primary source of money for even one month, (income etc.), then your risk to the lender increases sharply. Had you been making more money (compared to this $5000 limit) then either you'd have used less % of your available credit or you would've gotten your limits raised by asking your bank to re-evaluate your risk and increase the limit. Also your statement ""Why is a US credit score based on credit utilization?"" is slightly incorrect. As per FICO, Credit utilization has 35% weight while your payment history has a weight of 35% http://www.creditcards.com/credit-card-news/help/5-parts-components-fico-credit-score-6000.php To sum it up, we can debate if the weight for credit utilization should be higher or lower but unfortunately as others have pointed out, these scores are meant to help lenders not consumers. So whether we like it or not, the secret algorithms to calculate the scores and the actual weights (variables and rules) they use are completely out of our hands."

negative: Small cap and mid cap shares tend to outperform large cap shares in a bull market, but they tend to underperform large cap shares in a bear market. Since the stock markets tend to go up in the long term, this suggests that a low cost small and mid cap index ETF should offer the best long term returns.   Having said that, we are currently in a mature bull market having experienced over seven years without encountering a bear market.  If a bearish outlook is something you worry about, then perhaps a broad market index, which will be heavily weighted towards large cap shares, may be a better choice for you at this time, with an eye toward switching to small and mid cap indices during the next bear market.

negative: "P/E is a useful tool for evaluating the price of a company, but only in comparison to companies in similar industries, especially for industries with well-defined cash flows.  For example, if you compared Consolidated Edison (NYSE:ED) to Hawaiian Electric (NYSE:HE), you'll notice that HE has a significantly higher PE. All things being equal, that means that HE may be overpriced in comparison to ED. As an investor, you need to investigate further to determine whether that is true. HE is unique in that it is a utility that also operates a bank, so you need to take that into account. You need to think about what your goal is when you say that you are a ""conservative"" investor and look at the big picture, not a magic number. If conservative to you means capital preservation, you need to ensure that you are in investments that are diversified and appropriate. Given the interest rate situation in 2011, that means your bonds holding need to be in short-duration, high-quality securities. Equities should be weighted towards large cap, with smaller holdings of international or commodity-associated funds. Consider a target-date or blended fund like one of the Vanguard ""Life Strategy"" funds."

negative: Here are the specific Vanguard index funds and ETF's I use to mimic Ray Dalio's all weather portfolio for my taxable investment savings. I invest into this with Vanguard personal investor and brokerage accounts. Here's a summary of the performance results from 2007 to today:  2007 is when the DBC commodity fund was created, so that's why my results are only tested back that far. I've tested the broader asset class as well and the results are similar, but I suggest doing that as well for yourself. I use portfoliovisualizer.com to backtest the results of my portfolio along with various asset classes, that's been tremendously useful. My opinionated advice would be to ignore the local investment advisor recommendations. Nobody will ever care more about your money than you, and their incentives are misaligned as Tony mentions in his book.  Mutual funds were chosen over ETF's for the simplicity of auto-investment.  Unfortunately I have to manually buy the ETF shares each month (DBC and GLD). I'm 29 and don't use this for retirement savings. My retirement is 100% VSMAX. I'll adjust this in 20 years or so to be more conservative. However, when I get close to age 45-50 I'm planning to shift into this allocation at a market high point.  When I approach retirement, this is EXACTLY where I want to be. Let's say you had $2.7M in your retirement account on Oct 31, 2007 that was invested in 100% US Stocks. In Feb of 2009 your balance would be roughly $1.35M. If you wanted to retire in 2009 you most likely couldn't. If you had invested with this approach you're account would have dropped to $2.4M in Feb of 2009.  Disclaimer: I'm not a financial planner or advisor, nor do I claim to be. I'm a software engineer and I've heavily researched this approach solely for my own benefit. I have absolutely no affiliation with any of the tools, organizations, or funds mentioned here and there's no possible way for me to profit or gain from this. I'm not recommending anyone use this, I'm merely providing an overview of how I choose to invest my own money. Take or leave it, that's up to you. The loss/gain incured from this is your responsibility, and I can't be held accountable.

negative: Look into the asset allocations of lifecycle funds offered by a company like Vanguard. This page allows you to select your current age and find a fund based on that. You could pick a fund, like the Target Retirement 2055 Fund (ages 21-25), and examine its allocation in the Portfolio & Management tab. For this fund, the breakdown is: Then, look at the allocation of the underlying funds that comprise the lifecycle fund, in the same tab.  Look at each of those funds and see what asset allocation they use, and that should give you a rough idea for an age-based allocation. For example, the Total Stock Market Index Fund page has a sector breakdown, so if you wanted to get very fine-grained with your allocation, you could. (You're probably much better off investing in the index fund, low-cost ETFs, or the lifecycle fund itself, however; it'll be much cheaper).  Doing this for several lifecycle funds should be a good start. Keep in mind, however, that these funds are rebalanced as the target date approaches, so if you're following the allocation of some particular funds, you'll have to rebalance as well. If you really want an age-based allocation that you don't have to think about, invest in a lifecycle fund directly. You'll probably pay a lower expense ratio than if you invested in a whole slew of funds directory, and it's less work for someone who isn't comfortable managing their portfolio themselves. Furthermore, with Vanguard, the expense ratios are already fairly low.  This is only one example of an allocation, however; your tolerance of risk, age, etc. may affect what allocation you're willing to accept.  Full disclosure: Part of my Roth IRA is invested in the Target 2055 fund I used as an example above, and another part uses a similar rebalancing strategy to the one I used above, but with Admiral Share funds, which have higher minimum investments but lower expense ratios.

negative: First, you should diversify your portfolio.  If your entire portfolio is in the Roth IRA, then you should eventually diversify that.  However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund.  For example, I used my IRA to buy a riskier REIT that my 401k doesn't support.   Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees.  It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested.  Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000.  So try to exceed the minimum with a decent cushion.   A balanced fund may make sense as a first fund.  That way they handle the diversification for you.  A targeted fund is a special kind of balanced fund that changes the balance over time.  Some have reported that targeted funds charge higher fees.  Commissions on those higher fees may explain why your bank wants you to buy.   I personally don't like the asset mixes that I've seen from targeted funds.  They often change the stock/bond ratio, which is not really correct.  The stock/bond ratio should stay the same.  It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement.  Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund.  Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market.   Long term, I'd prefer low-load index funds.  A bond fund and two or three stock funds.  You might want to build your balance first though.  It doesn't really make sense to have a separate fund until you have enough money to get the best fees.  70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%).  Balance annually when you make your new deposit.

negative: "There are certain allowable reasons to withdraw money from a 401K.  The desire to free your money from a ""bad"" plan is not one of them.   A rollover is a special type of withdrawal that is only available after one leaves their current employer.  So as long as you stay with your current company, you cannot rollover.  [Exception: if you are over age  59.5] One option is to talk to HR, see if they can get a expansion of offerings.  You might have some suggestions for mutual funds that you would like to see.  The smaller the company the more likely you will have success here.  That being said, there is some research to support having few choices.  Too many choices intimidates people. It's quite popular to have ""target funds""  That is funds that target a certain retirement year.  Being that I will be 50 in 2016, I should invest in either a 2030 or 2035 fund.  These are a collection of funds that rebalances the investment as they age.  The closer one gets to retirement the more goes into bonds and less into stocks.   However, I think such rebalancing is not as smart as the experts say.  IMHO is almost always better off heavily invested in equity funds.  So this becomes a second option.  Invest in a Target fund that is meant for younger people.  In my case I would put into a 2060 or even 2065 target. As JoeTaxpayer pointed out, even in a plan that has high fees and poor choices one is often better off contributing up to the match.  Then one would go outside and contribute to an individual ROTH or IRA (income restrictions may apply), then back into the 401K until the desired amount is invested.   You could always move on to a different employer and ask some really good questions about their 401K.  Which leads me back to talking with HR.  With the current technology shortage, making a few tweaks to the 401K, is a very cheap way to make their employees happy. If you can score a 1099 contracting gig, you can do a SEP which allows up to a whopping 53K per year.  No match but with typically higher pay, sometimes overtime, and a high contribution limit you can easily make up for it."

negative: It varies. Depending on your brokerage, they may charge you per transaction, so the more transactions, the higher the cost. Though this (from what I've seen), is uncommon with many index funds. In terms of how aggressive you want to be with your investment varies on your comfort with risk, timeline of investment and many other factors beyond the scope of this question.  The biggest issue you may need to be aware of is if you are looking at mutual funds, they may have minimum investments. Depending on what that minimum investment is set to, you may not be able to split your $5500 into more than one fund.  A lot of this comes down to the specific funds in which your are anticipating investing, as well as the service you use to do so (Fidelity, Vanguard, etc). Ultimately, diversification can be a lot safer, but there are logistics to consider. Personally, I began with a target fund (a mutual fund with adjusted risk based on the estimated year of retirement) and add additional mutual funds, stocks and ETFs as time goes on.

negative: Ending up with nothing is an unlikely situation unless you invest 100% in a company stock and the company goes under. In order to give you a good answer we need to see what options your employer gives for 401k investments. The best advice would be to take a list of all options that your employer allows and talk with a financial advisor. Here are a few options that you may or may not have as an option from an employer: Definitions from wikipedia: A target-date fund – also known as a lifecycle, dynamic-risk or age-based fund – is a collective investment scheme, usually a mutual fund, designed to provide a simple investment solution through a portfolio whose asset allocation mix becomes more conservative as the target date (usually retirement) approaches. An index fund or index tracker is a collective investment scheme (usually a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market... An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.[1] An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. The capital stock (or stock) of an incorporated business constitutes the equity stake of its owners. Which one can you lose everything in? You can lose everything in stocks by the company going under. In Index funds the entire market that it follows would have to collapse. The chances are slim here since the index made up of several companies. The S&P 500 is made up of 500 leading companies publicly traded in the U.S.  A Pacific-Europe index such as MSCI EAFE Index is made up of 907 companies. The chances of losing everything in an ETF are also slim. The ETF that follows the S&P 500 is made up of 500 companies. An Pacific-Europe ETF such as MSCI EAFE ETF is made up of 871 companies. Target date funds are also slim to lose everything. Target date funds are made up of several companies like indexes and etfs and also mix in bonds and other investments depending on your age. What would I recommend? I would recommend the Index funds and/or ETFs that have the lowest fee that make up the following strategy for your age: Why Not Target Date Funds or Stocks? Target date funds have high fees. Later in life when you are closer to retirement you may want to add bonds to your portfolio. At that time if this is the only option to add bonds then you can change your elections. Stocks are too risky for you with your current knowledge. If your company matches by buying their stock you may want to consider reallocating that stock at certain points to your Index funds or ETFs.

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: ACWI refers to a fund that tracks the MSCI All Country World Index, which is  A market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. The MSCI ACWI is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets.  The ex-US in the name implies exactly what it sounds; this fund probably invests in stock markets (or stock market indexes) of the countries in the index, except the US. Brd Mkt refers to a Broad Market index, which, in the US, means that the fund attempts to track the performance of a wide swath of the US stock market (wider than just the S&P 500, for example). The Dow Jones U.S. Total Stock Market Index, the Wilshire 5000 index, the Russell 2000 index, the MSCI US Broad Market Index, and the CRSP US Total Market Index are all examples of such an index. This could also refer to a fund similar to the one above in that it tracks a broad swath of the several stock markets across the world. I spoke with BNY Mellon about the rest, and they told me this: EB - Employee Benefit (a bank collective fund for ERISA qualified assets) DL - Daily Liquid (provides for daily trading of fund shares) SL - Securities Lending (fund engages in the BNY Mellon securities lending program) Non-SL - Non-Securities Lending (fund does not engage in the BNY Mellon securities lending program) I'll add more detail. EB (Employee Benefit) refers to plans that fall under the Employee Retirement Income Security Act, which are a set a laws that govern employee pensions and retirement plans. This is simply BNY Mellon's designation for funds that are offered through 401(k)'s and other retirement vehicles. As I said before, DL refers to Daily Liquidity, which means that you can buy into and sell out of the fund on a daily basis. There may be fees for this in your plan, however. SL (Securities Lending) often refers to institutional funds that loan out their long positions to investment banks or brokers so that the clients of those banks/brokerages can sell the shares short. This SeekingAlpha article has a good explanation of how this procedure works in practice for ETF's, and the procedure is identical for mutual funds: An exchange-traded fund lends out shares of its holdings to another party and charges a rental fee. Running a securities-lending program is another way for an ETF provider to wring more return out of a fund's holdings. Revenue from these programs is used to offset a fund's expenses, which allows the provider to charge a lower expense ratio and/or tighten the performance gap between an ETF and its benchmark.

negative: Set up budget categories.  Earmark your income as it is paid, for your budget categories.  Pay your bills and expenses.  For debts, pay the minimum on everything.  There will be an amount left once everything is budgeted.  That's the 'extra'.  Then focus on, in order of priority, the following: So, when your emergency fund is up to an appropriate level (3-6 months of living expenses as a rule of thumb, adjusted according to your comfort level).   Once you have your emergency fund started, budget at least enough toward your 401k to capture any matching offered by your employer. Then use the snowball plan to pay off your debts.  (From what your post says, this does not apply to you, but you may have some small credit card debts taht were not discussed).  Earmark the 'extra' for the smallest debt first.  When that debt is paid, the 'extra' grows by the minimum payment of the smallest.  Thus the snowball grows as you pay off debts. Once the debts are gone, reward yourself, within reason (and without going into debt). Now shift your extra into fully funding your retirement savings.  Consult a financial advisor to help you plan how to distribute your retirement savings across the available retirement savings types.  They can explain why it's good to have some of your retirement savings funded from after tax income.  They can help you find the balance between pre- and post-tax funded accounts.   Eventually, you may come to the point where you're putting the max allowed into your tax advantaged retirement accounts.  At your age, this is a significant achievement.  Anything left over after retirement savings is funded can be used for whatever you want.  If you choose wealth building, it can lead to financial independence. The first two should be a one time thing.  You can/should do more than one at a time.  The fourth one is optional, and should not be considered until 1 and 2 are completed, and 3 is maxed out. What you achieve is up to you.  Look up FIRE, or Financially independent, retire early.  There are groups of folks striving for this.  They share advice on frugal living and wealth building strategies.  The goal is to save enough capital to live off the passive income of interest and dividends.  Most of them seem to have pre-50 target ages.  At your age and income, you could hit a pre-40 goal.  But it takes commitment and a certain type of personality.  Not for me but it might be for you.

negative: diversifying; but isn't that what mutual funds already do? They diversify and reduce stock-specific risk by moving from individual stocks to many stocks, but you can diversify even further by selecting different fund types (e.g. large-cal, small-cap, fixed- income (bond) funds, international, etc.).  Your target-date fund probably includes a few different types already, and will automatically reallocate to less risky investments as you get close to the target date. I would look at the fees of different types of funds, and compare them to the historical returns of those funds.  You can also use things like morningstar and other ratings as guides, but they are generally very large buckets and may not be much help distinguishing between individual funds. So to answer the question, yes you can diversify further - and probably get better returns (and lower fees) that a target-date fund.  The question is - is it worth your time and effort to do so?  You're obviously comfortable investing for the long-term, so you might get some benefit by spending a little time looking for different funds to increase your diversification. Note that ETFs don't really diversify any differently than mutual funds, they are just a different mechanism to invest in funds, and allow different trading strategies (trading during the day, derivatives, selling short, etc.).

negative: As others have pointed out your bond funds should have short durations, preferably not more than about 2 years. If you are in a bond fund for the long haul meaning you do not have to draw on your bond fund a short time after interest rates have gone up, it is not a big issue. The fund's holdings will eventually turn over into higher interest bearing paper. If bonds do go down, you might want to add more to the fund(s) (see my comment on age-specific asset allocation below). Keep in mind that some stocks are interest sensitive, for example utility stocks which are used as an income source and their dividends compete with rates on CDs which are much safer. Right now CD rates are very low. This could change. It's possible that we may be in an unusually sensitive interest rate period that might have large effects on the stock market, yet to be determined. The reason is that rates have been so low for such a long time that folks that normally would have obtained income streams from bonds have turned to dividend bearing stocks. Some believe that recent market rises are due to such people seeking dividends to enhance cash inflows. If, and emphasis on if, this is true, we could see a sharp drop in the market as sell offs occur as those who want cash streams move from stocks to ultra safe, government insured CDs. Only time will tell if this is going to play out. If retirement for you is 15+ years in the future and the market goes down (bonds or equities), good stuff - it's a buying opportunity in whatever category has dropped. Most important is to keep an eye on your asset allocation and make sure it is appropriate to your age. You did not state the percentages in each category, so further discussion is impossible on that topic. With more than 15 years to go, I personally would be heavily weighted on the equity side, mostly mid-cap and some small equity funds or ETFs in both domestic and international markets. As you age, shuffle some equities into fixed income (bonds, CDs and the like). Work up an asset allocation plan - start thinking about it now. Don't wait.

negative: "From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted   indexes) weight their securities by market value as measured by   capitalization: that is, current security price * outstanding shares.   The vast majority of equity indexes today are cap-weighted, including   the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the   market value of larger securities move the index’s overall trajectory   more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything   seems to be declining over time. In fact, the average net TE for the   whole period is +0.155% per month, or an astounding +1.88% pa net   after expenses. The fund expense ratio is 0.61% annually, for a   whopping before expense TE of +2.5% annually. This is once again   highly statistically significant, with p values of 0.015 after   expenses and 0.0022 before expenses. (The SD of the TE is higher for   DFSCX than for NAESX, lowering its degree of statistical   significance.) It is remarkable enough for any fund to beat its   benchmark by 2.5% annually over 17 years, but it is downright eerie to   see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund   has beaten its benchmark (the Wilshire 4500) by 0.56% per year after   expenses (0.81% net of expenses), and even the Vanguard Index Trust   500 has beaten its benchmark by a razor thin 0.08% annually before   (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference   Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic   researchers. Dimensional employs a ""patient buyer"" discount block   trading strategy which has resulted in negative total trading costs,   despite the poor liquidity of small company stocks. Beginning in 1982,   Ibbotson Associates of Chicago has used the 9-10 Portfolio results to   calculate the performance of small company stocks for their Stocks,   Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of   stocks in its benchmark; instead it owns a ""representative sample.""   Further, these stocks are usually thinly traded, with wide bid/ask   spreads. In essence what the folks at DFA learned was that they could   tell the market makers in these stocks, ""Look old chaps, we don't have   to own your stock, and unless you let us inside your spread, we'll   pitch our tents elsewhere. Further, we're prepared to wait until a   motivated seller wishes to unload a large block."" In a sense, this   gives the fund the luxury of picking and choosing stocks at prices   more favorable than generally available. Hence, higher long term   returns. It appears that Vanguard did not tumble onto this until a   decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest   markets, so the excess returns are greatest in the smallest stocks,   which is why the positive TE is greatest for the DFA 9-10 Fund, less   in the Vanguard Small Cap Fund, less still in the Vanguard Index   Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the   idea of value added active management. If so, then the punch line   seems to be this: If you really want to beat the indexes, then you   gotta buy an index fund."

negative: I quite like the Canadian Couch Potato which provides useful information targeted at investors in Canada. They specifically provide some model portfolios. Canadian Couch Potato generally suggests investing in indexed ETFs or mutual funds made up of four components. One ETF or mutual fund tracking Canadian bonds, another tracking Canadian stocks, a third tracking US stocks, and a fourth tracking international stocks. I personally add a REIT ETF (BMO Equal Weight REITs Index ETF, ZRE), but that may complicate things too much for your liking. Canadian Couch Potato specifically recommends the Tangerine Streetwise Portfolio if you are looking for something particularly easy, though the Management Expense Ratio is rather high for my liking. Anyway, the website provides specific suggestions, whether you are looking for a single mutual fund, multiple mutual funds, or prefer ETFs. From personal experience, Tangerine's offerings are very, very simple and far cheaper than the 2.5% you are quoting. I currently use TD's e-series funds and spend only a few minutes a year rebalancing. There are a number of good ETFs available if you want to lower your overhead further, though Canadians don't get quite the deals available in the U.S. Still, you shouldn't be paying anything remotely close to 2.5%. Also, beware of tax implications; the website has several articles that cover these in detail.

negative: I work in this industry, designing coaching programs for people who want to lose weight (and quit smoking among other things). The statistic we often use is that 1/3 of people are obese, with a BMI in excess of 30 (ignoring the very few percent of people for whom BMI is not an accurate measurement). And another 1/3 of people are overweight, with a BMI between 25 and 30. So we have a target of 66% of the population that can be potentially coached to a healthier weight. Making a business case for enough participants is never a problem.

negative: First, look at the local housing market, and the price to rent ratios. If you are comfortable that a house can be had for near to the cost of renting, and are not still dropping is price, then focus on the down-payment. I don't imagine housing prices to start picking up any time soon, so you don't be too rushed. If you feel like you have a longer time to save before you want to buy, I would focus as much money as I can into a retirement account while still saving for a down payment. Since you are young, you really want your retirement accounts working for you as soon as possible. You should not be investing in 3% stable funds, but the stock market index funds. Retirement is for 40 years in the future. Using funds for a down-payment from a retirement account should be a last resort. Remember this money is to provide you security later in life, not to get you into a house. When you take out money and put it into a house, it will not be appreciating nearly as fast. It is easy to say you will save later, but the money you save early in life will make up 50% or more of your funds when you retire. That is why it is critical to save for retirement as soon as possible.