If you’re one of the many folks who invests in index funds or are thinking about investing in them, then here’s a portfolio for you to own or to compare your current portfolio to. We’ll keep the following allocation that we’ve been talking about in other posts:
Large Growth – 35% (1 fund)
Large Value – 20% (1 fund)
Small Growth – 20% (1 fund)
Small Value – 15% (1 fund)
International – 10% (1 fund)
The 2007 Index Portfolio
This is an allocation with suggested index funds you could use when signing up for your employer’s retirement plan. However, your employer’s retirement plan would have to offer the Vanguard family of funds. I would use this allocation for anyone under 50 before looking at adding Bond funds to this portfolio.
Index funds track the market performance and their category’s performance. In this case, categories would include our allocation types – Large Growth, Large Value, Small Growth, Small Value, and International.
Here’s a table of the returns on these funds. Returns are what you would make on your money when invested in these funds. So if you invested $10,000.00 over a long period of time, your money would “make money”.
Let’s say 10 years later you decided to cash out (sell) your funds and received $20,000.00 back after you sold them, then that’s the return on your money. You made $10,000.00 over that time period, 10 years.
The table below expresses those returns in percentages, which is the typical way most investments report their return.
So there you go. These are set and forget (almost) group of index funds that will perform excellently for you over a long period of time making investing in these funds automatically simple in your employer’s retirement plan if Vanguard funds are available or in your Roth IRA.
In a Roth IRA you would have to pay a required minimum deposit and anytime you want to deposit more money into these funds there would be a minimum as well, typically $100.00.
Note: This is a portfolio I would use for myself if I was under 50 years of age and consider myself an indexer. I would look at adding a bond fund for anyone 50 and over.
The great John Bogle claims a general rule of 20% in bonds if your 20 years old and 70% bonds if you’re 70 years old. He says, others call that very conservative and so he mentions maybe your age minus 10 to give for a bond allocation. So if you’re 20, that would be 10% of your portfolio in bonds.
Of course for indexers, you’d want to have that percentage or some percentage you feel comfortable with in the Vanguard Total Bond Market Index, symbol VBMFX. Bonds make us feel more secure because they’re less volatile than the stock funds that we’ve been talking about.
We’ll revisit bonds at a later date.
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In the current credit crunch, small companies are being squeezed. I wonder if that means we’ll see a shift away from this sort of small cap and value focused indexing. (Not that I have anything against it; it is what I use.) Just thinking out loud.
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I think if you believe in the John Bogle investing mindset, this still holds. But maybe readjust the allocation percentage, which I’m looking at right now. These times (economy) are surely testing everyone.