TweetI admit that I am a newbie when it comes to investing. I like to stick with mutual funds and exchange-traded funds rather than complicated investments like individual stocks and bonds.
As I am in my later 20s, I want to have investments that match my risk tolerance. I also want to invest in a way that will give me the chance to retire as early as possible. Right now, I only invest through my employer’s 401k plan. As you know, you can put up to $16,500 per year in a 401k.
My Asset Allocation
My employer is a very good steward of our investment portfolios. We have access to the full line of Vanguard ETFs. Vanguard’s mutual funds and exchange-traded funds are known for having the lowest fees in the market.
Here is what I have in my portfolio:
- Vanguard Total Stock Market Index – I like this one because it has the best diversification. This ETF invests in more than 3000 public companies so I feel like I will always get the returns of the total stock market and be diversified the whole time. Also, this ETF has a very low annual fee. It costs .06% per year. I allocate 20% of my retirement savings to this fund.
- Vanguard High Dividend Yield – This ETF is also based on US stocks, but it invests in stocks that pay a high dividend. Since I am investing in a 401k, I do not have to worry about the tax problems with dividend stocks. This fund tends to move smoothly and I like that I can regularly reinvest dividends into more stock. The 3.26% dividend yield is very good, too. I allocate 20% of my portfolio to this fund.
- Vanguard Total World Index – This ETF holds stocks all around the world. It is 50% invested in North America most of which is US stock. But the second highest holdings are in the emerging markets. Since I have a long way to retirement, I want to invest in emerging markets, too. This fund costs .22% per year, which is why I also invest in the Total Stock Market Index so that I can reduce the amount I pay for exposure to the United States.
You will notice that I am missing a key part of a good retirement portfolio.
Right now I do not have any investments in bonds. Some would think this is a problem. Others say that you shouldn’t invest in bonds when you are in your 20s. Personally, I do not invest in bonds because I have debt.
I pay 6.2% on my student loan balance. I think bonds are a good investment, but I earn a higher and safer return by paying back my student loans. When my student loans are paid off, I will contribute the extra money that I have to my retirement plan. That money will be divided between stocks and bonds.
What do you think of my retirement portfolio?