$20k is not a lot of money to pick individual stocks. I personally will put in it international index and avoid any management fee. The transaction fee for index fund is usually lower.
Min Initial Investment: $3,000 Year to date: 7.92% return Top holdings: Vanguard European Stock Index 58.17% Vanguard Pacific Stock Index 26.13% Vanguard Emerging Mkts Stock Idx 15.66%
Masayako
You know I have had a significant stake in this fund for the past 3 years. And it's been a great three years. But I've actually stopped contributing to international (I haven't pulled out, just stopped adding to my position in this fund). Where I've been putting heavily into is big large cap domestic index funds. I know a lot of folks will probably think this is stupid. U.S. is headed for a decline, companies are going to suck on guidance here, housing collapse etc,etc,etc,etc….
I am considering where the media/general attention is telling you to put money now, and do completely the opposite. The issue that I have with the international indexes is that while their returns have been great over the years (namely due to the dollar decline, not real performance), this can't keep going on forever. The problem that I see now it seems everyone is all over "international investments". Every media is telling you to invest in overseas markets. My rule is that by the time the media is reporting what you should be doing, it's already too late to actually do it. I think the international markets have had their run, and pretty much it's over when Average Joe at the office's water cooler starts to talk about how he's putting money into a International Index Fund because he read about it being "smart" to do from BusinessWeek.
Where I have been building up a position over the last 2 years and will continue to do this this year is in big cap domestic indexes here. It's been pathetic for the past couples years. Don't think these can return that low for that long. Some folks argue that well U.S. business is shrinking. Yes, I would agree. But I've noticed part of the frenzy these days have also been through a lot of M&A activities that's proping these markets (as opposed to IPOs). Big CO's are swallowing smaller CO's (in the process laying off a bunch of people to cut expenses and redundancy)…I think what we are seeing now is just the tip of M&A activities. Also, several of these big companies have been massively buying back their own stock. So while I think there's some merit to the doom and gloom for the real estate companies, I don't see a complete meltdown in the U.S. financial markets: namely because the big I-banks make money in more than 1 way…. The current trend is via M&A deals (and I have several friends are/were M&A Investment Bankers that are having a field day now…Because during the 90's it was mostly about IPOs and not M&A)
So it were me, I'd take the entire $20k and do Vanguard Growth Index Fund Investor Shares. Or, more diversify, I'd do $10k in the Vanguard Total Stock Market Index and another$10k in the Vanguard Total International Stock Market Index if I were to be afraid of missing any further rise in the international markets.
I would also recommend spending $20 and buy the book The 4 Pillars of Investing by William J. Bernstein…Or for the mathematically inclined, his previous book Intelligent Asset Allocator.
You can take a look at the performance of the Vanguard Funds over the past couple of years and see for yourself..if both the stellar international performance and the cruddy domestic large cap performance are really sustainable at their respective levels.
Total Int’l Stock Index Returns
1yr, 3yr, 5yr, 10yr, Since Inception(04/29/1996)
9.62% 18.78% 17.36% 8.66% 7.85%
Growth Index Fund (Large Cap Growth) Returns
1yr, 3yr, 5yr, 10yr, Since Indeception(11/02/1992)
7.40% 11.46% 6.25% 6.53% 9.81%
One additional caveat. If you are SURE you are going to need to use this money in 2-3 years…You really shouldn’t put all of it into the market at all imho. It should be liquid earning the highest possible return in an almost guarentee-like fashion. First, there is the possibility that all of us at piggington are wrong, and both the international markets/domestic market/precious metal market all have a bad rap over the next 2-3years. Second, you could have bad luck and pick the wrong indexes. Third, you definitely shouldn’t pick individual stocks unless you are prepared that you have a chance of losing this amount. In all my major purchases, I alwyas plan 1-2 years ahead. The funds I need for those major purchases are ALWAYS held liquidable in an insured short term cd/interest account, even though it may be declining due to inflation.
Numerous times, I’ve made the following mistake and personally witnessed others that did the same thing. I looked at a CD/savings account and said, “wow 5% sucks..If I left the money in the stock market up until the point that i really need it, I could be earning like 10-15%…” Well, my dumb luck was that that every time i did this, when I needed the funds, it was always during when the market was “correcting” for some random short term news. So it was actually worse for me to leave in the market, than had I just taken the 5% cd….If you are sure you are going to buy a house in 2 years, I wouldn’t even keep all the “other” 80k in the stock market.
