First some background, 18 almost 19, junior in college for petroleum and natural gas engineering 3.9 gpa, school is covered by scholarships and I have no expenses.

Down to business: I have invested all my earned income from my summer job last year and this year for a grand total of 5,000 with about another 1000 coming in from these last few weeks of summer. I'm happy with my asset allocation with a 28% 2060 target retirement, 21% Nike, 15% Ford, 15% VWO, 21%th VDE.

So I have another 2,500 from sidejobs which I can't put in a Roth, but how should I go about investing it? More 2060 target date fund? Or a S&P 500 index?

I am young and I want to be aggressive. I like the target date fund, but I don't exactly want that last 10% of bonds it has, I'd love to go with the underlying funds of TR 2060 minus the bonds but I don't have enough for the minimums. Should I use the etf's of them then?

Thanks,
Rimfirerifleman

first of all, good job thinking about saving and actually doing so. I assume you go to school somewhere out east, b/c they are the only ones who refer to it as petroleum and natural gas engineering. but, i digress.

while you are doing a good job saving, you haven't saved that much. the problem with the amount of money you have invested, is most funds have a minimum. and you have enough money to meet the min on maybe one or two funds. as you have seemed to figure out, you can buy etf's. So, look at the funds in the target date fund, and buy the ETF version of each fund you want. Simple. Vanguard makes it rather simple as they always say, "this fund is available as an ETF." OR you can go to morningstar and start typing in the fund name and you'll see all the options. Easy peasy.

Since this is an online forum, i will opine on matters you didn't explicitly inquire about. Rather, a list of subjects you may want to put those brains to work on.

-efficient frontier
-systematic risk
-unsystematic risk
-tax efficient investing

A most excellent problem to have. The amount (for now) is a good start to an emergency fund, and thats probably what I recommend doing with it. Build up something you can live on for 6 months incase something truly unexpected happens.

You're going to keep running into the issue of allocating money from an above average saving rate, especially after you hit the job market. My wife and I use the target date funds in combination with investing in our Roths and income producing assets like real estate. I decided long ago that I wasn't intelligent enough to pick stocks without enormous amounts of work, so we "set it and forget it," and use our time to produce other savings and gains.

One more thing; you may want to consider reading "Early Retirement Extreme" by Jacob Lund Fisker. Its very early retirement planning as engineered by a physics phd.

Best,
Mr. Pop

Probably should have said I have a 10,000 emergency cushion of what I've saved up this far in my life, I thought it is enough for me to keep aside.

Frise:
With efficient frontier I felt the target retirement account was as boglehead as I could get(systematic risk), the nke and f are what are giving me the most risk(un systematic). Nke because of the advertising they will no doubt have with the olympics- I think they will have a nice pop, F for more of a mid-long term (5 years), once Europe hopefully works out and they have a large customer base in China/India etc.. I felt this risk/reward ratio was worth it. I think VWO and VDE fall inbetween on the risk spectrum-sector specific, but just as I wish I invested at the bottom of the financial crash, I'm thinking vwo is the equivalent this crash just the euro version. VDE because natural gas is in a glut, and oil is lower that it has been for a good while. I feel VDE and VWO will follow each other in the direction they take.

As far as tax efficiency that's why I like the index's which typically have a low turnover. But that's what the beauty of Nke and F in my Roth.


Mr. Pop- I've checked out Early Retirement Extreme and have been trying to pick up on as much as I can. I would like to be able to retire early(mid-fifties?), (opens a whole other argument of investments you can access before 59 1/2-I know). I definately understand where you come from with running out of tax efficient places to invest money. I am already planning to get into real estate ( I currently work as a maintenance man so I can fix nearly whatever gets broken) beside the tax write-offs and depreciation would be helpful.

Anything else you guys think is pertinent? I want to get all the advise I can get.

Thanks,
Rimfirerifleman

Rimmy, you have a lot in individual stocks ad that is NOT smart. Try to limit the amount you have in any 1 individual stock to 1/25 of your total stock allocation (4%). The problem with your statements about your favorite stocks is that everything you said is known information. Do you think anyone will be surprised that Nike has a presence at the Olympics? Money is made in the unexpected surprises and it seems only negative surprises are likely in your stocks.

the point of systematic and unsystematic risk is...one you are not rewarded for absorbing since it is easily diversified away. The number of stocks in various sectors to be diversified is often debated, but hardly anyone would have your back from where you are standing. In other words, your portfolio has far more risk for the amount of returns you are likely reap. OR, you could reduce your risk and not see a decrease in returns.

You must consider your portfolio as a whole. The principal of efficient frontier is that you accept smaller returns for much much less risk/volatility.

Some may argue from a tax efficiency stand point, VWO would be much better in your taxable account since you could get a foreign tax credit (I hold VEMAX in my taxable account). Or, as you are swinging for the fences, your "stock picks" would be better, as you could harvest any losses and control when taxable events occur.

No, I know everyone knows everything I've brought up about the Olympics etc, I have a quite long time frame till I'll be needing this (41 years or so) and I would be unable to pick a specific stock for another four years. This is following your 1/25th rule at 5 thousand put in per year since I don't really want to have less than 800ish in any one stock since commissions eat up a percent or two. I got nke under 88 which I felt was a good a time as I know of (yet I'm always trying to learn) to build a long term position.

Frise-How would you go about mitigating risk but keeping returns in my case?

VTSAX (or VTI if you prefer ETF's)

some interesting numbers to mull over...

*5.32% of your portfolio is in XOM
*22.34% of your portfolio is in energy companies (probably more, this is just based off the top 25 holding and companies I recognize as "energy" companies).

This is quite a bit, considering your income will come from this volatile industry. Not sure why one would tie over 1/5th of the portfolio to it as well? I'm sure you're thinking is something along the lines of "I work in the industry and I know it best..." Thousands of people working from Enron lost their savings....

YTD returns:
*VTSAX 9.39%
*NKE -1.05%
*F -13.10%

Of course we can all pick and choose dates to make the numbers work in our favor. The point is, you're taking on too much risk for what at best will be avg returns (e.g. of the index). But more than likely, will be sub par returns.

I'd like to point out that you are free to do whatever you want with your money. And regardless of YOUR justification for these decisions, that doesn't change the amount of risk/return your portfolio offers up.

good luck.

Yes, I agree. My 4% number comes from wanting to hold at least 25 (uncorrelated) stocks. The standard deviation of an uncorrelated portfolio goes down with the square root of the number of stocks. 16 stocks=1/4 the standard deviation, 25=1/5. The expected (mean, average) return is not changed by the number of stocks. So holding just a few stocks exposes one to variation that is easily avoided with absolutely no benefit in terms of expected return.

The exact number is certainly debatable but somewhere around 20-30 is about what you want. If you hold a bunch of low beta stocks or some with negative correlation then I'd also be more comfortable with a smaller number. But those don't apply here.

I remember reading 25 as the "magic" number...for whatever that is worth. Sorry, my head explodes when things get really complicated with square roots, standard deviation etc.

Or, you could go the way of the index fund...

I think it is also important to remember to not become overly diversified in the industry one works in. Once upon a time, I worked for CVX. They matched our 401k in CVX stock. I finally sat down one day and realized with mutual fund holdings, I had over 20% of my portfolio in my employer's stock. From that time forward, that stock got sold the second it hit my account. I still have friends who are 100% CVX, even a few years out from when they think they will retire. How fitting they work in the same buildings enron was housed in....