In October, I wrote a previous post on how I planned to allocate my Roth IRA investments. Well today (1/25/08), after much strenuous research and the market dropping to records lows, I decided now was the time to act. Many of the investments I had been looking at dropped significantly on Wednesday (1/23/08). I felt pressure to buy but I had yet decided exactly on which funds I wanted to buy. Certainly, I didn’t want to act out of haste without properly reviewing the expense ratios and such of each of the investments I was considering.

I switched my focus from mutual funds to index funds and then on to ETF’s, exchange-traded funds, which I feel is the best suit for me. ETF’s have lower expense ratios than even index funds and are emerging as out-performers of actively managed mutual funds. ETF’s also offer certain tax benefits as well.

So I began my research by reading different personal finance and investing forums. There are more than 600 ETF’s out there and I was hoping to narrow the field. Nearly everyone, from zecco boards to suze orman boards, recommend having the bulk of your retirement money in broad-based low expense ETF’s. The list includes: VTI, TMW, EFA, EFV, DIA, QQQQ, SPY, IOO, VEU, VWO…

I relied on Yahoo Finance for the majority of my background research for these funds. I looked for expense ratios of less than .80%, if the funds were out-performing their category peers, and had great long term returns (over 8%). I finally narrowed my choices to VTI, SPY, EFA, QQQQ, IOO, and VEU. Another consideration is ensuring you aren’t overlapping your market exposure. SPY and VTI essentially represent the same markets. I also wanted nice international exposure and that came to deciding between IOO and VEU. I had also decided, in addition to whole U. S. market and international coverage, to invest in a sector. I chose the tech sector which is represented within QQQQ.

I’ve now chosen to allocate in the percentages below:

84% Domestic Funds (Mostly ETF’s, some Index)

  • 70% in VTI Vanguard Total Stock Market
    • The Fund seeks to track the performance of Morgan Stanley Capital International (MSCI) US Broad Market Index (the Index), which includes large, mid and small-cap equity stocks diversified across growth and value styles.
  • 15% in QQQQ Power Shares QQQ Trust
    • The Trust holds all of the component securities of the Nasdaq-100 Index. The Trust’s investment objective is to provide investment results that generally correspond to the price and yield performance of the Nasdaq-100 Index.
  • 15% in FBALX Fidelity Balanced
    • The investment seeks income and capital growth consistent with reasonable risk. The fund invests approximately 60% of assets in stocks and other equity securities and the remainder in bonds and other debt securities, including lower-quality debt securities.

10% International Funds

  • in IOO iShares S&P Global 100 Index
    • The Index is designed to measure the performance of 100 large-capitalization global companies.

6% Individual Stocks

  • in COH Coach, Inc.
    • Coach is a designer and marketer of handbags and accessories.
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