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Old 01-30-2014, 02:38 PM   #17
Wraisil
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Join Date: Apr 2004
Location: Acworth, GA
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Quote:
Originally Posted by Mike Larry View Post
just had a short conversation with the financial adviser at my local citi. i have an IRA there with about $19k in it. he recommended that, at my age (28), throwing it all in an index fund would be a good hassle-free way to invest the money. i'm thinking i'll do 1/3 in the dow, 1/3 in the s&p, and 1/3 in the nasdaq.

good? no good?
The DJIA is literally 30 companies. As an "Index" it's no longer really relevant. No one in really cares about the Dow anymore except media outlets that don't want to bother explaining to their viewers why that isn't much good as a "market indicator" these days.

The S&P 500 is nice, and encapsulates about 70% of the overall market cap but is (based on it's composition) almost all large or mega cap companies. "Steady", but there is limited upside potential because of the relatively low risk involved in an index that is comprised of only very large capitalization companies.

The NASDAQ is generally considered fairly good for what it is, but its weighting of some companies minimizes actual diversification (ten companies make up about 1/3rd of the index).

The problem with all three of these is that they provide pretty much no exposure outside of the U.S. markets, little to no exposure to mid-cap stocks, and pretty much no exposure to small-cap stocks. At your age, risk is on your side and maximum diversification can mitigate some risk while giving you exposure to the higher risk investments (such as mid/small cap companies and foreign markets) which have potential for higher returns.

There is not likely "one" index fund that can provide you the exact diversification and exposure for your personal situation, but they should be able to find 3-6 which can give you a bit higher risk profile while giving you exposure to all major segments of the markets (including smaller companies, foreign companies, and possibly even a very small portion in bonds or equivalents). Something like using the Vanguard Total Market index with their foreign market index and one or two others with weightings of each fund to establish a portfolio in line with your risk tolerance and situation.
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