New PP: VFINX good enough for stocks?

[ppk]

Hey, I'm new to converting my investments to a PP. I saw that the VFINX index is highly recommended for stocks. Would it be okay to put all of my stock eggs (25%) in just that basket, or is it recommended that I have several indexes? My stock basket will be about 10-25k.

Thanks!

[AdamA]

Hey, I'm new to converting my investments to a PP. I saw that the VFINX index is highly recommended for stocks. Would it be okay to put all of my stock eggs (25%) in just that basket, or is it recommended that I have several indexes? My stock basket will be about 10-25k.

Thanks!

It's a personal preference.  It's convienient to have just one fund for all of your stocks, but it's nice to have some institutional diversity as well.

If it were me, I'd probably start by putting it all into the fund you mention, and then maybe look to start using another one as you add more money.

[cnh]

My time with the forum is limited, but I think many here will say VFINX is a good option.  Is there a reason you don't want to go with a broader index such as VTSMX or VTWSX for added diversification?  The former would provide total US market exposure and the latter would add international exposure.

[Ad Orientem]

Hi PPK
Welcome to the forum. If your SN refers to what I think it does, I really like it. On to your question...

VFINX is a fine choice that is perfectly compatible with a PP. That said, I will draw a few minor points for your consideration. You can cut your expense by opting to go with one of Vanguard's ETFs like VTI which has an ER of .05% vice .17% for VFINX. But even at .17% that's still uber cheap if you prefer the S&P 500 over TSM. So no big issue there. Likewise you could go with VT which has a similar ER and that gives you the entire world, though purists will tell you to stick with US stocks. I think a little foreign diversification is not bad since prosperity is the only economic condition that is not currency based. And the added diversification can add a hedge against severe inflation or deflation. Again this is personal choice and comfort level.

As for holding multiple index funds, some (see Adam's comment) like that. And there is nothing wrong with it. It just depends on how many funds you want in your PP and how many levels of insurance you need to sleep at night. I am fine with just one for each asset class.

But yeah, VFINX works fine for me. Again welcome to the PP family.

[Xan]

Vanguard's S&P 500 index, VOO, also has an expense ratio of .05%.

[KevinW]

IMO Total Stock Market (TSM) funds are best for the stock allocation. If you have access to VFINX then you probably have access to VTSMX which is even better diversified. That said, the S&P 500 encompasses roughly 75% of the TSM, so the two are nearly equivalent.

It's a personal preference.  It's convienient to have just one fund for all of your stocks, but it's nice to have some institutional diversity as well.

If it were me, I'd probably start by putting it all into the fund you mention, and then maybe look to start using another one as you add more money.

+1

[ppk]

Thanks for the feedback, everyone! Extremely helpful.

[rhymenocerous]

Many people have to use an S&P500 fund in their 401k instead of a TSM fund.  I think VFINX is perfectly reasonable for the entire stock portion.  I myself have access to a small-cap index fund, so I split it 75/25 S&P500 / Smallcap.  I also allocate 20% of my stock portion (so 5% overall) to a total international stock fund.

[nwagers]

For the 10k-25k range, you probably want to look at VFIAX instead. It is the "Admiral" class of the same fund. It has an expense ratio of 0.05 instead of 0.17. The minimum holdings is 10k. ETFs may include trading fees that buying the fund directly won't have. You'll have to balance those with any ER.

For the total (world) market argument, I think craigr brought up a few points in his book which you might want to read through. Going from memory the recommendation was 20% of your stock portion (5% total) could be total world market, but that backtesting didn't really show much different in the results. The other consideration is that the S&P500 already has a fairly large world exposure since many of those companies multinational and the US market is a (relatively) big portion of global GDP


Update: I just realized this was a really old thread. Hopefully the info is useful to other PP starters though.