I’m trying to decide where to invest next.
I’m maxing out my employer matched 401k, maxing out a traditional IRA, and will soon have an emergency fund in a savings account that I’ll continue to add to every paycheck. This is where I am now: Moderate risk 401k, Vanguard target retirement fund, and low risk savings account. Looking for something slightly riskier.
Boston Money Coach Response:
Everyone says they want more risk in their investment portfolios until they don’t. In a universe of thousands of choices, it is difficult at best to provide anything more than tips. What you really need to consider is having a plan including an investment policy that will provide you with a road map for your investing. It’s one thing to pick an investment but it’s another to have a process for evaluating the choices and the rules for when/what to buy or sell. Otherwise, you’re at risk of assembling a “collection” of investments rather than a “portfolio” built for your needs.
In addition to the suggestion of working with a qualified financial planner, I also suggest diving deep into your risk profile by using the tool at www.RiskProfiling.com. This risk measurement tool goes beyond what most advisors use because it includes behavioral analysis as well. I find it provides a more accurate risk profile for an investor.
That being said, if this is money for retirement and you’re looking to go beyond what you can do in your 401(k), consider a variable annuity. You can put away more money above and beyond your elective contribution limits than a 401(k). You can access a very low cost ($240/year) variable annuity through a fee only planner (or anyone other than a commissioned insurance agent as these options are usually not offered by them). The Monument series of Jefferson National is one option and includes more than 300 different mutual fund-like sub-account investment options including index fund shop Dimensional Fund Advisors (DFA).
You can also consider contributing to a Roth IRA depending on your income.
Without knowing your age, investment time frame, risk capacity (which is different than risk profile), it would be near impossible to make specific recommendations.
If you are a “passive” investor, then index funds or index Exchange Traded Funds (ETFs) may be the best way to go. You can build a portfolio with them based on the models found on the Bogle Heads forum: (http://www.bogleheads.org/wiki/Lazy_Portfolios).
If you want more alternative investments that you’ll never get in your 401(k), then consider adding Master Limited Partnership mutual funds or ETFs for an inflation hedge and income. Don’t forget dividend-paying stock mutual funds or ETFs. And if you’re concerned about volatility, you can include a hedge to your portfolio through “volatility” ETFs. I think emerging markets are a good addition as well as most Asian Pacific economies do not have the kinds of exposure to the systemic and structural sovereign debt or bank asset problems that many developed countries seem to have presently.
For active investment in a mutual fund, consider Kaufman for large cap, Harbor or Loomis Sayles for bonds, and Ivy Asset Strategy for a global “go anywhere” mandate.
Or consider bringing in a professional to help you.