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401k and Personal Finance

Fund selections for Vanguard IRA

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I picked the following funds (and their weight) for my Vanguard IRA yesterday.

Vanguard International Value 50% (developed market large cap value)
Vanguard Winsor II 25% (US large cap value)
Vanguard Selected Value 25% (US mid cap value)

The first two funds are in my current 401k plan, I found the Vanguard Selected Value through Kiplinger magazine.

1) Performance
I looked at a fund’s 5 and 10 years performanace. I found something interesting: most funds could not beat its bench index consistently. For instance, Vanguard Explorer Fund and its bench mark is listed below:

Average Annual Returns—Updated Monthly as of 11/30/2007

1 Year 3 Year 5 Year 10 Year
Explorer Fund Investor 5.53% 9.71% 14.24% 9.44%
Russell 2500 Growth Index 9.52% 11.79% 15.93% 6.60%

I found Vanguard Intl Value fund to be an exception. Vanguard Winsor II also faired well. I left out fund such as Vanguard Prime Cap Core, because it does not have 5 years track record.

2) Weight
Besides past performance, I put equal weight on International and US market because I think the US capital market will losing its share globally, just like the US economy (GDP) has a less percentage on global economy.

As a side note, I found many Vanguard funds are managed by other smaller advisories. Some of them have been in business for 40 years. I think as Chinese goverment reforms social security, it may move toward something like the 401K in the US. That would give the China mutual fund industry a big boost as I think managing people’s retirement money is both chanllenging and rewarding 🙂

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