Another Step to Diversification

Last year after reviewing my 2005 net worth performance I realized that international and small/mid cap investments were well underrepresented in my portfolio. My goal for 2006 was to make further progress in achieving better diversification in these areas.

I haven't done a terrific job of this. I sold most of my Bellsouth holdings and used the proceeds for an investment in Vanguards Extended Market Index ETF. I also focused the majority of my ongoing 401k contributions into International funds.

I took another small step in this direction this week with a $3,500 investment in Vanguard's Emerging Market ETF (VWO). Using my Sharebuilder account I picked up 44.3599 shares of VWO with a $4 investment fee.

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Comments (6)

Selling your Bellsouth shares and using the money to invest overseas is a smart move.

Vanguards Extended Market Index ETF is a wise investment

Posted by moneymonk | January 9, 2007 11:32 AM

Here are the International Funds I own:

Expense ratio is estimated off the top of my head:

JASOX Exp Ratio: 0.90%
DODFX Exp Ratio: 0.70%
EUROX Exp Ratio: 2.00%

I really like the first two, which are the Janus Overseas Fund and the Dodge and Cox International Stock. These two funds invest in larger companies.

The last one is a more extreme investment called the U.S. Global Investors Eastern Europe (EUROX).

Posted by Ray | January 9, 2007 12:35 PM

$2m,
What are you doing to increase your asset allocation toward the small cap?
Is the Vanguard Extended Market ETF evenly balanced or cap weighted? If it's cap weighted only the very small minority of the index will actually be small cap and only a slightly bigger amount will be mid-cap. >70% will be large cap.
Regards,
makingourway

Posted by makingourway | January 9, 2007 4:31 PM

Hey makingourway,
I remember checking the capitalization before I invested, but I don't know off the top of my head. I couldn't find it on Vanguard sites, but I did find it at morningstar - only 5.66% in is largecap according to their site which is good enough for me. Gives me a good blend of small and mid cap.

Posted by 2 million | January 9, 2007 5:16 PM

Makingourway - The Vanguard Extended Market fund is cap weighted, but it specifically excludes large cap stocks. The total stock cap-weighted market is essentially 70% large cap + 30% "extended market."

2million - Smart move diversifying your portfolio. I prefer the lower expense ratio with small "load" (i.e. commission) that ETFs offer for lump sum investments. In the long run, it's better to pay a little bit to the brokerage upfront in order to save each year on management fees with th ETF.

Posted by CreditShack | January 9, 2007 6:28 PM

Diversify. Otherwise when the stock market corrects it could be seriously painful on your account balance.

Posted by Nagel | January 9, 2007 8:03 PM