The best work around I can see is to review your portfolio every year or two and slowly shift your assets more towards the bond/money market investments as you get close to your desired purchase date. Essentially, you’d be doing the same thing as a target date fund, but over a shorter time frame and with more flexibility over what assets to sell and which to retain.

Just a thought based on what I would in your situation.

One thing…REIT’s are a part of the VTSMX at around 2-3%, so that isn’t all that high to make a diversifying difference, but it is tucked in there already. Personally, I have a REIT fund in my portfolio, but if you are already working on 7-8 funds, managing to add a few more will make re-balancing a pain, if it isn’t already.

I would highly recommend going the small-cap value route for your position. And I know that isn’t the greatest tax-advantaged fund, but think about the Vanguard 2015 fund as an all-in-one fund. I wish these were a little more tax-friendly, but they really aren’t as bad as other funds out there. I think more folks should look into the target funds for 5-15 year time frames for their money/goals. Think about it: Vanguard optimally adjusts a single fund to a target date. Doesn’t need to be used strictly for “retiring”.

I think the great thing here isn’t about discussing if the portfolio should be 75-25 or 65-35, which is fine discussion, but I think what needs to be rewarded here is your drive, desire to save and taking control of your finances.

So what if you are 5% of of something, or don’t have enough ‘Gold’ in your portfolio, you have selected solid Vanguard funds and you are off and running! Instead of buying a 19th iPod or buying that 54th PS3 game, you are saving for something huge that means everything to you. I am sure you will be in a solid place in 8-10 years. If you save $15,000 a year for 8-years, you are already ahead of many in the game if you only make a few percent a year if we hit hard times.

Also, I would add more international to the mix (with some foreign small and emerging). If you weight too much to the US, you are ignoring more than 50% of the world’s market capitalization or investing opportunities. Plus, if we were to ever endure a slump like Japan, your portfolio would suffer.

For those who say we could never follow Japan’s slump, we are doing it so far. They experienced massive housing and stock market gains. When things fell apart, their national bank lowered rates to zero and the government refused to let anyone fail. Sound familiar?

David, I did note with interest your statement that “Diversification reduces risks and thus reduces returns making it a suitable strategy to hold money but not to (substantially) grow it.” Diversification has allowed me to substantially grow money over the past 15+ years. After college I was $55k in the hole. Today I’ve got a six figure investment portfolio that’s heading to seven figures (I hope). All through a very simple investment plan not unlike what Trent has described. It does work!

Along these lines, check out the new book “Spend ‘Till the End” by Laurence J. Kotlikoff and Scott Burns. I think it would make an excellent book to review on the Simple Dollar! Very heady stuff but written for us liberal arts majors!

Ramsey frequently says you should never buy anything you don’t understand. I agree with that whole heartedly, and that’s why I ignore his advice on buying managed mutual funds. The best I could hope to do with those is compare past performance (as he says you should do), but that falls far short of understanding the fund. Most index funds I understand. If the average company in the US goes up then a total markets fund goes up too. I think it’s a pretty safe bet in the long term that US companies will go up. Similar statements exist for other stock market index funds. Bonds are more complicated and I’m just beginning to understand them. With single stocks you need to be able to make an objective judgment about whether the share in the company you’re buying is worth more than you’re paying for it. I don’t have time to do the research to make that call, so I don’t buy single stocks.

I agree wholeheartedly with that if you’re talking about individual stock picks. But this isn’t about individual stock picks. It’s about owning as diverse of a slice of the stock market as I possibly can. I don’t want to own a bunch of one stock, I want to own a bit of a ton of stocks.

That strategy is timeless. It doesn’t rely on sector shifts or market timing or anything like that.

But the one impact that high oil has that has me very interested is in terms of investing. While the oil prices will drag upon the price of many traditional stocks, at least until those companies/industries adapt, they will also serve to spur development of alternatives. There’s no shortage of ideas for alternative energy sources, such as solar, geothermal, wind turbines, wave turbines, bio-fuels (even ones that aren’t produced from our food crops), etc.

All of these ideas have their good and bad elements, and will need quite a bit of research to fully develop them into an economically viable alternative. But thanks to those high oil prices, the money is (finally) being put forward to further their development and when some of these prove to be ready for wide-scale use it will spur a LOT of new investment opportunities.

Another way to look at it is this: We’ve known about oil and how to acquire it in various forms (such as naturally occuring raw asphalt mined and sold by several ancient towns in the Meditteranean) from the ground for Millenia, yet it wasn’t until the last 150 or so years that we had any reason to want to use very much of it. Prior to the twin developments of the Internal Combustion Engine, and the chemical knowledge to make a wide variety of synthetic products such as plastics and dyes, petroleum was considered a “worthless” substance. Today it drives our economy, it is the raw material for most of our consumer products, and it is even critical for producing the fertilier needed to support our overly large world population.

As oil becomes more scarce (and thus expensive) there are a number of alternatives that will take it’s place, and the companies that bring them to the market will reap a huge reward for those wise enough to invest in them early… The trick is to figure out which alternatives will work, and which of these companies will be a success. But that’s always the issue when it comes to succesful investing, isn’t it?

In other words to make substantial money one either has to earn money (via wages or production) or take substantial risks to get those substantial returns.

Diversification reduces risks and thus reduces returns making it a suitable strategy to hold money but not to (substantially) grow it.

Cheers
David

Be careful investing in stocks with an 8 year time horizon. In 3 years or so, you’re going to want the (vast) majority or all of that in bonds, shifting towards cash over the 2 years following that.