Q&A: Young and Smart!

Q:

I am an eighteen year old college student and I enjoy listening to your show. I’m currently majoring in finance and hope to one day be an investment adviser. 

I began listening to your show when I was a freshman in high school (2010) then when I got my first job I immediately began putting the money earned away in mutual funds.

My question is in regards to allocating my portfolio. Currently I have a high risk portfolio with 60% of my money in the Vanguard Total World Stock Index and the other 40% in Vanguard Explorer Fund (Small Cap Companies). My total equity is about $20,000…Should I try to become even more diversified and branch out to growth, mid cap, large cap, emerging markets, ext? I plan on never touching this money until retirement… I appreciate all your help!

A:

Thanks for listening and, more importantly, hearing. You are off to a great start! At $20,000, you don't really need a lot of additional diversification, right now. You're getting pretty close, though.

I would suggest cutting your fees dramatically by eliminating the actively managed Vanguard Explorer. You might want to use that money to go with the much cheaper Vanguard Small Cap Index (NAESX). If you want to add to the portfolio think about splitting the money between Vanguard's Small Cap Index, Small Cap Value Index (VISVX), International Value Index (VTRIX), and Emerging Markets Index (VEIEX). 

In this way, you'll be diversifying at low costs and adding a greater small and value tilt for greater risk and potential return.

Oh, and when you finish college, give us a call, I think we might have a job for you (maybe even an internship while you're in school).