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Vanguard 500 Index Fund: A Mutual Fund Anyone Can Appreciate In Their 401k

Summary VFIAX is a mutual fund designed to track the S&P 500 with a lower expense ratio than SPY. The mutual fund is a great holding for investors wanting to replicate the performance of “the market” without getting devoured by fees. This is a solid option for the retirement account. The Vanguard 500 Index Fund Admiral Shares (MUTF: VFIAX ) offer investors an excellent way to handle their investments. While I’m a huge fan of using ETFs in the construction of a portfolio, Vanguard is offering some mutual funds with very compelling expense ratios. The nice thing about these mutual funds is that investors are able to buy fractional shares which are excellent for dollar cost averaging. Volatility The standard deviation of returns (monthly) shows very similar levels of volatility to the S&P 500 index as tracked by (NYSEARCA: SPY ). Correlation is also running around 99.9%. The holdings are very similar, but these shares are offering a lower expense ratio and the ability to use dollar cost averaging very effectively. Expense Ratio The mutual fund is posting .05% for an expense ratio. There is really nothing to complain about here. It beats SPY and it beats most mutual funds and ETFs in existence. Largest Holdings The diversification within the fund is good. There are not as many holdings as the whole market index funds that I often prefer, but all around this is a very solid fund. (click to enlarge) Risk Factors The biggest issue for VFIAX is the risk that the S&P 500 is getting fairly expensive on many fundamental levels. For instance, the P/E ratio on the index is fairly high (running over 20). The high P/E ratio comes at a time when corporate profits after taxes are also very high relative to GDP. My concern is about the valuation level of the market. When it comes to ways to buy the market, VFIAX is one of the best funds to use for the task. When it comes to risk assessment, I’m not sure I’d go with Vanguard’s scale, shown below: Vanguard has a tendency to mark any primarily equity investment as being fairly high risk. Relative to other equity investments, the risk level here is very reasonable. The fund still scores high on risk for Vanguard’s scale because they are comparing it to other funds stuffed with lower risk securities than equity. Compared to a very short term high credit quality bond fund, I have to agree that VFIAX has substantially more risk. Compared to the broad universe of equity investments, VFIAX is doing a solid job of holding a diversified portfolio of large capitalization companies with solid histories. Other Things to Know Minimum investments for opening a position were $10,000 according to the Vanguard website. After that additional purchases could be in increments as small as $1. This is a solid fund for dollar cost averaging. Based on my macroeconomic views, I would want to use a fund like VFIAX for equity exposure but I also believing hold some cash on hand is wise given the potential for a reduction in equity prices. When it comes to using mutual funds, I think the best way to deal with them is to dollar cost average in. I like using ETFs to adjust my portfolio exposure but the mutual funds can be set as a “set it and forget it” investment vehicle. When making a meaningful contribution to a fund month after month without checking up on it, it would be wise to make sure the fund is reasonably diversified and that the expense ratios are low. The Vanguard 500 Index Fund Admiral Shares easily sail through both of those tests. Conclusion While I am concerned that market valuations are a little on the high side, I’m still investing each month. I choose to hold more in cash than I would if the market looked cheaper, but I still see dollar cost averaging into the right funds as a viable long term strategy. The biggest challenge for investors is to resist the urge to pull back when the market falls. We should all expect that the stock market will fall within the next 30 years. When those drops happen, investors need to be able to stomach stepping into the market to buy. Since those times are often very scary, one solution is to set up automatic purchases for a fund like VFIAX. To avoid overthinking things, I keep automatic contributions running as a baseline for investing. I use my other accounts to make additional purchases. If your employer sponsored plan offers VFIAX, it is a mutual fund worthy of consideration. Figure out your own risk tolerance and determine if the equity exposure is right for you. The biggest potential mistake an investor could make with buying VFIAX would be to put 75%+ of their portfolio in the fund when they are only a couple years from retirement and will be required to sell off shares to take distributions. So long as the total level of risk is appropriate for the investors, this is a great fund to use as the core of a passive retirement portfolio. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.

Consumer Discretionary And Mid Cap: 2 ETFs To Watch On Outsized Volume

In the last trading session, U.S. stocks fell following solid job gains in July, which has increased the chances of the Fed pulling its trigger on the first rate hike in almost a decade. Among the top ETFs, investors saw the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) lose 0.2%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) shed 0.2% and the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) move lower by 0.1% on the day. Two more specialized ETFs are worth noting, as both saw trading volume that was far outside of normal. In fact, for the most recent trading session, both these funds experienced volume levels that were more than double their average. This could make these ETFs ones to watch out for in the days ahead to see if this trend of extra interest continues: Vanguard Consumer Discretionary ETF (NYSEARCA: VCR ): Volume 3.18 times average This consumer discretionary ETF was in focus yesterday, as more than 387,000 shares moved hands, compared to an average of roughly 126,000. We also saw some share price movement, as VCR lost 0.1% in the past session. The big move was largely the result of solid July job numbers that indicate stepped-up momentum in the U.S. economy. VCR was up nearly 2.1% in the month, and currently has a Zacks ETF Rank of #2 (Buy). It may an interesting option for longer-term investors. Vanguard Mid Cap ETF (NYSEARCA: VO ): Volume 2.79 times average This mid-cap ETF was under the microscope yesterday, as nearly 776,000 shares moved hands. This compares to an average trading day of 291,000 shares, and came as VO lost nearly 0.1% on the session. The movement can largely be blamed on the growing concerns over interest rates hike and the resultant stronger greenback that can have a huge impact on mid-cap stocks like what we find in this ETF’s portfolio. VO was up nearly 1.2% in the past month, and currently has a Zacks ETF Rank of #3 (Hold). Original Post Share this article with a colleague

Rate Hike Fears Spark 2015’s Biggest Bond Fund Outflow

According to the latest data from the Investment Company Institute, U.S.-based bond funds witnessed the biggest outflows in 2015. The year’s biggest outflow was attributed to the increasing fears about the possibility of the first rate hike in September. For the week ending July 29, $4.7 billion was pulled out of the US bond funds. This was the biggest weekly outflow since mid December and also reversed the $1.6 billion of inflows in the prior week. Certain dismal economic data, such as the decline in ISM manufacturing index and weak wage growth data, have negated the Fed rate hike possibilities momentarily. Nonetheless, the balance towards the possibilities of rate hike is stronger, which is further evident from the bond fund outflows. The primary forms of bond risk include default risk and the interest rate risk. A low interest rate environment is favorable for investments in bond funds. This stems from the fact that the market value of a bond is inversely proportional to interest rates. Government bond prices usually move up when yields drop along with lower interest rates. Outcome of Latest FOMC Meeting The Federal Open Market Committee’s two-day policy meeting gave no clear indication on the timing of the first rate hike. However, the door for a September rate hike was kept open. The policy makers said: “The labor market continued to improve, with solid job gains and declining unemployment”. The committee also said that “economic activity has been expanding moderately in recent months” and that there has been “moderate” improvement in consumer spending levels along with an “additional improvement” in the housing market. These comments did raise speculations of a possible rate hike in September or at the most in December. However, the committee also mentioned “inflation continued to run below the Committee’s longer-run objective.” The central bank’s inflation target is 2%. The Fed remained dovish about economic health, which increased September rate hike possibilities. The Federal Reserve Chairwoman Janet Yellen stated that the U.S. economy will strengthen and expects the central bank to hike interest rates “at some point this year.” Fed Officials Signal Hike in September In an interview with The Wall Street Journal, Atlanta Fed Reserve president Dennis Lockhart signaled that the Fed is preparing for a rate hike in September. He said that the given economic scenario is “appropriate” to opt for a rate hike in near future unless the economy witnesses a “significant deterioration”. He stated: “I think there is a high bar right now to not acting, speaking for myself… My priors going into the (September) meeting as of today are that the economy is ready and it is an appropriate time to make a change.” Last month, San Francisco Fed President John Williams said that a rate hike could take place as soon as September. Williams believes that inflation will soon increase to the Fed’s target rate of 2%. There was a high probability that it could go even higher by the end of next year. Williams added that full employment could be achieved even before the end of 2016. His views are of particular significance since he is a voting member of the Fed’s decision-making body. Additionally, he takes a moderate stance on such issues, consistent with the position of the current Fed Chair. Previously, New York Fed President William Dudley had said a rate hike would be “very much in play” during the Fed’s September meeting. Dudley added that this was, of course, associated with continuing evidence that the economy was continuing to recover. International Bond Funds as Alternative? As the Fed hikes interest rates, a sell-off in bond funds is likely to take place as investors switch to safer choices. Some experts have even suggested that investors should move out of such securities as soon as the rate hike takes place. The influential Carl Icahn also expressed similar views. He said the junk bond market was “extremely overheated.” However, for investors interested in the space, there are actually some alternatives they can try. International bond funds are great alternatives, as they are one of the best ways to balance losses incurred from US markets, since interest rate fluctuations differ from country to country. Considered to be among the world’s largest asset classes, international bond funds show little correlation with domestic equities and only moderate correlation with investment grade domestic debt. They also help in diversifying currency exposure and protecting assets against a long-term secular decline in the U.S. dollar. Below we present 3 international bond – developed mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) and Zacks Mutual Fund Rank #2 (Buy). Goldman Sachs High Yield Floating Rate A (MUTF: GFRAX ) seeks high current income. GFRAX invests a lion’s share of its assets in domestic or foreign floating rate loans and other floating or variable rate obligations that are rated below investment grade. GFRAX may invest a maximum of 20% of its assets in fixed income instruments regardless of their ratings. These may comprise fixed rate corporate bonds, government bonds and convertible debt obligations among others. GFRAX currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). The year-to-date and 1-year returns are 1.9% and 1.7%. The 3-year annualized return is 3.2%. The expense ratio of 0.94% is lower than the category average of 1.11%. Payden Global Fixed Income (MUTF: PYGFX ) invests in varied debt instruments and income-producing securities. A minimum of 65% of assets is invested in investment grade debt securities. A maximum of 35% of assets may be invested in junk bonds. However, the overall average credit quality of the fund will be investment grade. PYGFX currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). The year-to-date and 1-year returns are 1.5% and 3.9%. The 3-year and 5-year annualized returns are 3.6% and 4%. The expense ratio of 0.7% is lower than the category average of 1.03%. Eaton Vance Global Macro Absolute Return A (MUTF: EAGMX ) invests in securities and derivatives among other instruments to gain short and long investment exposures across the globe. The short and long investments are sovereign exposures, which include currencies, interest rates and debt instruments. EAGMX invests in many countries and has significant exposure to foreign currencies. EAGMX currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). The year-to-date and 1-year returns are 1.7% and 3.1%. The 3-year annualized return is 1.8%. The expense ratio of 1.05% is lower than the category average of 1.28%. Original Post