IRA asset allocation in 2006 for a twenty-year-old

With my daughter Sarah starting an IRA this year, I got to thinking about the challenges inherent in doing asset allocation with limited funds. Most Mutual Funds have a $1,000 IRA minimum initial investment (some are even higher at $2,500). It’s virtually impossible to hit the ‘four corners of the style box’ in both domestic and international funds (+ Emerging Markets) with a $4,000 initial investment.


In addition to naming funds / classes, I’ll name the order of purchase:


Basic Strategy Diversification - IRA accounts (not taxable)

(strategy for 'entry level IRA' accounts for one in their 20's; no bonds nor cash)


Domestic Stock Funds



International Stock Funds




Fund Name (ticker)



U.S. Large Cap Stocks Growth

iShares Russell 1000 Growth Index (IWF)

0.2% expense ratio
9th pick - $1,000 third year


U.S. Large Cap Stocks Value

iShares Russell 1000 Value Index Fund (IWD)

0.2% expense ratio;
3rd pick - $1,000 first year


U.S. Small Cap Growth

iShares Russell 2000 Growth Index Fund (IWO)

0.25% expense ratio;
6th pick - $1,000 second year


U.S. Small Cap Value

iShares Russell 2000 Value Index (IWN)

0.25% expense ratio;
1st pick - $1,000 first year.


Int'l Large Cap Growth

iShares MSCI EAFE Growth Index Fund (EFG)

0.4% expense ratio
8th pick - $1,000 second year


Int'l Large Cap Value

iShares MSCI EAFE Value Index Fund (EFV)

0.4% expense ratio;
4th pick - $1,000 first year


Int'l Small Cap Growth

Lazard Int'l Small Cap Open (LZSMX)

1.36% expense ratio;
7th pick - $1,000 second year


Int'l Small Cap Value

Tocqueville International Value (TIVFX)

1.66% expense ratio;
2nd pick - $1,000 first year


Int'l Diversified Emerging Markets

iShares MSCI Emerging Markets Index Fund (EEM)

0.77% expense ratio;
5th pick - $1,000 second year






I actually started out using the Mutual Fund picks as outlined by . My rationale was that the ETFs I favor in my portfolios may not be the most cost efficient at low purchase prices (i.e. $10 purchase cost on a $1,000 buy is a 1% ‘load’). As I ‘scrubbed’ those picks against Schwab’s recommendations, I found myself trading off lower expense ratios vs. different returns and ‘tighter definitions’ of the four corners of the style box (i.e. a true ‘value’ fund is preferable for that role over a ‘blend’ that trends towards value).


When I was done with that modified Mutual Fund list, I stepped back and compared it my preferred list of Exchange Traded Funds. I quickly came to the conclusion that the only Mutual Funds that were truly superior to the ETFs I had chosen were the two ‘small corners’ in the International area, LZSMX and TIVFX. These were corners I was having trouble filling with ETFs, and in my own portfolio, I’m substituting with ILF, EZA and IFN. Those latter picks aren’t really suitable for a ‘once a year re-balanced’ portfolio in my opinion.

The total 'weighted expense ratio' (expense ratio of each fund times the weight in portfolio, summed) is 0.57%.

Note that I used This article at to assist me in choosing which asset classes to buy in what order. They advocate buying one per year (a nine year plan before diversification is complete). I can live with the additional 'churn' of fees in order to achieve the diversification I want sooner.



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