First, do you think you might want a house or condominium within the next
ten years or so? Buying a home isn't necessarily financially advantageous,
but it has other advantages, as I expect you know, which may justify
planning for a home purchase sometime. If a home purchase is in your future,
your financial planning should be adjusted to reflect this.

Much evidence exists to support the contention that index funds are the
better bet when it comes to stock investing. Vanguad's index funds are an
excellent place to start, though it is seeing some serious competition from
places like Fidelity.

It sounds like you could use a little more experience in portfolio
allocation. Try some of the pretty quick, free, and online allocation tools
I list at http://home.earthlink.net/~elle_navorski/id4.html . (Allocation
questions come up so often here that I threw together this list of eight
free online allocators.)

There are metrics for measuring the tax efficiency of mutual funds. Ask if
you want more detail. On the other hand, even without looking closely, I'd
bet Tad is right that, if you buy index funds, they will be inherently tax
efficient.

is the 10k you plan on investing out of the savings account going to
give you the "return" you might expect if you keep the 10k in savings
for now and use it to buy a house, would that put the money to better
use?

If you invest the 10k in a taxable account, but for retirement, and 5
years from now you decide you want a house and need a down payment,
this 10k may not all be there. Holding the 10k in savings until the
house purchase may be an option worth considering on these points:

*saving for a larger down payment may allow you to pay off a house in
15 years and maintain a debt free lifestyle
*taking on debt from a mortgage now may allow you to retire without a
mortgage payment
*having a paid off mortgage in retirement keeps retirement expenses low
*low retirement expenses allows one to "save less" when deciding how
much is needed for retirement

This is an alternative opinion. Not exactly what you asked for... but
you got every cent you paid for...

You have stocks and bonds. You should have some realestate. Save for a
home after Roth & 401K.

Let me give you a little background. I am 29 years old. I have no debt,
I don't own a house(and don't want to right yet). I max out my Roth and
my 401K, and I have 20k in a savings account pulling 3.25%. I want to
invest some of this for early retirement, but I am unsure of what would
be my best bet. I would like to keep 10k in the savings account for
emergencies. The other 10k I want to invest. I will be making month
contributions of about $500 to this "early retirement fund". I am
pretty diversified in both my Roth and 401k. I am about at 80/20
stocks/bonds, with about 10% of that in international.

Any suggestions on what I should do for my early retirement fund? I was
looking at some of the tax managed index funds at Vanguard. Are they
worth it? The choices in the tax managed funds is not very good, which
is why I am asking.

draed wrote:
- quote -

Why tax managed, are you in the top tax bracket? Many index funds by
nature don't generate much taxable income.

Given the 10k/500 - at Vanguard you might take a look at the
LifeStrategy funds, which allow you to be well-diversified while
avoiding the multiple fees they'd charge for lower balances in
individual funds. Looking at the history for annual distributions will
help give you a sense of whether taxes will be much of an issue.

-Tad