I'm relatively new to the investing world but hold a sincere interest in keeping up with my finances and trying to get a retirement together (I'm 20 so I have a ways to go until then but no time to start like the present!).

My problem is I have very little stomach for market fluctuation. As one would expect, I'm loving it when the markets are up and I see my money growing. However, when they go down I hate it.

Currently I'm invested in the following:

$17,000 in a T.RowePrice Personal Strategy "Balanced". Ticker symbol is TRPBX. The fund objective is to strike a balance between riskier growth and straight income via bonds.

I also have $3,500 in a ROTH IRA which is invested in Vanguard's STAR fun (VGSTX). That fund is widely diversified and has returned 10% for the last 10 years.

However, I hate seeing the money fluctuate as much as it does. While it is very minor by comparison (I'm only seeing a swing of $100 a day up or so, and not a total monetary wipe out) I still don't like it.

Would I be better off putting the vast majority of my money into purely bonds? Vanguard's Total Bond Market Index covers the market widely (as the name suggests) and has very little fluctuation. In the past 52-weeks the high and low are about 50 cents apart.

I realize that I am potentially giving up a ton of profit in the long run. Assuming an 8% a year return I should be getting now, my total investment of $20,500 in 45 years (assuming no additional investment whatsoever) would become $654,000 (roughly). If I go for bonds and the Vanguard fund which has been averaging 4.5% a year return, my $20,500 becomes only $149,000 (assuming no additional investment).

I feel like I'm answering my own question by posing the question to myself:

"Is the risk and fluctuation bad enough that you're willing to forgo a potential $500,000+ in earnings?"

What are your thoughts?

Bear in mind I'm not considering at all the very real possibility that the market could just go down and not earn any kind of a positive return. I'm trying to keep it simple I suppose.

Bonds have underperformed for quite a while now.

Dude, you're 20 and you want to invest like you are 60.

I were you age with that kind of cash I would be looking for a strong growth bias and leave only about 10-20% of my investments in "income funds".  You have a lot of years to smooth out market flux, and it does smooth out.  

Go to Morningstar.com and look at their style box.  The bigger the company the closer to the top you are.  The income type companies are on the left and the growth on the right.  You need to focus on the right side.   With a little research and keeping track you should be able to manage 9-10% growth per year on the average.  Compound that and you're shooting Class III.

Quoted: Bonds have underperformed for quite a while now. Dude, you're 20 and you want to invest like you are 60. I were you age with that kind of cash I would be looking for a strong growth bias and leave only about 10-20% of my investments in "income funds".  You have a lot of years to smooth out market flux, and it does smooth out.   Go to Morningstar.com and look at their style box.  The bigger the company the closer to the top you are.  The income type companies are on the left and the growth on the right.  You need to focus on the right side.   With a little research and keeping track you should be able to manage 9-10% growth per year on the average.  Compound that and you're shooting Class III.

Told ya I was a market fluctuation wuss

A bonds tradable value goes down as interest rates go up. Don't buy bonds when interest rates are below 8%.

Stop watching the market. Check once a month.

Congrats for getting into investing so early.  Most young people make the mistake of waiting too long, then have a hard time cathing up later in life.

I think you should spend a little money on some investment books and maybe an investment newsletter, like http://www.bobbrinker.com.

There are many factors to consider.  I think some research on your end would help you become a better investor and answer your question.

Good luck.

Bonds can be as volitile as stocks. If rates go up 1%, a 6% bond can lose 16% of its value depending upon the time to maturity.

My problem is I have very little stomach for market fluctuation. As one would expect, I'm loving it when the markets are up and I see my money growing. However, when they go down I hate it.

IMHO, you got it a little backwards.  At your age a lower priced market is not a bad thing -- you can buy more!  You are investing incrementally, right?  You're not talking about some inheritance or lump sum?  Buying at high prices (e.g. current nasdaq at 4 year high) is not cause for celebration.  You wouldn't go whooping it up because the grocery store is raising their prices.  Same thing with prices of your investments.

Bonds are not the right investment for you now with current interest rates.  Stock market is the place for long term returns.  Like others said, never mind the price today -- all you care about is the price when you need the money out down the road.  Ignore daily stuff.

BTW, awesome that you are investing and thinking about finances at your age.  SO much more opportunity if you have your financial eyes open at that age.  An age where a lot of mistakes can be made (credit cards!!!) and a lot of future opportunities can be squandered on petty purchases that don't satisfy much of anything.  Goals are good.  Wish I had been more diligent back then (20 some odd years ago).   Keep educating yourself!  There are plenty of other investments too, you must know -- real estate, local businesses, your own business, etc.

Time may provide a solution to your problem.  The young appear to suffer more from market fluctuations than the more seasoned investors.  Testosterone levels start dropping after 25, and this combined with experience should enable you to withstand market volatility.

Until then, allocating a small per centage of your portfolio to bonds may make it easier to sleep at night.  I would like to mention TIPS, the treasury inflation indexed bonds.  They will not usually  be the best investment in the bond market, but they will never be the worst.

I would recommend establishing a portfolio with a large per centage in equities, and 2 small allocations for bonds.  One would be the TIPS mentioned above, and the other would be a corporate bond fun.  Something like 80%, 10%, and 10%.  Re-balance occasionally if the per centages get out of line.

2005 is probably not the year to buy bonds.  But we are getting closer.

Some one your age should have a very high per centage in equities.  I would suggest that you buy the minimum per centage of bonds that will enable you to sleep well.  Also, keep in mind that today we can examine the value of our portfolios on a minute to minute basis.  This can be tremendously unsettling.  I grew up before Al Gore invented the internet, and my investment habits were formed in the old fashioned way.  It might help you to simply disregard the daily swings in price.

This sounds to me more like a psychological issue for you than an issue of wise investment practises.  You already know what you OUGHT to do, but your emotions take over and brings unwanted stress into your life.

So perhaps by tweaking your thinking a little bit, you can alleviate more stress that way.

Consider this: "All my investments are in a Roth IRA, which I know I'm not going to withdraw from for another 40 years, so the real question isn't 'Should I be concerned about today's 2% drop in equities?"  The real question is, '40 years from now when I am actually withdrawing the money, should I be concerned about today's 2% drop in equities?'"

Quoted: A bonds tradable value goes down as interest rates go up. Don't buy bonds when interest rates are below 8%.

Yes.  The last good time to buy bonds was the 2nd-4th quarter of 2000 when interest rates were at about 8% and short-term bonds were returning bigger yields than long-term maturities.  Jim Cramer, whatever you think of him, was smart and sold off most of his tech stocks in February 2000 and put the money into NJ munis at just about the best possible time for all his transactions.  Too bad he didn't pass this idea onto his readers.  He told them to keep on buyin' them tech stocks through the collapse of the bubble.

Greenspan's hiking interest rates now, and he probably will keep doing so unless the economy shows signs of downturn and weakness. If that ever happens, then start looking into bonds, because it'll become more likely interest rates will drop and the value of your bonds if you're holding them, will appreciate.

One of the hotter sectors to be investing in are commodities.  There are managed commodity funds like the Goldman Sachs Commodity Index that let you participate in this sector like you would with a mutual fund

www.mrci.com/client/gsci.asp