by Archie M. Richards, Jr., CFP^®
December 5, 2005

If you're investing less than $100,000, use Foliofn and acquire exchange-traded funds.

As you may know, this column frequently recommends Vanguard index funds. I suggest 9 Vanguard funds, with the smallest only 3 percent of the total.

Three percent of $100,000 is $3,000. But $3,000 is Vanguard's minimum per fund. If you prefer my recommendations and have less than $100,000, you'll get just as good results trading on line through the brokerage firm Foliofn.

Foliofn is an unusual company. For a fee of only $199 a year, you can make up to 200 on-line trades a month - way more than you'll need, even if you're adding money to the account every month.

With a total of $20,000, for example, the fee amounts to only 1 percent a year. The fee, which remains constant, has less and less impact as the account grows.

(With an account under $20,000, better to use Vanguard and reduce the diversification.)

Headquartered in Virginia, Foliofn's founder and Chief Executive is a former Commissioner of the Securities and Exchange Commission. Everything's on the up-and-up.

I suggest you use exchange-traded funds (ETFs). Similar to index mutual funds, an ETF tracks a hypothetical index by buying and holding the stocks that are counted in the index. Costs are reduced from those of managed mutual funds, because no stock research is needed. The ETF also does little buying and selling because the stocks included in the index are changed infrequently.

ETFs have advantages even index funds don't have, as follows:

• They can be bought and sold during the trading day.

• Operating costs are lower.

• For reasons too complicated to explain here, buyers of ETFs are highly unlikely to pay taxes on capital gains that benefit other investors, Buyers of mutual funds at the market top in 1999, for example, were put off by paying big capital gains taxes in 2000 when their accounts had substantial losses. With the ETFs I recommend, this won't happen to you.

Each ETF covers an entire market sector. Using 9 of them provides double diversification. Annual rebalancing cuts the risk even more.

Surprise, surprise: Most of the ETFs I recommend are operated by Vanguard itself, acquiring the very same securities Vanguard uses in its mutual funds.

Vanguard adopts the trade name "Vipers" for its ETFs. The name of a poisonous snake may be Vanguard's way of warning that if you trade ETFs rapidly, you'll lose money. Vanguard's Chairman, John Brennan, has said, "The best way to attain a small fortune is to start with a large fortune and trade a lot."

Except for annual rebalancing, I don't want you to trade at all. Plan on holding these ETFs for years.

Okay, here are my recommended allocations of exchange-traded funds:

	15 percent	Vanguard Growth Vipers (VUG) - big growth stocks
	5 percent	Vanguard Value Vipers (VTV) - big value stocks
	7 percent	Vanguard Small-Cap Growth Vipers (VBK)
	3 percent	Vanguard Small-Cap Value Vipers (VBR)
	10 percent	Vanguard European Vipers (VGK)
	10 percent	Vanguard Pacific Vipers (VPL)
	10 percent	Vanguard Emerging Market Vipers (VWO)
	20 percent	Vanguard REIT Vipers (VNQ)
	20 percent	iShares Lehman 20+ Year Treasury Bond Fund (TLT)

At Foliofn, you don't have to fiddle with the number of shares. Instead, use the firm's "Window Trading." You direct the firm the amount of (SET ITAL) money (END ITAL) you want to buy or sell of each security. Twice a day, the purchases and sales of all Window-Trading customers are pooled, with the orders executed as a group. Foliofn allocates fractional shares, making the transactions come out to the penny.

You pay nothing extra for this; Window Trading is covered by the $199 annual fee. True, you can't pick the exact time of day to trade. (Doing so would cost $14.95 per trade.) But if you hold your securities for many years, as you should, the time of day you bought them won't matter one bit.

You can of course use Foliofn for IRAs or regular accounts. Visit www.Foliofn.com or call 888-973-7890. You'll have the same good results Vanguard index funds would provide, even if you start with less than $100,000.