Author Topic: 30 year old just starting out -- all VTSAX, or bonds as well?  (Read 9294 times)

dlatte

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30 year old just starting out -- all VTSAX, or bonds as well?
« on: January 08, 2014, 01:02:39 PM »
I'm 30 years old, and just beginning to invest (better late than never, right?)

I have $11k in a Roth IRA that's been making 1% or so for the past 5 years (I never said I was smart), and I just opened up a Roth IRA with Vanguard to roll it into. I'm able to contribute approx $500 monthly on top of my initial investment, and have a 12 month goal of raising my income enough (self employed) to pay all the bills and invest my wife's entire income (she makes roughly $35k a year).

Should I buy VTSAX and be in stocks 100%, or add some bonds as well? I read that Jack Bogle says you should have roughly your age in bonds, but others say that's a bit too conservative, and I'm just not sure what to think.

Frankies Girl

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #1 on: January 08, 2014, 01:31:47 PM »
You should have what you feel comfortable with risk-wise.

To go all in (100% stocks), you need to understand and be okay with riding out the ups and downs and understand that the market is volatile in the short term... but it does trend up over the long term. You need to know that you won't panic when the market drops 10 or 20 points in a day and start selling.

If you get that you're investing for long term (20 years from now and up) then you can look at the day to day or even year to year fluctuations as a small part of your loss/gain cycle. The market can drop suddenly, and it may take a year or two to recover. If you think you can leave things alone (and even see the drops as an investing opportunity) then you probably will be okay going all in.

If you don't think that you can be comfortable with that level of risk, then you need to figure out your level of comfort - whether that is "your age in bonds" or what - the thing is to do the research on how the market basically works, what your goals are and what you feel good about doing.

http://jlcollinsnh.com/stock-series/
^ good place to start

And 30 is a good age to start learning and taking an active interest in investing. Sure 20 is even better, but you're still quite young, and I'd say that is really smart.

If I was just advising myself, then I'd say "sure, go 100% VTSAX" but then again, if you'd asked me that even 2 years ago, I'd have thought that was crazy, as I had little notion of how all of this stuff works. What a difference a bit of knowledge makes!

aj_yooper

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #2 on: January 08, 2014, 02:03:02 PM »
I'm 30 years old, and just beginning to invest (better late than never, right?)

I have $11k in a Roth IRA that's been making 1% or so for the past 5 years (I never said I was smart), and I just opened up a Roth IRA with Vanguard to roll it into. I'm able to contribute approx $500 monthly on top of my initial investment, and have a 12 month goal of raising my income enough (self employed) to pay all the bills and invest my wife's entire income (she makes roughly $35k a year).

Should I buy VTSAX and be in stocks 100%, or add some bonds as well? I read that Jack Bogle says you should have roughly your age in bonds, but others say that's a bit too conservative, and I'm just not sure what to think.

Welcome!

Like Frankies Girl said, you are smart to be starting now and your goal of living on one income is awesome.  Good move on using Vanguard too.  The past is a part of your education. 

First thought is:  What is your marginal tax bracket?  http://www.forbes.com/sites/kellyphillipserb/2013/01/15/irs-announces-2013-tax-rates-standard-deduction-amounts-and-more/

If you are in the 15% tax bracket, IMO, you are good doing a Roth as it gives you a lot of flexibility and no future taxes ever.  However, you might be better off doing a traditional IRA, 401k/403b, SEP vs. a Roth if you are in the 25% or higher bracket.  For example, if your joint income is $100k filing jointly, you get a standard deduction of $12,200 and itemized deductions of 2*$3,900 for a total of $20k, so your taxable income is $80k (25% marginal tax rate level).  By doing traditional IRAs or 401k/403b/SEP of at least $7,500 you are now in the 15% tax bracket and have saved $750 from income taxes.  This is important since most people retire in the 15% tax bracket (married with gross income of <$92,500.  If you buy a Roth when you are in the 25% bracket and retire in a lower bracket, you have lost out on taxes, assuming they stay at about the same as current schedules. 

Since you are new to investing, I would read up at the Bogleheads' site for a wealth of sound advice:  http://www.bogleheads.org/wiki/Bogleheads_investing_start-up_kit  I also like Rick Ferri's book Asset Allocation for a similar look at investing-he is a Boglehead too. 

Best wishes.






hoppy08520

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #3 on: January 08, 2014, 05:56:35 PM »
Why only a US total stock market index fund? Why no international? Since this is in an IRA, I'd go with a Target Date fund or LifeStrategy to have a more diversified and slightly less diversified volatile portfolio.

As for why bonds, here's a really good recent thread on Bogleheads on this topic. I hope it's not bad form to link to other sites.

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=129991

This is also a good thread:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=97444

I think you could do a lot worse than putting your money into LifeStrategy Growth, which is:

1   Vanguard Total Stock Market Index Fund Investor Shares   56.4%
2   Vanguard Total International Stock Index Fund Investor Shares   23.7%
3   Vanguard Total Bond Market II Index Fund Investor Shares*   15.9%
4   Vanguard Total International Bond Index Fund Investor Shares   4.0%

That first fund is the same as VTSAX.

If 20% bonds is too much, then pick the 2050 Target Date fund which is 90% stocks, 10% bonds.
« Last Edit: January 08, 2014, 08:14:36 PM by hoppy08520 »

Grateful Stache

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #4 on: January 08, 2014, 07:44:06 PM »
Why only a US total stock market index fund? Why no international? Since this is in an IRA, I'd go with a Target Date fund or LifeStrategy to have a more diversified and slightly less diversified portfolio.

+1 on this, especially as you get your feet wet. The Vanguard 2035 has a nice mix of domestic and international equities, as well as bonds. Pick a higher or lower target date depending on your risk tolerance. As you get more educated, you can branch out with further diversification.

Cheers and good luck.

mandies

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #5 on: January 09, 2014, 07:05:38 AM »
My husband and I just started at 34/35 respectively, so we're even more behind than you are, so don't feel bad. We actually used this calculator a lot:

https://personal.vanguard.com/us/funds/tools/recommendation

We aimed for 10% bond exposure currently, and will move up as we get older. We are at least 15 years from FI due to my nonprofit salary and the fact that my husband stays at home with the kids.

We are currently at Vanguard only invested in two funds currently: VTSAX and VGTSX (US Total Stock Market and International Total Stock Market) across our three accounts -- rollover IRA, and two Roths -- with about a 60/30 split because the International has a higher expense ratio.

If we are able to pull together extra money for a cash investment account, we'll use one of the LifeStrategy funds to reduce volatility because we'd like for that to make some income, but we're planning to use that money likely in 10 years to buy a second property for renting or just downsizing and selling our current home.

I don't get a choice for where to direct my 403b contributions at work, but they have a whopping 12% match. The downside is that they are creating and managing their own funds and have higher expense ratios (0.3-0.9%) We put all of our bond exposure over there, because their bond fund was only 0.35%.


RhythmKats

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #6 on: January 09, 2014, 09:34:21 PM »
I'm not sure if you're implying you'd like to invest approx $500 monthly into your rollover IRA or if you'd like to invest $500 monthly in various accounts. Be aware that investing $500 monthly into an IRA would put you over the $5500 limit for the year. However, you and your wife could each have your own IRA and contribute $5500 each. I'm by no means an expert, so if I'm incorrect, I hope someone will jump in.

wtjbatman

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #7 on: January 10, 2014, 07:07:45 AM »
We are currently at Vanguard only invested in two funds currently: VTSAX and VGTSX (US Total Stock Market and International Total Stock Market) across our three accounts -- rollover IRA, and two Roths -- with about a 60/30 split because the International has a higher expense ratio.

I wouldn't go any more international than that anyway, a lot of the U.S. stock market has companies that do business internationally. A company that is U.S. based that gets 40% of their profits overseas still "counts" as a 100% U.S. equity. Just food for thought when planning your AA.

kyleaaa

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Re: 30 year old just starting out -- all VTSAX, or bonds as well?
« Reply #8 on: January 10, 2014, 11:02:15 AM »
You might be better off in one of the Lifestrategy or Target Retirement funds in the intermediate-term while you learn more about investing.