Author Topic: Brokerage accounts  (Read 5756 times)

OvertheRainbow

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Brokerage accounts
« on: December 27, 2015, 09:42:32 PM »
I have a Vanguard Roth that has been maxed out for 2015 and will be maxed out for next year in January. I also have a brokerage account with Vanguard. Problem is, I have nothing in it!

I am 24. No kids with a low five-figures in a savings account (getting less than 1% interest). I was wondering...what Vanguard funds should I put in my brokerage account? I have no idea. I have been looking at Vanguard's healthcare fund. It has very high returns (average of about 17% over the last thirty-one years), but that seems incredibly risky. What funds should I be looking into for a brokerage account?

Thanks!

tj

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Re: Brokerage accounts
« Reply #1 on: December 27, 2015, 09:46:57 PM »
Low 5 figures? Open a couple NetSpend prepaid cards and get 5% instead of 1%.

http://thefinancebuff.com/netspend-5-percent-savings-account.html


MDM

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Re: Brokerage accounts
« Reply #2 on: December 27, 2015, 11:08:56 PM »
Vanguard's healthcare fund ... has very high returns (average of about 17% over the last thirty-one years)....
And it might continue to outperform the overall market.  Or it might not.  It will be easy to explain why either happened - after it does.

Other than that (or any other sector fund), good cases can be make for either VTSAX or VTTSX.  Pros and cons for each, but hard to argue seriously against either.

thedayisbrave

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Re: Brokerage accounts
« Reply #3 on: December 28, 2015, 05:39:07 AM »
What funds are you in your Roth?

You should look at the total picture (all your accounts as one).  Read about asset allocation, risk levels, etc.  Most would say at your age, don't hold bonds but if that means you'll panic if your portfolio loses value on paper -- you might want to consider some bonds to smooth out the volatility.

General advice is Vanguard Total Stock or S&P500, with about 20-40% international.

Also, google "Bogleheads wiki".  Lots of good stuff there.

OvertheRainbow

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Re: Brokerage accounts
« Reply #4 on: December 28, 2015, 06:35:22 AM »
@thedayisbrave,

I have Target Retirement of 2050 in my portfolio. It is 90% stocks and 10% bonds. I am thinking of adding Wellington or Wellesley into my Roth as well.

thedayisbrave

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Re: Brokerage accounts
« Reply #5 on: December 28, 2015, 01:11:28 PM »
@thedayisbrave,

I have Target Retirement of 2050 in my portfolio. It is 90% stocks and 10% bonds. I am thinking of adding Wellington or Wellesley into my Roth as well.

Why?

OvertheRainbow

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Re: Brokerage accounts
« Reply #6 on: December 28, 2015, 09:24:37 PM »
@thedayisbrave,

I have Target Retirement of 2050 in my portfolio. It is 90% stocks and 10% bonds. I am thinking of adding Wellington or Wellesley into my Roth as well.

Why?

To add more bonds and stability to my portfolio.

thedayisbrave

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Re: Brokerage accounts
« Reply #7 on: December 29, 2015, 05:15:36 AM »
You already have 10% bonds.. why not just add more of those bonds instead of mixing in a whole fund with a whole nother asset allocation?

Not trying to be pedantic here but hoping my questions will spark some learning :)

Basically, there's going to be a lot of overlap between your Target date fund and Wellington/Wellesley.  It doesn't make sense to hold both -- it'll just overcomplicate your portfolio unnecessarily.

Target date funds are great... they're made to be "set it and forget it."  If you really want to save a few basis points in expenses, you can hold the component parts separately.. aka total stock, total international and total bond.  But you really don't have to - that's the  beauty of it :)

justchristine

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Re: Brokerage accounts
« Reply #8 on: December 29, 2015, 11:54:15 AM »
@thedayisbrave,

I have Target Retirement of 2050 in my portfolio. It is 90% stocks and 10% bonds. I am thinking of adding Wellington or Wellesley into my Roth as well.

Why?

To add more bonds and stability to my portfolio.

If you want to continue with the set it and forget it of a Target date fund but want more bond exposure, then pick an earlier target date.  the 2045 or 2040 would have more bonds.

OvertheRainbow

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Re: Brokerage accounts
« Reply #9 on: December 29, 2015, 10:23:04 PM »
You already have 10% bonds.. why not just add more of those bonds instead of mixing in a whole fund with a whole nother asset allocation?

Not trying to be pedantic here but hoping my questions will spark some learning :)

Basically, there's going to be a lot of overlap between your Target date fund and Wellington/Wellesley.  It doesn't make sense to hold both -- it'll just overcomplicate your portfolio unnecessarily.

Target date funds are great... they're made to be "set it and forget it."  If you really want to save a few basis points in expenses, you can hold the component parts separately.. aka total stock, total international and total bond.  But you really don't have to - that's the  beauty of it :)

Thank you so much! I had been thinking of adding bonds to my portfolio only because my Target 2050 has only been losing money. Granted, the losses aren't substantial, but I was thinking maybe I need to make it more stable with a fund that is already well-known for its longevity.

That is exactly the reason I picked the Target date fund. :)

OvertheRainbow

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Re: Brokerage accounts
« Reply #10 on: December 29, 2015, 10:23:33 PM »
@thedayisbrave,

I have Target Retirement of 2050 in my portfolio. It is 90% stocks and 10% bonds. I am thinking of adding Wellington or Wellesley into my Roth as well.

Why?

To add more bonds and stability to my portfolio.

If you want to continue with the set it and forget it of a Target date fund but want more bond exposure, then pick an earlier target date.  the 2045 or 2040 would have more bonds.

That is definitely something to think about. Thanks!

MDM

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Re: Brokerage accounts
« Reply #11 on: December 29, 2015, 11:05:17 PM »
I had been thinking of adding bonds to my portfolio only because my Target 2050 has only been losing money. Granted, the losses aren't substantial, but I was thinking maybe I need to make it more stable with a fund that is already well-known for its longevity.

That is exactly the reason I picked the Target date fund. :)

Might need to check some assumptions/expectations.  E.g., take A) a portfolio with a high ratio of stocks to bonds and B) a portfolio with a high ratio of bonds to stocks.
 - Would you expect A or B to have higher long term (i.e., 20+ years) returns?
 - Along the way, would you expect A or B to have more individual years with a loss?

OvertheRainbow

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Re: Brokerage accounts
« Reply #12 on: December 29, 2015, 11:15:48 PM »
I had been thinking of adding bonds to my portfolio only because my Target 2050 has only been losing money. Granted, the losses aren't substantial, but I was thinking maybe I need to make it more stable with a fund that is already well-known for its longevity.

That is exactly the reason I picked the Target date fund. :)

Might need to check some assumptions/expectations.  E.g., take A) a portfolio with a high ratio of stocks to bonds and B) a portfolio with a high ratio of bonds to stocks.
 - Would you expect A or B to have higher long term (i.e., 20+ years) returns?
 - Along the way, would you expect A or B to have more individual years with a loss?

Well, naturally a portfolio w/stocks should have higher gains...but I am afraid of losing so much money in case of another recession. The last question...I am thinking stocks would have more individual years with loss d/t their volatility.

MDM

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Re: Brokerage accounts
« Reply #13 on: December 30, 2015, 01:00:10 AM »
Well, naturally a portfolio w/stocks should have higher gains...but I am afraid of losing so much money in case of another recession.
You are far from unique in these feelings.  And there are no guarantees - we can't prove the negative that says "the stock market will never lose money in  the long run."  But before abandoning hope, read at least the first two parts in http://jlcollinsnh.com/stock-series/.

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The last question...I am thinking stocks would have more individual years with loss d/t their volatility.
Yes.

OvertheRainbow

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Re: Brokerage accounts
« Reply #14 on: December 31, 2015, 12:31:27 AM »
Well, naturally a portfolio w/stocks should have higher gains...but I am afraid of losing so much money in case of another recession.
You are far from unique in these feelings.  And there are no guarantees - we can't prove the negative that says "the stock market will never lose money in  the long run."  But before abandoning hope, read at least the first two parts in http://jlcollinsnh.com/stock-series/.

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The last question...I am thinking stocks would have more individual years with loss d/t their volatility.
Yes.

Thank you SO much for that. I needed to read it!

MustacheAndaHalf

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Re: Brokerage accounts
« Reply #15 on: December 31, 2015, 02:42:12 AM »
I had been thinking of adding bonds to my portfolio only because my Target 2050 has only been losing money. Granted, the losses aren't substantial, ...
Morningstar shows -1.5% loss for the year ending Dec 30th.  If you're switching owing to that loss, know that bonds can also lose 2% in a year.  The answer might be to read up on investment books that feature index funds and historical data.  If you're not confident with your choice in the long-term, you could scare out of stocks at the low point each time.  Maybe you could specify the loss and time frame you incurred it?  I'm hoping it's not the 1.5% loss shown by Morningstar for the past 12 months.
« Last Edit: December 31, 2015, 02:43:43 AM by MustacheAndaHalf »

OvertheRainbow

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Re: Brokerage accounts
« Reply #16 on: January 01, 2016, 09:29:20 PM »
I had been thinking of adding bonds to my portfolio only because my Target 2050 has only been losing money. Granted, the losses aren't substantial, ...
Morningstar shows -1.5% loss for the year ending Dec 30th.  If you're switching owing to that loss, know that bonds can also lose 2% in a year.  The answer might be to read up on investment books that feature index funds and historical data.  If you're not confident with your choice in the long-term, you could scare out of stocks at the low point each time.  Maybe you could specify the loss and time frame you incurred it?  I'm hoping it's not the 1.5% loss shown by Morningstar for the past 12 months.

Well I don't understand my account. I put in the max $5500. Now it is say that as of yesterday, it is valued at 5414.15, but the current balance is 5290.17. Just today I looked up and it said there was a dividend and capital gains of around 124.97. So is it loss of 84.86 or a loss of 209.83?

MDM

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Re: Brokerage accounts
« Reply #17 on: January 01, 2016, 09:39:58 PM »
Now it is say that as of yesterday, it is valued at 5414.15, but the current balance is 5290.17. Just today I looked up and it said there was a dividend and capital gains of around 124.97.
$5,290.17 + ~$124.97 = $5,414.15

Do you have $5,290.17 in stock and/or fund shares, and ~$124.97 in cash in your account?

OvertheRainbow

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Re: Brokerage accounts
« Reply #18 on: January 01, 2016, 10:23:14 PM »
Now it is say that as of yesterday, it is valued at 5414.15, but the current balance is 5290.17. Just today I looked up and it said there was a dividend and capital gains of around 124.97.
$5,290.17 + ~$124.97 = $5,414.15

Do you have $5,290.17 in stock and/or fund shares, and ~$124.97 in cash in your account?

The 124 is in the money market fund. I didn't place it there. The other 5290.17 is the target fund of stocks and bonds. So it looks like I have lost a couple hundred bucks. Way more than 1.5 percent.

I opened this account in November.

MDM

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Re: Brokerage accounts
« Reply #19 on: January 01, 2016, 11:01:11 PM »
The 124 is in the money market fund. I didn't place it there.
Indirectly you did.  You chose (whether by intent or omission) not to reinvest dividends, etc. automatically back into the fund.  There is nothing right or wrong about that choice.  Some people prefer automatic reinvestment, others prefer to take that money and invest in other funds.  Unless you want to keep it as cash (note that with today's interest rates, "in a money market fund" = "cash") you should do something with it - if nothing else, buy more of the same fund.  Personally, I'd set it up for automatic reinvestment.  If it isn't obvious how to do so, call customer service and have someone walk you through it.

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The other 5290.17 is the target fund of stocks and bonds. So it looks like I have lost a couple hundred bucks. Way more than 1.5 percent.
Need to get your eyeglass prescription changed. :)
You have $5414.15 in that account, so it is down 1.56%.  This may appear bad, but in all seriousness this is no big deal at all.  It is not even a little deal.  It is noise.  Look at multi-year price charts: they may go up on average, but over short times they go down also.

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I opened this account in November.
So by November of 2018 you might be able to start distinguishing signal from noise in terms of fund performance.  Reread the Jim Collins series.... ;)

MustacheAndaHalf

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Re: Brokerage accounts
« Reply #20 on: January 02, 2016, 01:43:53 PM »
I think you need to find out if you can gain more confidence by reading.  The shortest investment book that I think is worth reading is "The Investment Answer" at 80 pages.  You probably know some of that book already, since you picked an index fund.  There's also longer books like "A Random Walk Down Wall Street" or one of my favorites "The Only Guide to a Winning Investment Strategy You'll Ever Need".

If you pick a new allocation and it loses money, I think you're too ready to sell and repeat the process.  Don't feel too bad about it - that's basically what the whole market does, and why brokers have more yachts than their clients.  But if you invest some time in reading, you might gain a perspective that will help you better in the long term.