The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: reformingSucka on May 14, 2018, 11:51:20 AM
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Hello! So I recently met the VTSAX fund minimum of 10K requirement my Roth IRA which had previously been 100% in a target retirement fund. Now, I've turned 100% of that into VTSAX. Did I do the better investment/ MMM approved move?
By way of some background, my Roth is small fraction of my overall portfolio.
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I don’t think you can answer that without the big picture. What is your age, when do you want to retire, and what is your target asset allocation? I believe the fees on VTSAX are lower than the target date fund, so all else being equal, cheaper is better.
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I’m 32, and my goal is to FI by 40 or eta 8 years. I had my fund in target 2060 (the furthest TF available). My fees in TF 2060 in vanguard was .14 and with VTSAX it’s .04.
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You have $10,000 saved and plan to retire in 8 years? One of us is missing something. If you have other investments, VTSAX can part of a diversified portfolio that includes international.
You might also take a look at ETFs. You can buy "VTI" in 1 share increments at $0/trade. It's the same expense ratio without a $10,000 minimum. That would also let you buy "VXUS" to get international exposure.
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You got lower fees, but you changed your asset allocation at the same time. If your previous asset allocation was right for you, this move will have unbalanced your portfolio at least slightly. Assuming the IRA had exactly $10k, you made the following changes:
US stock market: +$4,620
international stock: -$3,610
US bond: -$710
International bond: -$300
I'm going to make a wild guess and say you have 2 years of IRA contributions and no other investments. In this case, I think changing to admiral shares was a mistake, since you gave up all of your bonds and international stocks just to lower your already-low fees on domestic stocks.
However, if you have other tax-advantaged accounts (for instance, a 401(k) from your job), it might be worth undoing the change in your allocation by using that account to buy what you lost in the IRA. Personally, I manage my allocation over all my accounts combined, and let individual accounts get way off my chosen allocation as long as the total stays on target. This has some moderate advantages: I get to keep my taxable accounts heavy on VTSAX, which has low taxes. I get to make smaller accounts 100% VTSMX and switch to admiral shares as soon as they cross the $10k mark. The extra work is not bad.