Author Topic: Double checking my choice for Vanguard  (Read 1589 times)

dragonwalker

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Double checking my choice for Vanguard
« on: January 11, 2018, 12:47:20 AM »
I'm trying to run this by the community before making a final commitment to my choice to put money into Vanguard's 500 Index Admiral Fund (VFIAX). A little background:

Current 401K balance: $101K (S&P 500 Index fund)
Apple stock: $42,500
Citibank stock:$10,000
Savings: $156K

Income: $60K
401K savings rate (roth 401K): 10%
Rent: $538/month Los Angeles, CA
Age:29

I don't have any short term plans for the money. Longer term time horizon I am looking for a good opportunity to purchase a primary residential property however I am becoming less optomisitic about his happening any time soon. For the last 6 months I have been holding my cash anticipating a market correction that has not yet come. I've resolved to now invest this cash for the long term even if the market crashes tomorrow. I am now looking to take $130K of my savings and put it into the VFIAX. I want to get some feedback about if this is sensible at this time. Is there a similar low cost index fund I am not considering. I do beleive the Vanguard funds are considered quite favorably on here.     

londonstache

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Re: Double checking my choice for Vanguard
« Reply #1 on: January 11, 2018, 03:57:19 AM »
I think the decision to move a large amount of cash into investment is a good idea in general,  although I'd suggest if your horizon for purchasing property is less than 5 years you may not be well served putting it in the market. I'd be tempted personally to make the cash holding $30k as well but depends on how much you want to hold and your projected emergency costs.

What is the logic behind holding $52.5k in 2 stocks? This seems to be a high-risk move to me.

TomTX

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Re: Double checking my choice for Vanguard
« Reply #2 on: January 11, 2018, 05:46:33 AM »
Nothing wrong with that choice. Personally, I prefer VTI as it is broader and more portable.

I also question the stock picking.

dragonwalker

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Re: Double checking my choice for Vanguard
« Reply #3 on: January 11, 2018, 08:53:30 AM »
The funny thing about the Apple and Citibank stock is that they were shares I bought years ago. Initially I had bought $60K worth of Apple stock that appreciated to about $100K and then I sold off more than 2/3 and now it's grown back again. Same thing with the Citibank shares. In the recent years they have grown so quickly as to become singly a large share of my total. I'm not sure if I should sell some more. In particular I'm thinking of selling off the Citibank at some near point in the future.

MustacheAndaHalf

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Re: Double checking my choice for Vanguard
« Reply #4 on: January 11, 2018, 09:45:54 AM »
Most people are blind to opportunity cost - they see their own money grow, but don't know about other ways they could invest.  I'll take AAPL for example.

It's grown great the past 5 years!  Averaged 19.8% a year!
But... the S&P 500 has grown great the last 5 years!  Averaged 19.8% a year!

You've put most of your portfolio into one tech company, while in this case people investing in 500 of the largest U.S. companies got the same return with less risk.  So ease away from single stock picking, and give passive indexing a try.

RookieStache

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Re: Double checking my choice for Vanguard
« Reply #5 on: January 11, 2018, 11:15:39 AM »
Interesting how different financial forums have different views.

I am in a similar situation to you Dragon with the major differences being: I own a house and your stock values are much higher and you have an unbelievably high amount sitting there in savings (Hence your post).

I posted the following over in Bogleheads exactly one year ago:
Married (Wife works full time / lower salary)
Salary: $55,000  (Low cost of living area)
Roth 401K: 10%
HSA: $62.50 a week
529:$25 a week
Roth IRA: Max $5,500 annually
VTSMX: $50 a month
Fixed 15 year house loan: 12 years left
Car Payment - $350 a month for 3 more years (I know, a new car... We wanted a reliable, safe care with a child on the way a couple years ago).

I had $4,000 saved up (after 6 month emergency fund) and asked about putting this money in Vanguard index funds and starting to contribute a minimal amount ($50) each month to start building it up.

I got hammered over there by the majority of posters saying never to put any money in taxable accounts until 401K is maxed. No matter what my response was, they always came back to max your 401K first.

Here's my issue with this: We aren't in the position to max out my 401K right now and most likely won't be for quite a while with the wife wanting kids 2 and 3 to be showing up shortly and everything else we are investing in. I've always had my checking accounts be lean as I want my money working for me but to put it all in a 401K and not have any of it until i'm 60 seems a bit silly to me. I'd rather build up taxable accounts and use this money in 20-25 years (if needed) to pay for schooling, weddings, vacations, emergencies, instead of putting all my eggs in one basket (401K).

How do you all feel about maxing out 401K before looking at any other investments?

dragonwalker

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Re: Double checking my choice for Vanguard
« Reply #6 on: January 11, 2018, 11:49:49 AM »
I'm in agreement with you here on the hesitation on maxing out the 401K contributions. I really do like the added flexibility of the extra cash to invest in other ways and besides my company S&P 500 Index fund cost is slightly higher than Vanguards as well so that is another advantage and if I'm contributing to a Roth 401K I don't see the big loss of taking that same money I'm not putting into the 401K and into the Vanguard brokerage account like VFIAX or VTSAX.

sherr

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Re: Double checking my choice for Vanguard
« Reply #7 on: January 11, 2018, 11:56:12 AM »
I got hammered over there by the majority of posters saying never to put any money in taxable accounts until 401K is maxed. No matter what my response was, they always came back to max your 401K first.

Here's my issue with this: We aren't in the position to max out my 401K right now and most likely won't be for quite a while with the wife wanting kids 2 and 3 to be showing up shortly and everything else we are investing in. I've always had my checking accounts be lean as I want my money working for me but to put it all in a 401K and not have any of it until i'm 60 seems a bit silly to me. I'd rather build up taxable accounts and use this money in 20-25 years (if needed) to pay for schooling, weddings, vacations, emergencies, instead of putting all my eggs in one basket (401K).

How do you all feel about maxing out 401K before looking at any other investments?

If you're planning on working the entire time and not ever changing companies then I'd say you have a point. If you withdrew money from your Roth 401k then you would have to pay an early-withdrawal penalty on the portion due to earnings (withdrawals from Roth 401ks are considered proportional contributions / earnings, the contributions you can withdraw without taxes / penalties, the earnings you have to pay taxes / penalties on if you withdraw early. Taxes are the same with regular old taxable accounts, so only the penalty on earnings is different).

If you ever do change companies or you decide to Retire Early then you have less of one. What you would do in that case is roll your Roth 401k into a Roth IRA. With Roth IRAs when you withdraw you are withdrawing 100% contributions until they run out, and only then start withdrawing earnings. So if you rolled it over you'd have every dollar you put in available tax-and-penalty-free, and only have to not touch the earnings.

grantmeaname

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Re: Double checking my choice for Vanguard
« Reply #8 on: January 13, 2018, 02:19:21 AM »
Interesting how different financial forums have different views.

I am in a similar situation to you Dragon with the major differences being: I own a house and your stock values are much higher and you have an unbelievably high amount sitting there in savings (Hence your post).

I posted the following over in Bogleheads exactly one year ago:
Married (Wife works full time / lower salary)
Salary: $55,000  (Low cost of living area)
Roth 401K: 10%
HSA: $62.50 a week
529:$25 a week
Roth IRA: Max $5,500 annually
VTSMX: $50 a month
Fixed 15 year house loan: 12 years left
Car Payment - $350 a month for 3 more years (I know, a new car... We wanted a reliable, safe care with a child on the way a couple years ago).

I had $4,000 saved up (after 6 month emergency fund) and asked about putting this money in Vanguard index funds and starting to contribute a minimal amount ($50) each month to start building it up.

I got hammered over there by the majority of posters saying never to put any money in taxable accounts until 401K is maxed. No matter what my response was, they always came back to max your 401K first.

Here's my issue with this: We aren't in the position to max out my 401K right now and most likely won't be for quite a while with the wife wanting kids 2 and 3 to be showing up shortly and everything else we are investing in. I've always had my checking accounts be lean as I want my money working for me but to put it all in a 401K and not have any of it until i'm 60 seems a bit silly to me. I'd rather build up taxable accounts and use this money in 20-25 years (if needed) to pay for schooling, weddings, vacations, emergencies, instead of putting all my eggs in one basket (401K).

How do you all feel about maxing out 401K before looking at any other investments?

You may have gotten hammered over at Bogleheads because you were missing a key point that underlies the standard advice to fill your tax-advantaged space before investing in a taxable account. This sticky explains in detail how you can use money from a traditional IRA/401(k) before standard retirement age with no or minimal tax burden.