Author Topic: Help with 401k (Vanguard Funds)  (Read 805 times)

WanttoFIRE

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Help with 401k (Vanguard Funds)
« on: June 11, 2018, 09:30:17 AM »
Hi all,

Would really appreciate some advice.

Age: 24
Would like to be 100% stocks, no exposure to reits, and would like to keep things simple
18,500 Contribution

Option 1:
70% VTSAX
20% VTMGX
10%VEMAX

Option 2:
70% VTSAX
30% VTIAX

Any other suggestions would be greatly appreciated, but I figured I would start there!

RWD

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Re: Help with 401k (Vanguard Funds)
« Reply #1 on: June 11, 2018, 09:46:56 AM »
I personally prefer VTSAX + VTIAX (Option 2)

nereo

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Re: Help with 401k (Vanguard Funds)
« Reply #2 on: June 11, 2018, 10:02:34 AM »
Both of your options are 70/30 US:International.
Option 1 exposes you to more emerging markets, which can be a good and a bad thing - explosive growth is more likely there but so is corruption, hyper-inflation and someone overthrowing the government. Generally they are still 'developing' for a reason.

Option 2 is the more stable one.  Personally it's what I would chose, mostly becsuse it is simpler and I don't see option 1 as adding a whole lot to justify the added fund.

Added note:  Realize that a good chunk of hte revenue from companies in the VTSAX is already derived from overseas.  As such your 'international exposure' may in practice be much greater than 30%. Just food for thought...

PDXTabs

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Re: Help with 401k (Vanguard Funds)
« Reply #3 on: June 11, 2018, 01:12:31 PM »
Do you have access to VTWSX? VTWSX would certainly be a very simple way to invest in a world stock market index fund.

robartsd

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Re: Help with 401k (Vanguard Funds)
« Reply #4 on: June 11, 2018, 01:46:39 PM »
VTWSX would certainly be a very simple way to invest in a world stock market index fund.
Yes, but the expense ratio is higher (0.19% - no admiral class version). OP's listed options each work out to expense rations of about 0.06%. Option 1 has the lowest expense ratio overall (though the difference between option 1 and option 2 is a basically rounding error (~0.005%). Assuming $100,000 invested (minimum for 10% to buy Admiral shares) that's at least $130/yr saved by managing a few funds rather than choosing VTWSX. Would that simplicity be worth $130/yr for every $100k invested? Certainly wouldn't be worth it to me.

@WanttoFIRE are these funds actually available in your 401k plan? (Most plans have institutional shares rather than investor/admiral shares.)

Aggie1999

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Re: Help with 401k (Vanguard Funds)
« Reply #5 on: June 11, 2018, 02:00:39 PM »
OP: If you have a decent tax burden, put international in taxable accounts. Put US in tax-advantaged accounts. At a certain point, the foreign tax credit makes it more beneficial to have international in a taxable account. Of course assuming you are in the US.

nereo

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Re: Help with 401k (Vanguard Funds)
« Reply #6 on: June 11, 2018, 02:33:41 PM »
VTWSX would certainly be a very simple way to invest in a world stock market index fund.
Yes, but the expense ratio is higher (0.19% - no admiral class version). OP's listed options each work out to expense rations of about 0.06%. Option 1 has the lowest expense ratio overall (though the difference between option 1 and option 2 is a basically rounding error (~0.005%). Assuming $100,000 invested (minimum for 10% to buy Admiral shares) that's at least $130/yr saved by managing a few funds rather than choosing VTWSX. Would that simplicity be worth $130/yr for every $100k invested? Certainly wouldn't be worth it to me.

@WanttoFIRE are these funds actually available in your 401k plan? (Most plans have institutional shares rather than investor/admiral shares.)

It certainly could be an important consideration down teh road, but presently the OP has $18,500.  That's $24/year or $2/mo.   Maybe that extra cost is worth the simplicity to the OP, maybe it's not.  Given how much Vanguard (and other disctoun brokerages) have changed in the last 10 years I wouldn't count on these expense ratios remaining static for another decade+.

Rocketman

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Re: Help with 401k (Vanguard Funds)
« Reply #7 on: June 11, 2018, 03:03:35 PM »
One other point look at:
VTI
VXUS
BND
These are vanguard EFT’s of basically the same thing as the vanguard mutual funds. I believe eft’s are a little better for tax efficiency reasons.

One

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Re: Help with 401k (Vanguard Funds)
« Reply #8 on: June 11, 2018, 03:14:08 PM »
75%VIGRX
25%VFINX

You're young so you can take more risk.  Adjust when older, would be nice if you could do the etf voo and vug because lower expense ratio

robartsd

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Re: Help with 401k (Vanguard Funds)
« Reply #9 on: June 11, 2018, 05:19:58 PM »
It certainly could be an important consideration down teh road, but presently the OP has $18,500.  That's $24/year or $2/mo.   Maybe that extra cost is worth the simplicity to the OP, maybe it's not.  Given how much Vanguard (and other disctoun brokerages) have changed in the last 10 years I wouldn't count on these expense ratios remaining static for another decade+.
OP listed contributing $18500, but made no mention of balance or employer match, so we don't know how much of an investment is being talked about. It may be different in this 401k plan but Admiral shares in my IRA account require $10,000 minimum, so investing 10% of a portfolio in VEMAX would require the portfolio value be at least $100,000.

If OP is starting from 0, contributing $18,500, and is subject to the $10,000 minimums, then I'd recommend starting with 100% VTSAX right now. To get desired international stock exposure, move to 70% VTSAX, 30% VTIAX upon passing $33,333 next year then consider the 70-20-10 mix once past $100,000 invested.

WanttoFIRE

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Re: Help with 401k (Vanguard Funds)
« Reply #10 on: June 12, 2018, 08:40:39 AM »
Thanks all! All of the funds are admiral shares. I decided to go with Option 2, the 70/30 split. Great point about the foreign tax credits, once I have a larger tax burden I will consider this.

MustacheAndaHalf

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Re: Help with 401k (Vanguard Funds)
« Reply #11 on: June 12, 2018, 08:44:45 AM »
Vanguard and Fidelity both have 10% bonds for people saving a long time until retirement.  Both have expertise, a level of retirement assets (billions) and legal responsibility that provide a more trustworthy source of information than anything I could say.

But if you won't do that, at least consider 5% bonds.  5% bonds won't impact returns noticably, but it will get you in the habit of rebalancing.  Selling high and buying low isn't the normal behavior in the stock market, and it only gets harder the longer you wait to start practicing it.