Author Topic: Putting to many eggs in one basket??  (Read 1187 times)

SDH

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Putting to many eggs in one basket??
« on: July 24, 2017, 09:49:05 PM »
We really need some advice, I'm sure I've asked this before somewhere, but can't remember for sure!   So we are married couple in our 40's and both have Roth ira's that are being transferred from American funds to Vanguard...still waiting...  I know we should change the allocations to one with better fees so was thinking of target date funds OR 60/40 or maybe 70/30 stock/bond into VTSAX and not sure about bond fund (VBLTX?or VBIAX?)I'm aware of the minimums for these so with the transfer of IRA $$ it will be enough to get into these admiral shares

I'm not sure which funds to use and if we should both put our IRA's in the same funds or put mine in XYZ and his in a different set.  Because wouldn't that be like putting all our eggs in one basket?  We also want to open a taxable account with similar allocation splits.  Should those also be different than the IRAS?  I'm thinking, since I'm so ignorant to these things and the more I read the more confused I get, that maybe we should just do 2 different target date funds like we have in the 401K.  And for the taxable act do VTSMX (since I don't have 10K to put in VTSAX for the taxable account) and the "equivalent" bond account, not sure what that is but something that has like a 1K open amount.  Thanks for any direction and input

Frankies Girl

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Re: Putting to many eggs in one basket??
« Reply #1 on: July 24, 2017, 11:02:54 PM »
If you invest in index funds (whether they are stock indexes or bond indexes) they are about as diversified as you can get. That is the nature of an index fund - it has literally hundreds, if not thousands of traded companies in their holdings. Index investing tracks the basic market, so you'll never make the crazy highs that some non-index funds might shoot upwards to, but you'll also never have them fail and take every dime you invested with it.

For instance, VTSAX tracks the CRSP Total Market Index, which is nearly 4,000 constituents across mega, large, small and micro capitalizations, representing nearly 100% of the U.S. investable equity market.

And the big thing about index funds are they are self cleansing. If a company fails, it drops out of the index fund's holdings and is replaced with an up and coming company. Index funds will fluctuate with the market ups and downs, but the chances of and index fund itself (like any of Vanguard's offerings) failing completely is so far outside of the chance of happening as to be virtually impossible. Okay, sure, it could happen, but only in a case where the entire stock market melts down and in the event of that occurring, you'll have bigger issues to worry about than what happened to your investments.

If you are married, you should consider your and your spouse's investments as a collective. A couple of IRAs, maybe 2-4 work related accounts like 401Ks or 403Bs... but they are parts of a whole. You have a portfolio made up of several buckets, but they'll all get poured into the same place, so you place the funds you like into them with an eye towards meeting your total asset allocation in the most efficient way.

As it does sound like you're missing some of the basic points of how to invest and what investments are and how the market actually works, I'd suggest you read Jim Collins' stock series (free to read through at the link), or check out his book (based on his website) "The Simple Path To Wealth" available here: http://jlcollinsnh.com/stock-series/

You should be able to understand the following after reading all of that.

Next, you'd write an investment policy statement. This is your guidelines for what to do and how you will do it.

With your IPS written, you then figure out what asset allocation you are comfortable with. If it is as simple as a 70% stock, 30% bond, then you set that up across ALL of your accounts - IRAs, 401Ks, taxable accounts - but do so in to manage the funds so they are in the accounts that are tax-efficient for the fund placement. So hold the bond index funds inside the tax advantaged accounts like a IRA or 401K, and fill up any other space in the accounts that are left with your stock index funds. Since they tend to operate the most tax efficiently, it doesn't matter as much which account they go in.

https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

You don't have to do a 70/30 split in each account, and you don't have to hold completely different funds in each account. If you want to be an index investor and like two funds, like say Vanguard's VTSAX for stocks and VBTLX for bonds, you can hold just those two across all your accounts to equal your asset allocation. Again, as they are index funds, you are in no real danger of them disappearing or failing. It sounds simple, and that's how it should be, but lots of advisers out there create complicated 20-40 (or more) fund portfolios to make it look like they are super intelligent and investing is too complicated and scary. And that is the purpose - to scare the crap out of Average Joe - how can investing be so simple if the guy I was using had me in 24 funds? I can't invest in just 2 (3,4) funds and be safe - that can't be right! (but it is!)

I hold a 3 fund (index) portfolio across 7 different accounts. I have the bonds in the tax advantaged accounts like an IRA or 401k. The exact amounts of how much of each fund are in what accounts is not remotely important; what is important is that I filled my asset allocation in the most tax efficient manner possible.

That sounds sort of confusing typing it out, but I do think if you read the links provided (and of course ask more questions if you run into anything) you'll get it figured out pretty fast. The Collins series is instrumental to understanding how it all works together, and it's a great read to boot.
« Last Edit: July 24, 2017, 11:04:59 PM by Frankies Girl »
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runewell

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Re: Putting to many eggs in one basket??
« Reply #2 on: July 25, 2017, 06:15:59 AM »
Keep in mind you can accomplish the same thing with ETF's (as opposed to mutual funds) and you don't need to meet any $ minimum with those.
On the Vanguard site it says that exchange-traded fund VTI is equivalent to mutual fund VTSAX.  BLV = VBLTX, etc.
« Last Edit: July 25, 2017, 06:26:11 AM by runewell »
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SDH

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Re: Putting to many eggs in one basket??
« Reply #3 on: July 25, 2017, 10:16:14 PM »
Thank you guys for the excellent response.  Frankie's Girl, you really clarified some points for me, thank you! 
As for the ETF, if I wanted to go online and open an account like right now, even though my IRA accounts haven't all transferred yet to Vanguard, I could just open an ETF with a few hundred dollars?  Will it ever auto move to admiral shares after you reach that 10K mark?  And why is that important?  Lower fees, I presume? 

runewell

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Re: Putting to many eggs in one basket??
« Reply #4 on: July 26, 2017, 08:05:58 AM »
Thank you guys for the excellent response.  Frankie's Girl, you really clarified some points for me, thank you! 
As for the ETF, if I wanted to go online and open an account like right now, even though my IRA accounts haven't all transferred yet to Vanguard, I could just open an ETF with a few hundred dollars?  Will it ever auto move to admiral shares after you reach that 10K mark?  And why is that important?  Lower fees, I presume?

VTSAX (the mutual fund) and VTI (the ETF) both have an expense ratio of 0.04% so no difference there.  The main difference is going to be a commission you pay when you buy and sell the ETF.  (Possibly a miniscule bid/ask spread also).  I don't pay commissions through my brokerage at all so I go the ETF route.

VTSAX requires $10K while there is an investor class that requires $3K and has an expense ratio of 0.15%.  That should be fine too.  That extra 0.11% of expense ratio on a $3,000 investment is $3.30 which is peanuts. 
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Double Yu

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Re: Putting to many eggs in one basket??
« Reply #5 on: July 26, 2017, 08:21:22 AM »
Thank you, Frankies Girl! That was a concise and very clear beginner's guide - something I really need as I'm floundering in the investments department. I've been looking at Bogleheads over the last few weeks, but your explanation here made a lot of sense to put all their info into context.
Why, yes I AM all over the map!

SDH

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Re: Putting to many eggs in one basket??
« Reply #6 on: July 26, 2017, 08:53:05 AM »
Thank you guys for the excellent response.  Frankie's Girl, you really clarified some points for me, thank you! 
As for the ETF, if I wanted to go online and open an account like right now, even though my IRA accounts haven't all transferred yet to Vanguard, I could just open an ETF with a few hundred dollars?  Will it ever auto move to admiral shares after you reach that 10K mark?  And why is that important?  Lower fees, I presume?

VTSAX (the mutual fund) and VTI (the ETF) both have an expense ratio of 0.04% so no difference there.  The main difference is going to be a commission you pay when you buy and sell the ETF.  (Possibly a miniscule bid/ask spread also).  I don't pay commissions through my brokerage at all so I go the ETF route.

Thank you!  So my thoughts are but our Roth $$ into the VTSAX and a bond (VBTLX??) and then since I don't have several thousand to open a taxable account, I could do the 2 you mentioned (for ex) with just a few hundred dollars...then when I get to the 3k mark I could switch it vtsmx...then on to vtsax,,?

VTSAX requires $10K while there is an investor class that requires $3K and has an expense ratio of 0.15%.  That should be fine too.  That extra 0.11% of expense ratio on a $3,000 investment is $3.30 which is peanuts.

SDH

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Re: Putting to many eggs in one basket??
« Reply #7 on: August 11, 2017, 08:04:13 PM »
Is anyone still here to listen to my ramble?  Ok, I've got most of the accounts opened and situated.  Is it ok if I lay it all out here to get some feedback?  I've read the links, Read JL collins book, still listening to podcast etc.  I think I get it, but then the Real estate throws me off as far as our overall assets as a % of our total.  Maybe I should just look at these accounts only since I'm not really planning on the real estate to help out that much overall..at least not in the next 5 years when I'd like to think we can retire. Maybe a grand a month...What it does provide is a lot of equity when we sell...may consider this sooner than later (at least 1 hs) but I'm not sure if it's a good plan or not. We'll have to determine that as time progresses and we see where we are between now and 5 years. I wonder if it would help us more to go ahead and sell though...so many questions regarding this.  The property taxes here are so high...but anyways, I'll continue to work through this

Here's what I got going on:

401K- 90S/10B is the listed Asset class ~$250K

Roth IRA's x2 both at 75 VTSAX/ 25 VBTLX  both maxed out this year already ~$110K

I have another ~6500 in a mutual fund money market account that I thought we should put into more index funds but not sure if I should just stick with the VTSAX by way of a taxable account.

Cash in savings acct ~14K

Also, Im a 1099 employee...what are you guys' thoughts on opening a SEP or solo 401K (not sure the difference yet) as opposed to a taxable account?  At this point I'm not sure we could fund both and SEP/401 AND a taxable account, but my understanding is that more tax deferred/efficient accounts the better.

real estate equity- ~390K


Thoughts?


MDM

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Re: Putting to many eggs in one basket??
« Reply #8 on: August 11, 2017, 10:43:45 PM »
401K- 90S/10B is the listed Asset class ~$250K

Roth IRA's x2 both at 75 VTSAX/ 25 VBTLX  both maxed out this year already ~$110K

I have another ~6500 in a mutual fund money market account that I thought we should put into more index funds but not sure if I should just stick with the VTSAX by way of a taxable account.

Cash in savings acct ~14K
That all looks reasonable.  Sure you could tweak it but there's no guarantee you could tweak it to something better.  See Tax-efficient fund placement - Bogleheads (and links therein) if you want to tweak.

Quote
Also, Im a 1099 employee...what are you guys' thoughts on opening a SEP or solo 401K (not sure the difference yet) as opposed to a taxable account?  At this point I'm not sure we could fund both and SEP/401 AND a taxable account, but my understanding is that more tax deferred/efficient accounts the better.
I think your understanding is good.

See Investment Order and Solo 401(k) plan - Bogleheads (and links therein) for more.