Author Topic: Robo-Advisors, Index Funds, Dividends...Where to Start?  (Read 452 times)

kukrik

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Robo-Advisors, Index Funds, Dividends...Where to Start?
« on: May 09, 2019, 09:09:24 AM »
Hey All,

I have been investing off and on for some time now, with the last year it becoming a consistent thing. I am 24, so still relatively young, and just starting out in my career. I am just wondering what the advantages of using a robo advisor are, the disadvantages...if I were to stick with Vanguard only, how do I rebalance...what funds should I invest in...yeah pretty much everything. Just looking for a discussion on the various matters of investing and what I should put most of my money in. To give some background, I have used Betterment and it seems good for me because it is easy, convenient, and low fees. I understand that I could probably do the same thing it does myself if I just invested in Vanguard funds and rebalanced them myself. So how hard is this? I am interested in learning, but I also do not want financial matters to become something I am constantly thinking about (besides the basics of being frugal and saving money). Like I don't want to have to study tons just to learn where to invest my money. To me, a .25% fee is worth the freedom to do other things like be present with my family. Any thoughts?

MDM

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Re: Robo-Advisors, Index Funds, Dividends...Where to Start?
« Reply #1 on: May 09, 2019, 09:47:04 AM »
You could buy a Vanguard Life Strategy or Target Retirement Date fund to match your desired asset allocation.  The "fund of funds" does rebalancing for you.

TheHardenedInvestor

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Robo-Advisors, Index Funds, Dividends...Where to Start?
« Reply #2 on: May 09, 2019, 09:59:45 AM »
How hard is it to rebalance or buy a fund on Vanguard? Have you used Facebook, Twitter, or Amazon? Itís easier than that. You can figure it out. Just poke around on the site. Buy VTSAX or VFIAX and youíre set for life. A 0.25% fee is not worth 30 mins of learning.

Telecaster

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Re: Robo-Advisors, Index Funds, Dividends...Where to Start?
« Reply #3 on: May 09, 2019, 04:38:08 PM »
Just say no to robo-advisors. 

Rebalancing is not hard, and there is good evidence the optimum rebalancing period is measured in years.  in other words, it is not something you need to spend a lot of time doing.   


cincystache

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Re: Robo-Advisors, Index Funds, Dividends...Where to Start?
« Reply #4 on: May 09, 2019, 06:38:03 PM »
At 24 I would keep it simple and pour all extra money into VTSAX or VTWAX until you hit FI (25X annual expenses). At that point you can diversity into bonds or cash if you really want to.

kukrik

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Re: Robo-Advisors, Index Funds, Dividends...Where to Start?
« Reply #5 on: May 10, 2019, 07:54:43 AM »
At 24 I would keep it simple and pour all extra money into VTSAX or VTWAX until you hit FI (25X annual expenses). At that point you can diversity into bonds or cash if you really want to.

Thanks for everyone's advice, what I am going to do is set up a Roth IRA and a brokerage account with Vanguard and just pour all my money into index funds like VTSAX and VHYAX. Do you recommend any international market funds? REITs? I have a Fundrise account that I have a little money in just to get a feel for it. Any opinions on whether or not that is worth it?

Telecaster

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Re: Robo-Advisors, Index Funds, Dividends...Where to Start?
« Reply #6 on: May 10, 2019, 04:16:02 PM »
At 24 I would keep it simple and pour all extra money into VTSAX or VTWAX until you hit FI (25X annual expenses). At that point you can diversity into bonds or cash if you really want to.

Thanks for everyone's advice, what I am going to do is set up a Roth IRA and a brokerage account with Vanguard and just pour all my money into index funds like VTSAX and VHYAX. Do you recommend any international market funds? REITs? I have a Fundrise account that I have a little money in just to get a feel for it. Any opinions on whether or not that is worth it?

Skip the VHYAX.   Portfolio construction is a black art, and there are a lot of things to think about.    At your age, just go with VTSAX and maybe 10% international if you like.   That will give you time to read up on things and make an informed decision.   

Indexer

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Re: Robo-Advisors, Index Funds, Dividends...Where to Start?
« Reply #7 on: May 10, 2019, 05:07:08 PM »
At 24 I would keep it simple and pour all extra money into VTSAX or VTWAX until you hit FI (25X annual expenses). At that point you can diversity into bonds or cash if you really want to.

Thanks for everyone's advice, what I am going to do is set up a Roth IRA and a brokerage account with Vanguard and just pour all my money into index funds like VTSAX and VHYAX. Do you recommend any international market funds? REITs? I have a Fundrise account that I have a little money in just to get a feel for it. Any opinions on whether or not that is worth it?


If you are just starting out it might be hard to build a diversified portfolio using the big funds like VTSAX since they each have a 3k minimum.

Option 1: Use a Target Retirement or LifeStrategy fund. The min is $1,000 and these funds are extremely diversified, like ~10,000 stocks and ~10,000 bonds with global diversification. It's a whole portfolio in one fund with the allocations that Vanguard has determined are right for most people with that time horizon, and Vanguard does all of the rebalancing for you. If you are just starting out I highly recommend considering this option. These funds are designed to check all of the boxes for you. Could you customize a portfolio for yourself and rebalance it? Sure, but if you're inexperienced your custom portfolio is more likely to be worse than a Target Retirement fund than it is to be better.  I would stick with these for at least the first year, keep learning on the side, and only invest in something else when you are confident. There are a lot of opinions on the internet about which specific funds and allocations to use, and some of those opinions scare me. Don't trust me, trust a company that's mission is helping individual investors make good decisions.

Option 2:  If you want to customize, I would use ETFs. As long as you can buy 1 share there are no minimums. The big index funds like Total Stock, Total International Stock, Total Bond, 500 Index, etc. are all available as ETFs. I would read this before building your own portfolio: https://about.vanguard.com/what-sets-vanguard-apart/principles-for-investing-success/ICRPRINC_042017_Online.pdf

Bonds: People trash them, not sure why, they serve a couple important purposes. A Target Retirement fund with a far out date, like 2060, will only have 10% in bonds anyway. A 90% stock/10% bond portfolio and a 100% stock portfolio have both averaged about 10% returns going back 90 years. It's a negligible difference. One reason for this small difference in returns is that the 90/10 benefits from rebalancing, selling bonds and buying the stocks during down markets. You can't do that if you're 100% stocks.


To your other questions, yes to international(which is in the Target Retirement fund), but REITs are already included in VTSAX so you don't need to add more. Again, a Target Retirement fund is a safe bet while you learn the answers to all of your other questions... and all of the questions you will have as you learn more.