Author Topic: Vanguard LifeStrategy Question  (Read 774 times)

smallstache

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Vanguard LifeStrategy Question
« on: April 19, 2017, 01:46:29 PM »
I am helping a close friend get started in investing.  She recently came up with $4000 (mostly income tax refund money), so I helped her open a Roth IRA at Vanguard.  With such a low dollar amount, I suggested the LifeStrategy Moderate Growth Fund, VSMGX, to get a some diversity.  It holds investor class shares of the Total Stock Market, Total Bond Market, Total Intl Stock and Total Intl Bond funds.

The advertised ER is 0.14%.  I assume that the ER is just a weighted average of the underlying funds, with perhaps a little extra going to Vanguard's pocket...I'm not really sure.  All my securities are single class funds (VYM, VWALX in a taxable account, VBTLX in Roth accounts) and individual stocks.  I have no experience with funds of funds.

Also, as she learns to buy less shit and instead add money to her account, I would recommend she move away from VSMGX and into single class funds.  For example, when she gets her balance to $13K, she trade her VSMGX for $10K of VTSAX and $3K VBTLX.  The weighted average of this portfolio would be .08%.

Any thoughts on any of this?

clumlee

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Re: Vanguard LifeStrategy Question
« Reply #1 on: April 19, 2017, 02:22:37 PM »
I agree with you in that getting her started in a straight shot fund of funds is a good idea to start, but after awhile move your friend out of that and into individual funds. I agree because the fund of funds is pretty dead set in terms of their asset allocation. At least by moving them into individual funds they can get an allocation that they're comfortable with that may be different from the fund of funds. I moved my IRA over and had enough to purchase some Admiral Shares and a non-Admiral but had I started from scratch, that's how I would've gone. Cheers!

Nothlit

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Re: Vanguard LifeStrategy Question
« Reply #2 on: April 19, 2017, 02:27:47 PM »
There's nothing wrong with that approach, and there would be no tax consequences since it's all within an IRA. However, it will depend on whether your friend is capable and interested in managing her asset allocation from that point forward. Is she/will she be interested in figuring out which percentage of stocks vs. bonds to hold? Will she know when and how to rebalance? The nice thing about the LifeStrategy funds is you don't have to worry about any of that stuff if you don't want to.

The difference between 0.14% vs 0.08% on $13k is only $7.80. Not worth the switch if simplicity is of greater importance to her.