Author Topic: Buying ETFs - please help!  (Read 3949 times)

stephie_corin

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Buying ETFs - please help!
« on: August 20, 2014, 09:57:51 AM »
Please help! Investing for the first time and I have three questions:

1 - is there any benefit to buying Vanguard ETF to 100k in 10k parcels every few weeks or is it better to buy the shares in a lump sum?

2 - is there any benefit to owning several Vanguard ETFs and rebalancing?

3 - which ETFs would you recommend:

https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#etfstab

Thank you!

Manguy888

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Re: Buying ETFs - please help!
« Reply #1 on: August 20, 2014, 10:15:43 AM »
I am not an expert but I'll do my best:

1 - you'll get different opinions on this. In general you want to invest over time in order to dollar cost average. But vanguard just put out a paper saying, essentially, that as long as you're putting this money in for the long term you're better of just putting it all in right up front. The market has historically gone up, meaning the earlier the money goes in the better. since you're talking about breaking up your investment over weeks, the diference here should be small.

2 - this all depends on your asset allocation. Once you have an asset allocation (example: 50% stocks, 30% REIT, 20$ bonds), you can occasionally rebalance to make sure everything is not out of wack. This is a standard strategy. The only thing is that i you are using a taxable account, selling ETFs to rebalance is a taxable event. Just something to consider.

3 - I'm not smart enough on this to tell you exactly. Just make sure that your biggest holding is something that either tracks the S&P 500 or the entire stock market. I have a vanguard account and use VTSAX - I'm sure there is an ETF equivalent.

hope this is helpful

Scandium

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Re: Buying ETFs - please help!
« Reply #2 on: August 20, 2014, 10:45:11 AM »
Please help! Investing for the first time and I have three questions:

1 - is there any benefit to buying Vanguard ETF to 100k in 10k parcels every few weeks or is it better to buy the shares in a lump sum?
No, lump sum is best
2 - is there any benefit to owning several Vanguard ETFs and rebalancing?
Yes, diversification
3 - which ETFs would you recommend:
Total US market, total international, bonds. Distribute as you prefer. E.g. 40-30-30%. If this is taxable account skip the bonds, do those in IRA/401k
https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#etfstab

Thank you!

stephie_corin

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Re: Buying ETFs - please help!
« Reply #3 on: August 20, 2014, 10:52:59 AM »
I am not an expert but I'll do my best:

1 - you'll get different opinions on this. In general you want to invest over time in order to dollar cost average. But vanguard just put out a paper saying, essentially, that as long as you're putting this money in for the long term you're better of just putting it all in right up front. The market has historically gone up, meaning the earlier the money goes in the better. since you're talking about breaking up your investment over weeks, the diference here should be small.

2 - this all depends on your asset allocation. Once you have an asset allocation (example: 50% stocks, 30% REIT, 20$ bonds), you can occasionally rebalance to make sure everything is not out of wack. This is a standard strategy. The only thing is that i you are using a taxable account, selling ETFs to rebalance is a taxable event. Just something to consider.

3 - I'm not smart enough on this to tell you exactly. Just make sure that your biggest holding is something that either tracks the S&P 500 or the entire stock market. I have a vanguard account and use VTSAX - I'm sure there is an ETF equivalent.

hope this is helpful

Really helpful!! Thanks :) I may have misunderstood rebalancing as I thought it meant buying more of the under performing fund when you have additional money to spend. I'll look into this some more.

stephie_corin

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Re: Buying ETFs - please help!
« Reply #4 on: August 20, 2014, 10:55:35 AM »
Please help! Investing for the first time and I have three questions:

1 - is there any benefit to buying Vanguard ETF to 100k in 10k parcels every few weeks or is it better to buy the shares in a lump sum?
No, lump sum is best
2 - is there any benefit to owning several Vanguard ETFs and rebalancing?
Yes, diversification
3 - which ETFs would you recommend:
Total US market, total international, bonds. Distribute as you prefer. E.g. 40-30-30%. If this is taxable account skip the bonds, do those in IRA/401k
https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#etfstab

Thank you!

Thanks, I'm an expat who is likely to retire to Australia. Do you suggest not investing in the Australian index? Again, appreciate the help.

Scandium

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Re: Buying ETFs - please help!
« Reply #5 on: August 20, 2014, 10:57:19 AM »
I am not an expert but I'll do my best:

1 - you'll get different opinions on this. In general you want to invest over time in order to dollar cost average. But vanguard just put out a paper saying, essentially, that as long as you're putting this money in for the long term you're better of just putting it all in right up front. The market has historically gone up, meaning the earlier the money goes in the better. since you're talking about breaking up your investment over weeks, the diference here should be small.

2 - this all depends on your asset allocation. Once you have an asset allocation (example: 50% stocks, 30% REIT, 20$ bonds), you can occasionally rebalance to make sure everything is not out of wack. This is a standard strategy. The only thing is that i you are using a taxable account, selling ETFs to rebalance is a taxable event. Just something to consider.

3 - I'm not smart enough on this to tell you exactly. Just make sure that your biggest holding is something that either tracks the S&P 500 or the entire stock market. I have a vanguard account and use VTSAX - I'm sure there is an ETF equivalent.

hope this is helpful

Really helpful!! Thanks :) I may have misunderstood rebalancing as I thought it meant buying more of the under performing fund when you have additional money to spend. I'll look into this some more.

In a taxable account that's what I do. I don't want to pay tax selling one ETF to buy another, I just change which one I contribute to (mine is also small enough that this is feasible. With several $100K wouldn't work so well.) If it's a Roth or IRA then you can sell tax free so less of a concern.

CowboyAndIndian

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Re: Buying ETFs - please help!
« Reply #6 on: August 20, 2014, 11:01:42 AM »
1 - is there any benefit to buying Vanguard ETF to 100k in 10k parcels every few weeks or is it better to buy the shares in a lump sum?

Buying over a longer period of time is called dollar cost averaging. Basically, it protects you in the case of a falling market since the later buys will get you more shares for the same amount of money. On the other hand, a rising market will hurt you since the latter buys will get you lesser shares. 

So, if you believe the market will rise or will stay the same in the period that you wish to buy, buy in a lump sum. If you believe the market is going down during the same period, then dollar cost average or wait till the end to invest.

No one has a crystal ball to know if the market will go up or down, so I would dollar cost average.


Quote
2 - is there any benefit to owning several Vanguard ETFs and rebalancing?

Holding of different asset classes and periodically rebalancing is called asset allocation. Yes, very very useful since it reduces the risk in your portfolio.  If the correlation between asset classes are not high, then when one asset class drops, other may rise, reducing the wild gyrations.
There has been Nobel prize winning research on the optimum allocation (called the efficient frontier), but picking an optimum allocation is still hit or miss.

Quote
3 - which ETFs would you recommend:

This asset allocation works for me, your mileage may (and should) vary.

  • VOO: SP500 fund  20%
  • IVOO: SP Mid Cap fund 20%
  • VTWO; Small Cap  fund 20%
  • VEA: International Developed Large Cap 5%
  • VWO: International Emerging Large Cap 7%
  • EPI: India fund 10%
  • LQD: Corporate Bond 7%
  • SHY: US treasury Short term 7%
  • IEF: US Treasure Mid term 4%
This portfolio has beaten the SP500 6 times in the last 8 years.

A lot of the funds are Vanguard E.T.F.'s, some are not.  The India play is much higher risk (and expenses) since I believe that it will grow at much higher rates than the developed world.

I have chosen the asset classes and have chosen the lowest expense ETF I can find in that class.

 I do not believe in the "Buy stocks in the same percentage as your age".  I have been using an 80% stock portfolio for quite some time.

Hope that helps, let me know if you need any clarifications.
« Last Edit: August 20, 2014, 11:09:57 AM by CowboyAndIndian »

Scandium

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Re: Buying ETFs - please help!
« Reply #7 on: August 20, 2014, 11:03:17 AM »
Please help! Investing for the first time and I have three questions:

1 - is there any benefit to buying Vanguard ETF to 100k in 10k parcels every few weeks or is it better to buy the shares in a lump sum?
No, lump sum is best
2 - is there any benefit to owning several Vanguard ETFs and rebalancing?
Yes, diversification
3 - which ETFs would you recommend:
Total US market, total international, bonds. Distribute as you prefer. E.g. 40-30-30%. If this is taxable account skip the bonds, do those in IRA/401k
https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#etfstab

Thank you!

Thanks, I'm an expat who is likely to retire to Australia. Do you suggest not investing in the Australian index? Again, appreciate the help.

ah, didn't see that. Someone smarter than me might have to chime in on appropriate home-country allocation. There might be tax advantages? But Australian economy would be included in the all-word-exUS ETF. The AU funds are pretty small, and the index is only 300 companies? Sounds a bit concentrated to me (plus the fact that the Australian economy is heavily dependent on natural resources?)

From your list my first thought is
VEU - world
VTS - US
and possibly bonds, VGB or something.

MooseOutFront

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Re: Buying ETFs - please help!
« Reply #8 on: August 20, 2014, 11:06:34 AM »
Sounds like a taxable account so the question is actually quite loaded.  There are many things to consider including what your tax advantaged accounts look like, your tax situation, etc.  And then there's the wholeasset allocation question that you're getting at with the rebalancing which is also complicated.  Sounds to me like you have some reading to do.  Larry Swedroe's The only investment guide you'll ever need is a good one, as is Boglehead's guide to Investing. Also the Bogleheads wiki for tax efficient placement and or the Jim Collins stock series of blog posts.

All that said I hate for you to complicate things too far and get analysis paralysis so my simple just do it and circle back later recommendation would be this:

100% Total World (VT) or 60% Total Stock Market (VTI)/ 40% Total International (VXUS) and circle back with the below slicing and dicing at a later date.

30% S&P 500 (VOO)
15% Large Cap Value (VTV)
15% Small Cap Value (VBR)
20% Total International (VXUS)
10% Intl Small Cap (VSS)
10% Emerging Markets (VWO)

Rebalance annually or so, ideally with new purchases instead of selling. I omit bonds because I assume this is a taxable account and that you have them and or cash elsewhere.

Eric

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Re: Buying ETFs - please help!
« Reply #9 on: August 20, 2014, 11:10:48 AM »

Really helpful!! Thanks :) I may have misunderstood rebalancing as I thought it meant buying more of the under performing fund when you have additional money to spend. I'll look into this some more.

In a taxable account that's what I do. I don't want to pay tax selling one ETF to buy another, I just change which one I contribute to (mine is also small enough that this is feasible. With several $100K wouldn't work so well.) If it's a Roth or IRA then you can sell tax free so less of a concern.

There's no reason to rebalance in a taxable account.  If your balance is so far out of whack that buying your undervalued fund doesn't even you out, then you rebalance by buying/selling in your tax advantaged accounts.  All of your accounts together, as a whole, constitute your asset allocation.  Don't try to make them all have the same distribution, just make sure that combined, they equal your desired allocation.

CowboyAndIndian

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Re: Buying ETFs - please help!
« Reply #10 on: August 20, 2014, 11:20:06 AM »
Thanks, I'm an expat who is likely to retire to Australia. Do you suggest not investing in the Australian index? Again, appreciate the help.

Yes, you must invest in all parts of the world.

The day has passed (mid last century), when the only safe place to invest your money was the USA.

The economy has changed to a global economy and with China and India rising (2 out of every 6 people live there), you should invest globally.

That being said, I would not put a major amount in Australia. It is small country (population wise) and its economy is quite dependant on commodities (minerals etc).

stephie_corin

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Re: Buying ETFs - please help!
« Reply #11 on: August 20, 2014, 11:25:20 AM »
All this advice is so useful. I'm slowly getting my mind around the basics but I think I have a lot more research to do. It's difficult because I'm feeling very trigger happy and just want to BUY ALL THE FUNDS!!

I'm a non-resident in Australia for tax purposes (living in a tax free jurisdiction right now) and I suspect that the earnings on my investment will not be very high (at least to start) so the rate of tax will be low (if any).

Is there an issue spending Australian dollars to buy international index funds? I thought it raised currency exchange risks or some such thing.

Thanks to all those who have chimed in. I will digest and research some more and come back with any further questions.


Scandium

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Re: Buying ETFs - please help!
« Reply #12 on: August 20, 2014, 11:45:12 AM »

Really helpful!! Thanks :) I may have misunderstood rebalancing as I thought it meant buying more of the under performing fund when you have additional money to spend. I'll look into this some more.

In a taxable account that's what I do. I don't want to pay tax selling one ETF to buy another, I just change which one I contribute to (mine is also small enough that this is feasible. With several $100K wouldn't work so well.) If it's a Roth or IRA then you can sell tax free so less of a concern.

There's no reason to rebalance in a taxable account.  If your balance is so far out of whack that buying your undervalued fund doesn't even you out, then you rebalance by buying/selling in your tax advantaged accounts.  All of your accounts together, as a whole, constitute your asset allocation.  Don't try to make them all have the same distribution, just make sure that combined, they equal your desired allocation.

Yes, ideally. But the funds in my 401k are so crappy (only managed large cap, mishmash international) that my taxable would just be a bunch of volatile small cap. Since I plan to use the taxable to live of for a while before I can tap tax-advantaged (roth conversion or 59 years old) I decided the balance that separately, with a nice, clean mix if index etfs. I do use my roth to make up for the SC and intern. that's lacking. If I get a better 401k at some point maybe I'll treat it all as one pot, but right now that seems to messy.