Help, please, with Vanguard fund choice

[miss blueberry]

Hello Wonderful Mustachians,
I've been reading the blog for a month or so and am about halfway through the posts from the beginning!  I've gotten several coworkers turned on as well, and we have been having great discussions at work about what we're learning.  Our badassity is growing by leaps and bounds!

Anyway, I have funds from two American balanced funds that I closed that need to go into my new Vanguard account.  We're trying to consolidate our financial lives; we've got various funds all over the place!  I'm slowly working to get as many as we can into the Vanguard offerings.  The sum I have is $13,028.45.  (Hubby and I both have 401ks at work that are split about 25-75 bonds to stocks that we are funding to the max.)  I believe that since this amount is greater than $10,000 that we can put this money into the Admiral class of Vanguard funds.  Is this correct?  Next, I'm wondering what would be the best place to park this amount?  I'm leaning toward the VBIAX fund (60/40 stock/bond, I believe) or the VTSAX (stock market index fund).  Am also looking at VFIAX (S&P index fund, also, I think).

Any thoughts about what's best?  Perhaps something I'm missing?  Stocks are so expensive now which makes me lean toward the stock/bond mix, but I like the returns a bit better with the all stock funds.  We're both about 50 and hope to retire in about 5 years.  We're not risk averse.  Any advice?  Thanks for any help!  I'm happy to be a new member of this community!

[dadof4]

Hello Wonderful Mustachians,
I've been reading the blog for a month or so and am about halfway through the posts from the beginning!  I've gotten several coworkers turned on as well, and we have been having great discussions at work about what we're learning.  Our badassity is growing by leaps and bounds!

Anyway, I have funds from two American balanced funds that I closed that need to go into my new Vanguard account.  We're trying to consolidate our financial lives; we've got various funds all over the place!  I'm slowly working to get as many as we can into the Vanguard offerings.  The sum I have is $13,028.45.  (Hubby and I both have 401ks at work that are split about 25-75 bonds to stocks that we are funding to the max.)  I believe that since this amount is greater than $10,000 that we can put this money into the Admiral class of Vanguard funds.  Is this correct?  Next, I'm wondering what would be the best place to park this amount?  I'm leaning toward the VBIAX fund (60/40 stock/bond, I believe) or the VTSAX (stock market index fund).  Am also looking at VFIAX (S&P index fund, also, I think).

You gave a pretty limited picture, so it's hard giving you advice about a specific fund. It's important to look at your asset allocation as a whole, as well as looking at your post-tax allocation for the short term (you'll be able to draw from you 401k's only a few years after retirement, so it shouldn't be a big deal).

With that information, you can find the allocation you are comfortable with, and then choose the fund that best moves you in that direction.

Stocks are so expensive now which makes me lean toward the stock/bond mix

No one really knows with any level of certainty if stocks are expensive now. If we did, we'd all be rich by either buying or short selling.

but I like the returns a bit better with the all stock funds.  We're both about 50 and hope to retire in about 5 years.  We're not risk averse.

Past returns are no guarantees for future returns, so take past performance with a lot of salt.

Looking long term, stocks have always outperformed bonds. By a lot. If you're willing to live with the variability, that's your best bet.

[miss blueberry]

Thanks for replying, dadof4!

My novice-ness is showing here... can you explain what you mean by "asset allocation as a whole" and "post-tax allocation for the short term?"  All of our other investments are pretty much a mix of 75% stocks and 25% bonds.  I guess I'm just wondering if you'd go for the Vanguard mixed stock/bond fund or one that was straight stocks? 

Thank you for replying!

[dadof4]

Thanks for replying, dadof4!

My novice-ness is showing here... can you explain what you mean by "asset allocation as a whole" and "post-tax allocation for the short term?"  All of our other investments are pretty much a mix of 75% stocks and 25% bonds.  I guess I'm just wondering if you'd go for the Vanguard mixed stock/bond fund or one that was straight stocks? 

Thank you for replying!

How much money do you have outside of your 401k? You'll need that money to live off for ages 55-59.5 (unless you use SEPP, pay 10% penalty or other ways to take money out of your 401k/IRAs).

If, for example, you had half your non 401k money sitting in a savings account,  your asset allocation would be very conservative, in which case it would make sense to get an all stock fund.

[miss blueberry]

Aaah... I see.  I have a pension that kicks in at 55 and we have a tidy sum from an inheritance to take us to 59.5.  Thanks for the enlightenment!

[dadof4]

Aaah... I see.  I have a pension that kicks in at 55 and we have a tidy sum from an inheritance to take us to 59.5.  Thanks for the enlightenment!

If that's the case, I'd go for an all stock fund.

Also, I'd make sure most of your inheritance money is also invested at an allocation you are comfortable with. Money lying around doing nothing is money losing value.

Cheers, and welcome to the forum!

[alanwbaker]

Hello Miss Blueberry,

There are two important steps before you choose funds...

Step 1) As dadof4 mentioned, your asset allocation is important and it's directly related to how much risk you want to take.  You'll find some useful rules of thumb at the Bogleheads http://www.bogleheads.org/wiki/Asset_allocation.  After you've decided on an overall asset allocation, add up all your investment assets and think about how to enable that asset allocation across all your investment assets. 

Step 2) For tax efficiency it's usually wise to have your bond-heavy investments in a tax-advantaged account (e.g. 401K) and stock-heavy investments in your non-tax-advantaged account.  See also http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

Step 3) Choose funds that align with the first two steps.  For example, you might put your bond dollars into VBTLX Total Bond Market Index Admiral and your stock dollars into VTSAX Total Stock Market Index Admiral.  For some good simple portfolio suggestions see http://www.bogleheads.org/wiki/Lazy_Portfolios.