Author Topic: How to invest?  (Read 3502 times)

unitsinc

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How to invest?
« on: September 28, 2012, 12:02:54 PM »
Well, I'm pretty sure I've got the spending/savings side of things fairly under control(always room for improvement) so now I want to focus on how to invest my money.

Right now I've got something like this:

24k in my company's Fidelity 401k account. I haven't changed it around at all as I don't feel quite comfortable yet. It has gotten 14% returns this year.

Also with Fidelity, but not in my 401k, just part of a separate account my company has set up, I've got about 7.1k of my company's stock. I can purchase 5k a year at a 15% discount. I know this unbalances my portfolio quite a bit, but the 15% discount seems like a very good deal. I suppose I could sell this every year and redistribute to other vehicles? I'd obviously incur capital gains which might offset the benefit. Thoughts?

Edit: I figure I should add my company isn't small. Unless something hugely catastrophic were to happen(think BP oil spill) we are in pretty much zero danger of going out of business. Doesn't mean we will grow, but we're not disappearing.

Now on my own I've set up a Vanguard Roth IRA account. I've only got 8k in there right now. I still need to drop another 2k to max it out for this year. Right now I've got about 5k in VFINX and 3k in VBINX.

My main questions involve moving money around. I'd like more diversification on my Vanguard account, but it seems like many of their investment vehicles get breaks after investing a certain amount into them. Would it be better to have 5 different investments at 2k and not get the breaks, or would it be better to get fewer accounts up to 10k(and thus avoid some of the fees associated with smaller amounts?)
Also, since this is all within a Roth IRA account, I can buy and sell to rebalance without having to worry about capital gains, correct?
« Last Edit: September 28, 2012, 12:32:17 PM by unitsinc »

unitsinc

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Re: How to invest?
« Reply #1 on: September 28, 2012, 12:23:12 PM »
Also, I was looking through some of Vanguard's different options and could anyone tell me what the difference is between

VFINX and VFIAX other than the expense ratio and minimum needed to invest.

They seem to be the exact same thing as far as I can tell.
« Last Edit: September 28, 2012, 12:25:06 PM by unitsinc »

RoseRelish

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Re: How to invest?
« Reply #2 on: September 28, 2012, 12:26:57 PM »
I'd buy company stock at a 15% discount, sounds pretty good. Even though capital gains are a nuisance to pay, it means you made money. And owning more mutual funds doesn't matter if they're too similar. Getting lower fees is much more important. Global markets are EXTREMELY strongly correlated these days.

hoppy08520

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Re: How to invest?
« Reply #3 on: September 28, 2012, 06:31:44 PM »
Both of these are S&P 500 index funds from Vanguard:

VFINX‎ - Vanguard 500 Index Inv
VFIAX‎ - Vanguard 500 Index Admiral

They are essentially the same fund, but VFINX has a $3,000 minimum and 0.17% expense ratio whereas VFIAX is the "Admiral" share class with 0.05% expense ration, but you need $10,000 in your account to qualify.

There are other share classes (Signal and Institutional) that have even lower expense but are typically only held by very large 401(k) plans or institutions (pension funds, endowments, billionaires, etc.). For example, the institutional shares of Vanguard 500 Index (VIIIX) have an expense ratio of only 0.02%. But the minimum to invest is $200,000,000.00. Save your pennies :-0

Many of Vanguard funds have a regular and Admiral share class, and in most cases, the Admiral threshold is $10,000.

As for your allocations, I think you should not look at these as separate accounts but look at all your retirement assets (assuming you consider your IRA and 401(k) as retirement accounts) as a consolidated portfolio.

So, don't focus on JUST what's in your IRA -- focus on what's in your 401(k) + IRA.

Focus on your allocations first, then expenses, unless expenses are horrid, and the difference between the two Vanguard 500 funds is trivial.

In most cases, you'll have a 401(k) plan with some good funds and bad funds with regard to expenses. You might want to choose the best and lowest expense fund in your 401k plan (every plan is different, so it's hard to generalize) and then use your IRA to round out the gaps in your 401k.

Typically, you might have a good 500 Index or, even better, a Total US Stock Market index fund in 401k (like FSTMX), and maybe a decent investment grade intermediate term bond fund, but crappy and expensive international funds.

In that case, load up 401k with US Stock Index fund (total market preferred over 500 despite MMM's frequent endorsements of VFINX), bonds, and then use IRA to hold Vanguard Total International Stock Market index fund (VTIAX) up to your desired international allocation (if in doubt, 30% of stock allocation is good, with other 70% to US stocks).

Finally, your company stock. As long as you can liquidate the shares after holding them for a year, then that might make sense. You probably don't want to have too much of your assets tied up in any single stock.