Investing in VBMFX in my Roth IRA

[minimalistgamer]

Hello everyone,

I am in a fortunate situation where I could maximize my Roth IRA contributions on the 1st of January (or 2nd as the case maybe).

Here is my current Roth IRA portfolio at Vanguard -

https://sli.mg/74p3ST

For my age (33), I am planning to maintain a 90% stock and 10% bond asset allocation. I am thinking about buying $3000 worth of VBMFX, and then invest the rest in VTSMX.

This will allow me to get invested in the bond fund, and also convert VTSMX into admiral shares.

Of course, investing $3000 into the fund will throw off my asset allocation, but I intend to re-balance it as time goes on.

So I wanted to know your thoughts on this. Is this a good idea? Am I missing something? Your thoughts and opinions are very much appreciated.

Thank you.

[Cwadda]

At least contribute some money (i.e. $500) to VTSMX to put you over $10,000. Then you can convert to admiral shares (lower expense ratios). I can't speak too much for the VBMFX idea since I'm 100% VTSAX but it seems good to me.

Just an idea, put $200 in VTSMX, convert those to VTSAX.
Then dump $5300 in VFFVX, convert those to admiral shares as well.

Then you'll be at .05% expense ratios for both!

[minimalistgamer]

Thank you for your response. I definitely intend to convert VTSMX into admiral shares.

I am more concerned about investing in VBMFX. I wanted to know if it is a good fund to invest in or if there are better alternatives.

[Cwadda]

The only other thing is I guess I could make the argument that $10k in each would still put you at 5% in bonds.

Also off topic, but have you checked out this topic? I thought you might like to contribute.
http://forum.mrmoneymustache.com/off-topic/mustachian-video-gamers-what-are-you-playing/

[minimalistgamer]

Thank you very much!

I didn't know there were games on this board! :) I will check it out and definitely contribute. I am a PC gamer, primarily.

[frugaliknowit]

Personally, at age 33, I would skip bonds and stay 100% in equities, but that's just me.

Did you own equities during the crash of 2007-09?  If so, did you hang in (not sell)?  Only asking because that would be a gauge of your risk tolerance (how strong your stomach is, so to speak...).  Could you stomach a 50% drop and ride it?

[minimalistgamer]

Personally, at age 33, I would skip bonds and stay 100% in equities, but that's just me.

Did you own equities during the crash of 2007-09?  If so, did you hang in (not sell)?  Only asking because that would be a gauge of your risk tolerance (how strong your stomach is, so to speak...).  Could you stomach a 50% drop and ride it?

I thought about doing that, but all the popular opinions out there from people far smarter than I am, suggest that diversification is the way to go. At the moment, I would be perfectly fine sticking to stocks, but who knows how I would react when the inevitable slump happens.

On that note, I was not invested in the stock market during the recession. I didn't have a job at the time, I still in school, and I honestly did not pay a whole lot of attention to the stock market.

In general, I am a conservative person, and not much of a risk taker. That does not mean I can't persist during tough times, but I don't intentionally seek risk in search for big returns.

Therefore, I felt like 90% stocks and 10% bonds at my age, and for my personality is the way to go. Please feel free to let me know if I made a mistake in my analysis.

Thanks.

[Cwadda]

suggest that diversification is the way to go.

Just something to think about: when you buy VTSAX you get shares of the top 500 companies in the US. The logic behind index fund investing is that you have built in diversification without needing to pick and choose individual stocks. You probably already know this, but just something to think about.

For bonds I think you will be just fine with VBMFX. You just can't go wrong with low cost, passively managed index funds. It's a get rich slowly scheme.

Another thing is you might consider investing in 100% equities for your Roth and going more aggressive there, but if you get more cash beyond the Roth limits, put it in bonds but in a taxable account. You'd be taxed less because bonds don't really appreciate much. I'll let other folks comment on this strategy as well.

Also I saw you joined in on the gaming thread, nice to have you there :)

[Proud Foot]

If you're wanting a 10% bond allocation then VBMFX is a good one to use.  Something to keep in mind is that you already have approximately a 3% bond allocation through your investment in the target date fund (10%) and the allocation will change to more bonds as you get closer to the targeted date.  If you are maxing your contributions for next year adding the 3,000 to VBMFX would put your bond allocation around 19%