Author Topic: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years  (Read 3364 times)

sdt1890

  • 5 O'Clock Shadow
  • *
  • Posts: 41
Looking for a Vanguard home for $5,500 in an IRA (sitting in cash) that will not be touched for 30+ years (retirement age). VTI and VASGX seem like good options on first glance. This will be my first entry point into Vanguard, what are your thoughts?

BigHaus89

  • Stubble
  • **
  • Posts: 210
  • Age: 30
  • Location: NW
  • Ride the Spiral to the End
Re: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years
« Reply #1 on: July 07, 2017, 03:31:25 PM »
VTI is good. I prefer VTSMX(if that's an option for you) because you can buy partial shares i.e. All $5500 worth instead of VTI buying whole shares only.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1430
Re: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years
« Reply #2 on: July 09, 2017, 07:55:38 AM »
It comes down to the big picture. What asset allocation are you targeting? Also what do the other accounts look like? If you are targeting 80/20 and this is your only account, then VASGX works. If you have other accounts then you normally want the Roth to be the most aggressive account, taxable accounts to be tax efficient, and put the bond portion of your portfolio in pre-tax accounts(like traditional IRA).

If you want to be 100% stocks you could do 60% VTI and 40% VXUS.

That gives you the stock side of VASGX without the bonds.

coplar

  • 5 O'Clock Shadow
  • *
  • Posts: 11
Re: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years
« Reply #3 on: July 18, 2017, 01:25:13 PM »
I second both of these suggestions of VTI/VTSMX and VXUS.

Another option for you is a Target Date fund such as VFFVX. This will automatically change its asset allocation over time to decrease risk as you near retirement age.

davidmo

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years
« Reply #4 on: July 19, 2017, 09:36:05 AM »
Keep seeing this advice, to put bonds into tax-deferred accounts, rather than taxable. Can someone explain that to me in terms that a noob investor can understand? Don't mean to hijack..

thenextguy

  • Stubble
  • **
  • Posts: 205
Re: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years
« Reply #5 on: July 19, 2017, 10:59:37 AM »
Keep seeing this advice, to put bonds into tax-deferred accounts, rather than taxable. Can someone explain that to me in terms that a noob investor can understand? Don't mean to hijack..

Bonds typically pay off more taxable dividends. (Although lately that hasn't been as true as in the past.) Thus you want to protect them from taxes. Stocks, especially growth stocks, don't pay as much in dividends. Thus, it is less important to keep them in tax advantaged accounts.

HOWEVER, all this matters only if you have enough money to worry about this issue. Even if stocks don't pay as much in dividends, there are still advantages to keeping them in tax advantage accounts. The initial contribution is tax deferred, for one.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1430
Re: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years
« Reply #6 on: July 23, 2017, 09:09:42 PM »
Keep seeing this advice, to put bonds into tax-deferred accounts, rather than taxable. Can someone explain that to me in terms that a noob investor can understand? Don't mean to hijack..

Corporations pay taxes, and then you have to pay taxes again on your dividends from those corporations. To make up for this double taxation stock dividends get special tax treatment. Qualified stock dividends are taxed at a lower tax rate than bond income. Example: if you are in the 25% tax bracket stock dividends will be taxed at 15% and bond income at 25%. In addition, most of your return on a bond is the income, but stocks are part dividend income and part appreciation. That appreciation is also taxed at a lower rate, and it isn't taxed until you sell, which could be decades from now. This means the assets are allowed to grow partially tax deferred.

Would you rather pay 25% taxes NOW or 15% decades from now?

Conclusion:  If your AA calls for bonds then you need bonds. You have to put the bonds somewhere, but for the reasons mentioned above you don't want them in your taxable account. Put your tax efficient investments* in your taxable account. This leaves the bonds in the pre-tax IRA.

*Tax efficient investments: Stock index ETFs(no company preference), Vanguard index funds(equal in efficiency to ETFs), individual stocks(which I would ignore for other reasons).

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1513
  • Age: 60
  • Location: Redmond, WA
    • Evergreen Small Business
Re: Vanguard Fund to Stash $5,500 IRA and not touch for 30 years
« Reply #7 on: July 27, 2017, 07:33:45 AM »
I think you probably can't do reliably better than Vanguard's Target Retirement 2045 Fund for a 30 year investment:

https://personal.vanguard.com/us/funds/snapshot?FundId=0306&FundIntExt=INT

BTW, if you want a (free) longer explanation of why something like a target retirement usually works pretty darn well, you can download my thirteen word retirement plan here:

http://evergreensmallbusiness.com/the-thirteen-word-retirement-plan/

But here's the short version: You'll get a good asset allocation (so lower risks) and regular rebalancing (so low hassle) with a target retirement fund.