Buy more shares of VFFVX?

[Cmoney]

Hi All,

I'm 26 years old and getting ready to max my IRA contribution this year.  Last year I put all 5500 into VFFVX, and was thinking about doing the same thing this year.  Any input on this?  And perhaps more generally, would it be more wise to purchase less aggressive funds as I get older (for example, VFIFX)?  Sorry for the newbie questions but I appreciate the help!

[nereo]

You need to make your own Investor Policy Statement (IPS) that clearly outlines what your asset allocation (AA) is going to be.
Once that's done, stick to it. 

Some links to help you get started:
https://www.bogleheads.org/wiki/Investment_policy_statement
http://www.investopedia.com/articles/investing/060515/example-investment-policy-statement.asp

[Jack]

You need an IPS. That bogleheads article should also have a link to an article about "asset allocation;" read that too. JL Collins' Stock Series is also essential reading.


But to answer your question more directly, VFFVX is fine. FYI, VFFVX automatically becomes less aggressive as you get older. It's a target-date fund -- that's its entire point. Wanting to switch to a target-date fund with an earlier target (like VFIFX) only makes sense if your risk tolerance decreases for a reason other than your age.

[mgarf]

Hello!

The vanguard retirement funds are awesomely priced, but I disagree a bit with their methodology. They (rightly so) invest almost everything in stocks at the outset.

What they do later is slowly increase the proportion of bonds, increasing the bond proportion the closer you get to the listed retirement year. (2055 for VFFVX and 2050 for VFIFX). So if you think you should be getting into more bonds the closer you reach retirement, the vanguard funds are one of the cheapest and easiest things to do. Jack is right though... you should just choose your retirement year and stick to the one fund that has that year.

HOWEVER, unless you plan on spending all your money once you reach the magic retirement year, I would argue that you should still be in 100% stocks into retirement. This is because you DON'T take all your money out once you reach retirement, but a small percent every year. This is a bit anti-dogma, but I've done the simulations for both US and Canadian citizens, and, historically, you will almost always be able to take out more money each year (even if there were crashes) in 100% stocks (see attachment).

You can read more about the logic behind this strategy on my website at http://lrdatabase.com/investlogic/guide.html

Happy savings!