The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Vertical Mode on December 28, 2016, 10:20:25 AM
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I'm in the early stages of my career, but I've been working on building a foundation and I've started to develop a critical mass of assets. Here's a rough idea of where things are:
Cash: ~$4,500
Savings: ~$8,500
401(k): ~$66,500
Roth: ~$15,500
Taxable: ~$51,000 (I know, I did most of this before I learned that the Roth Ladder was a thing)
I've been saving hard, but I want to be sure that I'm also saving smart. With the exception of the 401(k) funds (100% VFINX) and my cash holdings, all of my eggs are in the VTSAX basket, and while there are certainly worse places to be invested, I'm thinking I'd like to eventually move toward a simple 3-fund portfolio (US, INTL, Bonds - VTSAX, VTIAX, VBTLX). For 2016, I still have $2,500 worth of space for Roth IRA contributions, and it got me thinking that perhaps I should open another position within the Roth (instead of just more VTSAX). Aside from the built-in diversification of owning the index, I think I'd be more comfortable owning more than just U.S. stocks. Here are the questions I'm batting around:
1. Within the Roth - given the 3-fund blend I'm looking to achieve, what does it make the most sense to put into the Roth to work toward that goal? I think I've read that putting bond allocations in a Roth is a good idea because they tend to be less tax-efficient - also, I've heard that it can be advantageous to put Int'l stock holdings in straight taxable accounts to maximize the foreign tax credits from taxes the funds pay overseas.
2. Even if bonds ARE best placed in a Roth, do I want to add bonds now? I'm 28 and have decades of investing ahead to absorb any volatility, so in my mind I have the risk tolerance to be 100% stocks right now.
3. Are there other funds I should look into that would be conducive to my goals of tax-efficiency, diversification, overall simplicity?
I think I have seen some discussion on these topics in this part of the forum before, but I don't venture over here all that often and unfortunately the search function is failing me at the moment. Perhaps my specific questions require more specific answers. Any links to other threads where these topics are discussed would be appreciated. Thanks!
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2. If you have the courage to stay the course during a market crash (are you sure?) and you have a long time horizon, then it's a perfectly fine choice not to have any bonds.
3. You could consider using a combination of VTMGX (Developed Markets) and VEMAX (Emerging Markets) instead of VTIAX (Total International). It would still be a quite simple asset allocation but with a slightly lower expense ratio. On top of that, you would have the freedom to decide how much you'd like to allocate to emerging markets (slightly overweighting EM may not be a bad idea for someone with a long time horizon).
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2. If you have the courage to stay the course during a market crash (are you sure?) and you have a long time horizon, then it's a perfectly fine choice not to have any bonds.
3. You could consider using a combination of VTMGX (Developed Markets) and VEMAX (Emerging Markets) instead of VTIAX (Total International). It would still be a quite simple asset allocation but with a slightly lower expense ratio. On top of that, you would have the freedom to decide how much you'd like to allocate to emerging markets (slightly overweighting EM may not be a bad idea for someone with a long time horizon).
Thanks for being a sounding board, NP. I guess it is one thing to academically know that one should "stay the course", and entirely another to have skin in the game when the market heads south. At this point, I haven't had much experience with heavy losses (I only really started investing in 2011) so I won't know for sure until such time as that happens.
Thanks also for the fund recommendations, I'll look into those. Interesting point about overweighting Emerging Markets for the long haul - your point about being able to fine-tune AA is well taken, although I'm not sure I'd really trust myself at the controls ;-) That's sort of the point of using index funds, after all.