The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: MilesTeg on November 21, 2016, 02:54:12 PM
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Trying to figure out the best "default" investment strategy. What I mean is I make various investments with a directed purpose (diversify, retirement, and even some "play" investments) but I have not settled on an investment that I can set up to occur "automatically" with each paycheck.
The more obvious and recommended candidates are an index fund (VTI?) or a large cap dividend stock (KO, PG, etc.) but even in those two areas there are several options that I lack the knowledge to really differentiate between.
I'm not interested in something like 'Betterment' or the other "full service" things MMM recommends. I would prefer a more hands on approach. I've already maxed out all the tax sheltered options (401k, HSA, etc.) that are available to me, so this would definitely be a taxable account. Effectively this is where all funds in excess of monthly bills and emergency funds are going instead of sitting in checking/savings account.
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VTI or VTSAX (same fund, one is ETF, the other is a traditional index fund) would be a great default choice.
If you haven't already, I'd recommend reading http://jlcollinsnh.com/stock-series/ (http://jlcollinsnh.com/stock-series/) for more ideas on asset allocation strategies.
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One stop shop is VTWSX for total world stock. It's got 50% US and 50% International. Bit too much international for my liking though... so yeh, if you only want one stock... VTSAX.
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The above mentioned VTSAX will get you 80% of the way there (90% in accumulation, 70% in retirement). A combination of 60% VTSAX / 40% VTIAX would get you even closer. If you insist on only one fund, then VTWSX may be ok though in the future it may put you uncomfortably heavy in international. Obviously there are lots of other options.
I think mutual funds are a better choice than ETFs when possible based on my experiences. ETF's take a lot more minding, you need to manually enter every purchase which gives plenty of chances to second guess and make mistakes. It's best to use limit orders especially when selling in case there is a flash crash, but then sometimsles the market runs away from you and you can't make the transaction for anywhere near the starting price. Then there are spreads and differences in NAV. All in all, mutual funds are a much better "default" option to keep things cheap, simple, and on autopilot.
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Easy. VTSAX. Then add VTIAX when you realize that you should have some international. But that won't matter much until you start to build up assets, so start with VTSAX so that you start and just keep going. You can revisit the international question in a couple of years if you want (unless you already have substantial assets!).
P.S. You don't need a "hand's on approach." Set up the automatic investing at Vanguard that rolls money to VTSAX after each paycheck, and then forget about it. More hands on leads to more watching the market leads to more market timing leads to doing worse than the market.
Not sure? Do a search for threads predicting a Trump victory followed by all-time market highs two weeks later. The search feature blows, but that's not the reason you won't find a single thread. Set it and forget it.
Good luck!
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Definitely VTSAX as others have said. About as complete and automatic as you can make it.
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Agreeing with everyone else who said VTSAX as the best default. And especially since you mentioned using a taxable account.
Stay away from a large cap dividend paying stock. If that is your default you will have too much risk in a single investment as well as it not being an efficient way to invest. IMO there is nothing wrong with using some of your "play" investment money to research and purchase individual stocks but it should be a small portion of your whole portfolio.
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I love this groupthink... I mean, the way this group thinks.
VTSAX or VTIAX. Yup.
:)