Diversification vs. Admiral Shares

[ultros1234]

Hey badass investors --

My wife and I are young and have a mostly tax-sheltered portfolio of investments that total about $30,000 at Vanguard. I haven't paid much attention to the investment decisions in these portfolios until recently, but now I'm becoming interested in investing, building a diversified portfolio, rebalancing, etc.

Here's my dilemma: I'd like to build a nicely diversified portfolio, but I'd also like to keep my expense ratios as low as possible. Vanguard has Admiral Shares with lower ERs when you exceed $10,000 in many account.  I have about $7000 in VTSMX, which has an ER of 0.18, but if I put $10,000 in it, the ER drops to a microscopic 0.06. I have about $6000 in VGTSX at 0.22 ER, which drops to 0.18 at $10,000 investment. I have some money that I'm planning to shift from other funds where I could boost both of those about $10,000 and get the better ER.

But I'd also like to diversify and eventually weight a little toward value or small-cap stocks and break the International fund into its component parts for rebalancing purposes. Is it better to diversify now and suffer the slightly higher expense ratios? Or should I wait to add more funds until I can retain $10000 in some core funds?

[Kriegsspiel]

I just finished the Four Pillars Of Investing, by Bernstein, and he was a big fan of the slice and dice indexing.  He recommended in the scenario exactly like yours, to just hold a couple funds until you have enough to put in the minimum amounts ($3,000).... FWIW.  I'd personally just hold the admiral shares, and add whatever indexes you want to tilt towards as you get enough money for them.

[Carol DeCapua]

I want to diversify into diviten stock any suggestions?
Carol

[skyrefuge]

One nice thing is that when you're young and your stash is relatively small (particularly in relation to the amount that you're adding to it every month) the mathematics mean that the amount you're adding every month is the dominant force in its growth, and your rate-of-return is really not that big of a deal: with your $30k portfolio, Admiral shares might give you like an extra $30 over the course of a year vs. non-Admiral shares (which have a quite-low drag themselves), making the difference basically invisible if you simultaneously add $10,000 to the account over that year.

When your stash gets huge and bushy as you near FI, then the situation flips, and your rate-of-return becomes much more important.  With a $1M portfolio, a switch to Admiral shares would save you around $1000, and of course when you have that much in your stash, you easily meet all the minimums. 

So I guess I'm saying that it doesn't matter too much what you choose, because it won't make a huge difference either way, and by the time it does make a huge difference, it won't be an issue.

[ultros1234]

Thanks folks! I actually was reading the Four Pillars of Investing today, the chapter on asset allocation, which prompted me to post.

It's helpful to keep the perspective that the difference is gonna be in the tens of dollars for now, and we're dealing with really excellent ERs vs. really REALLY excellent ERs, so it's probably not worth sweating about that much. I tend to think hard about how to maximize. But maybe this is a situation where I'm kind of excited to learn about asset allocation, so I should just do the diversification because it will be more fun.

I am continually grateful for the wisdom of the mustache forums!

[Kriegsspiel]

Thanks folks! I actually was reading the Four Pillars of Investing today, the chapter on asset allocation, which prompted me to post.

It's helpful to keep the perspective that the difference is gonna be in the tens of dollars for now, and we're dealing with really excellent ERs vs. really REALLY excellent ERs, so it's probably not worth sweating about that much. I tend to think hard about how to maximize. But maybe this is a situation where I'm kind of excited to learn about asset allocation, so I should just do the diversification because it will be more fun.

I am continually grateful for the wisdom of the mustache forums!

Did you get to the part in the 4POI where he mentions that if you are having fun investing, you are doing something wrong :p  I'm trying to consolidate my portfolio down to make it simple and boring after trying to own individual stocks.  It's more zen.

[grantmeaname]

I want to diversify into diviten stock any suggestions?
Carol

Dividend stock isn't really a category to diversify with. Maybe you could start your own thread here and tell us what your assets, your needs and wants, and your current portfolio look like and then we'd have a good idea what to help you with.

Welcome!
-Grant