Author Topic: Windfall Advice: VSMGX or VTSAX?  (Read 8922 times)

ministashy

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Windfall Advice: VSMGX or VTSAX?
« on: June 28, 2014, 03:41:52 AM »
Hello--first post, and I'm looking for some second opinions.  It looks like I may have a $10K windfall in the relatively near future, due to an inheritance.  Something I wish wouldn't happen for a few more years, but it is what it is.  Right now I don't have much of a 'stache--still in the five figures, as I've never been a particularly high earner (working on that part) and only started getting serious about retirement and investing about ten years ago.  I'd like to sock this windfall away in a solid investment that ideally--barring getting hit by a beer truck or something--will work towards either traditional retirement or early retirement.  I'm already maxing out my IRA contributions, and I don't have access to a 401K right now due to a recent job switch, so it'll have to be in a taxable account.  Right now I'm considering investing it in one of these two funds--VSMGX or VTSAX.

Pros and cons:

Vanguard Lifestrategy Moderate Growth:  diversified, better able to handle stock market downturns due to bond and international exposure, slightly higher expense ratio (.16)
Vanguard Total Stock Market Admiral Shares:  more aggressive, diversified index fund (for US only), but no bond component, much lower expense ratio (.05).  Also has a $10K buy-in, so I can only buy this one fund.

My current IRA retirement funds are pretty well diversified, I think--about 85 percent Target Retirement 2035, 10 percent Wellington Fund and 5 percent Vanguard LifeStrategy Conservative Growth Fund/Vanguard Target Retirement Income Fund  (in a teeny Roth that I started with 1/3 of my emergency fund, so can't be as aggressive with that money.)  I have a 6 mo+ emergency fund (1/3 cash, 1/3 CD, 1/3 Roth), and while my spending isn't perfectly Mustachian, it's still pretty low--without a mortgage, I'd be happily living on less than $20K a year.

Right now the big draw is the lower expense ratio of the Admiral shares--over the long haul, it would likely save/earn me a lot of money.  But am I taking on too much risk, tying my windfall up solely in US stocks?  Are there other tax-advantaged options for this windfall I haven't considered?  What do you guys think?

matchewed

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Re: Windfall Advice: VSMGX or VTSAX?
« Reply #1 on: June 28, 2014, 05:14:37 AM »
What is your asset allocation? Maintain it.

ministashy

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Re: Windfall Advice: VSMGX or VTSAX?
« Reply #2 on: June 28, 2014, 06:03:11 AM »
What is your asset allocation? Maintain it.

Current asset allocation is roughly 75% stocks, 25% bonds, but I'm starting to think that's too conservative, especially if I want to stand a chance at early retirement.  Am thinking I should be looking more at a 90/10 or even 95/5 split, but the conservative part of me is still cringing a bit at the thought of taking on that much extra risk and shortening my time horizon at the same time ...

Grateful Stache

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Re: Windfall Advice: VSMGX or VTSAX?
« Reply #3 on: June 28, 2014, 07:55:07 AM »

Current asset allocation is roughly 75% stocks, 25% bonds, but I'm starting to think that's too conservative, especially if I want to stand a chance at early retirement.  Am thinking I should be looking more at a 90/10 or even 95/5 split, but the conservative part of me is still cringing a bit at the thought of taking on that much extra risk and shortening my time horizon at the same time ...

Asset allocation is a personal decision and should be a well thought-out plan. Do a lot of reading and make an informed decision, whatever you do. If you are young, with several years until retirement then there is noting wrong with being 100% stocks. Likewise, if you are still in the accumulation phase (as you seem to be), then it is also OK to be 100% stocks.

Where people run into trouble is when they 'gamble' with an already adequate 'stache, or they are 100% stocks within 5 years (or so) of retirement.

This subject is controversial, so you will likely see other opinions, but that's my two cents. There is nothing wrong with the Vanguard Target Date and Life Strategy funds if you want to 'set it and forget it.' They are well-diversified and have rock-bottom expense ratios, especially compared to the rest of the industry.   

Cheers.

matchewed

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Re: Windfall Advice: VSMGX or VTSAX?
« Reply #4 on: June 28, 2014, 08:57:33 AM »
What is your asset allocation? Maintain it.

Current asset allocation is roughly 75% stocks, 25% bonds, but I'm starting to think that's too conservative, especially if I want to stand a chance at early retirement.  Am thinking I should be looking more at a 90/10 or even 95/5 split, but the conservative part of me is still cringing a bit at the thought of taking on that much extra risk and shortening my time horizon at the same time ...

You're also making a mistake there. While your AA has an influence on your portfolio's performance it will have less of an influence in a short time frame for a FIRE attempt. Your best friend in a FIRE attempt is your savings rate. The long view is your AA. If you are doing 75/25 because of market volatility concerns or whatever have you I'd stick with it. Ask yourself why you had 75/25 to begin with. Your answer will help in determining if you need to revisit it or not.

GGNoob

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Re: Windfall Advice: VSMGX or VTSAX?
« Reply #5 on: June 28, 2014, 12:57:46 PM »
What is your asset allocation? Maintain it.

Current asset allocation is roughly 75% stocks, 25% bonds, but I'm starting to think that's too conservative, especially if I want to stand a chance at early retirement.  Am thinking I should be looking more at a 90/10 or even 95/5 split, but the conservative part of me is still cringing a bit at the thought of taking on that much extra risk and shortening my time horizon at the same time ...

If you wanted maintain an asset allocation close to 75%/25%, then the Lifestrategy Growth Fund (80%/20%) might be a good fit.

ministashy

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Re: Windfall Advice: VSMGX or VTSAX?
« Reply #6 on: June 29, 2014, 01:33:10 AM »
What is your asset allocation? Maintain it.

Current asset allocation is roughly 75% stocks, 25% bonds, but I'm starting to think that's too conservative, especially if I want to stand a chance at early retirement.  Am thinking I should be looking more at a 90/10 or even 95/5 split, but the conservative part of me is still cringing a bit at the thought of taking on that much extra risk and shortening my time horizon at the same time ...

If you wanted maintain an asset allocation close to 75%/25%, then the Lifestrategy Growth Fund (80%/20%) might be a good fit.

Thanks for the suggestion--I hadn't thought of that one.  Honestly, my current allocation was guided mostly by Vanguard's advice for my time horizon.  Now that I've become aware that it might even be possible for me to have an earlier retirement, I'm starting to rethink the conventional wisdom on holding bonds when I have 20+ years to go (for a conventional retirement, anyway).

kyleaaa

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Re: Windfall Advice: VSMGX or VTSAX?
« Reply #7 on: June 29, 2014, 09:06:12 AM »
The lower expense ratio just isn't going to save you much money over the long run on a 5 figure portfolio. That said, pick the one that best fits in with your overall portfolio. The expense ratio shouldn't even be part of the equation at this point, since they're both so low.