Author Topic: Help me choose Vanguard options  (Read 4540 times)

Jet9

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Help me choose Vanguard options
« on: March 07, 2016, 05:43:21 PM »
Hi all:

Yesterday I set up a Vanguard account and opened an IRA, which will be converted to a Roth upon arrival. With so many choices available in Vanguard, I 'm having a hard time deciding what to choose for the IRA.  I am already contributing to the Vanguard funds listed below in my 403B; should I try to add diversification by choosing something different? Brief background: I'm 46 and planning to retire "early" at 55, but I will have a small pension that I hope will enable me to keep the IRA/403b accounts intact much longer. I've been reading about the new  VIAIX (International Dividend Appreciation) and the corresponding VDAIX (USA Dividend Appreciation). Any thoughts on these funds?  Any advice or other fund recommendations to help me narrow down the field would be much appreciated.

Editing to add: I will be making the 2016 contribution soon, so I will have $11,000 to buy in.

VANGUARD TOTAL STOCK MARKET
VANGUARD INSTITUTIONAL INDEX
VANGUARD SMALL CAP INDEX   
VANGUARD EMERGING MARKEts
VANGUARD DEVELOPED MARKETS
VANGUARD REIT INDEX

 
« Last Edit: March 07, 2016, 05:55:04 PM by Jet9 »

seattlecyclone

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Re: Help me choose Vanguard options
« Reply #1 on: March 07, 2016, 05:55:29 PM »
Let me be the first to ask you what your investment policy statement tells you to do. Writing one may sound like a daunting task, but what it really boils down to is you need to decide what asset allocation you want in order to meet your goals. What percentage of your portfolio do you want to have in stocks? How about bonds? Within each of those categories, how much do you want to invest in US vs. international investments? Once you write that down, the specific funds often pick themselves.

Jet9

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Re: Help me choose Vanguard options
« Reply #2 on: March 07, 2016, 07:26:34 PM »
Oh wow Cyclone....oh no....wow. Ok, that looks amazing. I'm going to get started on working on my IPS homework now, but it's going to take me a while. A few years, a lifetime maybe. Meanwhile, here's what I (think I) believe:

I'm not interested in bonds right now; I think my pension balances the high allocation to stocks, and my timeline for using these investments is fairly flexible (I can wait to use/wait out years of turmoil). I will surely re-balance that allocation when I get closer to needing to withdraw funds.  So relatively aggressive is good, but crazy-greedy aggressive would be bad (no, not exactly sure what that means, but junk bonds, hedge funds, shorting the market, futures/options/puts and calls....I don't know what. All way too risky/too complicated. I like to have at least a vague understanding of what the top holdings do to earn money).  I like the ease, simplicity and elegance of index funds. Focusing on dividends in my personal investments has given me a positive psychological focus when stocks are down - hence the interest in dividend appreciation index funds - I don't have a more reasoned excuse, and this focus isn't necessary in my retirement accounts. However, the holdings are different from VTSIX, and I wonder if further diversification is a good thing...). I think some exposure to International stocks, including emerging markets, is important. That said, I suppose at least 60% should be large cap US stocks if I have to give a number.   I don't want a portfolio with a million different funds (healthcare and energy funds look great, but where do you stop?  That stresses me out and gets too far into the realm of things I have no clue about. Maybe later). What attracted me most about the MMM/Boglehead philosophy is that people like me who have a very limited understanding of investing can put together a simple, but well-diversified plan that  increases their chances of beating inflation overtime.  And that attraction to simplicity is why part of me wants to stick with the basics - total stock market US/Intl. When looking at my 403b, I have very limited choices, so Vanguard is easy. But with a personal Vanguard account, I face the paradox of choice and the irony of relying on my "philosophy" and my gut  to make decisions that have the potential to shape my future. It's almost irresponsible. Please, gentle readers, feel free to critique my rationale and point out places where I can refine my thinking. I will consider every lesson you have to offer. But now I need a drink. Go Seahawks.

MDM

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Re: Help me choose Vanguard options
« Reply #3 on: March 07, 2016, 08:50:16 PM »
Oh wow Cyclone....oh no....wow. Ok, that looks amazing. I'm going to get started on working on my IPS homework now, but it's going to take me a while. A few years, a lifetime maybe. Meanwhile, ...
While working on that IPS, throw everything into VTTSX.  Check again in 10 years and change if needed.  Only somewhat joking....

Jet9

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Re: Help me choose Vanguard options
« Reply #4 on: March 07, 2016, 09:10:28 PM »
That is very attractive advice!

Vertical Mode

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Re: Help me choose Vanguard options
« Reply #5 on: March 07, 2016, 11:08:12 PM »
Let me be the first to ask you what your investment policy statement tells you to do. Writing one may sound like a daunting task, but what it really boils down to is you need to decide what asset allocation you want in order to meet your goals. What percentage of your portfolio do you want to have in stocks? How about bonds? Within each of those categories, how much do you want to invest in US vs. international investments? Once you write that down, the specific funds often pick themselves.

This is sound advice about where to begin. Define the goals you hope to achieve, the more detail the better, and the dots may begin to connect themselves.

Any financial advisor with fiduciary responsibility would want you to ensure that your emergency funds were shored up first, that you'd be building a portfolio from a foundation of strength. It sounds like you're past this step, but lots of irrational behavior can occur across the market when things go south like what happened earlier this year and it's better to be buffered...

If you're looking for a relatively aggressive allocation with some international stock exposure, you might look at VTSAX (Vanguard Total Stock Market Index Admiral Shares, with more than $10k invested you'd get the lower-ER shares). It's a pretty broad blend of US and International Stocks and it carries an ER of 0.05%, which is basically a rounding error. It's also a very tax-efficient place to park any spillover if you've maxed out IRA contributions and still have money to invest.

If you indeed have a 10+ year time horizon for leaving the money invested, I see no issue with going heavy on the stock exposure as you've suggested you're inclined to. How inclined are you to "do it yourself" when it comes to investing, generally? The fund MDM mentioned is a target date fund that will automatically rebalance over time, a "set it and forget it" kind of option that many prefer for the sake of simplicity.

MDM

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Re: Help me choose Vanguard options
« Reply #6 on: March 07, 2016, 11:28:13 PM »
VTSAX [is] ... a pretty broad blend of US and International Stocks....
VTSAX is a perfectly fine investment if you want "exposure to the entire U.S. equity market".  Note that it is >98% US stocks.  See http://www.morningstar.com/funds/XNAS/VTSAX/quote.html and https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT.

Vertical Mode

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Re: Help me choose Vanguard options
« Reply #7 on: March 08, 2016, 08:45:23 AM »
VTSAX [is] ... a pretty broad blend of US and International Stocks....
VTSAX is a perfectly fine investment if you want "exposure to the entire U.S. equity market".  Note that it is >98% US stocks.  See http://www.morningstar.com/funds/XNAS/VTSAX/quote.html and https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT.

D'oh! You're right. For some reason, I thought I remembered that there was international exposure with this as well. I stand corrected. Thanks, MDM.

International exposure could be gained with a position in something like VTIAX (Vanguard Total International Stock Index Fund Admiral Shares), which also appears to have a significant chunk of assets in emerging markets if you wanted to pursue that.

Jet9

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Re: Help me choose Vanguard options
« Reply #8 on: March 08, 2016, 07:40:31 PM »
Thanks for your responses, everyone; I learn something new from each of your posts.

Yes, Vertical Mode, I do have a solid emergency fund and no non-mortgage debt.

VTTSX looks like a good model for a relatively aggressive allocation with International exposure. But I think I like the idea of managing my account actively, rather than choosing an automatically rebalanced retirement fund at a slightly higher expense ratio. That said, rebalancing is something I haven't thought much about; I keep thinking I am already mostly balanced by my pension.  I just don't know if these assumptions are correct. Surely as I get closer to needing the funds I will reconsider a more conservative allocation, and the targeted funds like VTTSX would provide a good allocation model that I could replicate myself, right?

VTSAX and VTIAX look like solid choices. The admiral shares are definitely a good idea.

Goals: At 55, I will be eligible for a pension which should cover my basic expenses, but with not as much of a comfort zone as I would like. I'd like my investments to  supplement the pension, giving me the option  to retire at 55. I'll work elsewhere for a while, allowing my meager investments to grow for as long as possible. I vaguely have these funds slated for healthcare costs that I can't begin to fathom now, other unexpected expenses, and additional travel if circumstances allow. I assume the Roth will provide a tax-balance to my 403b income, but beyond that I have no inkling about post retirement taxes... That's all I've got; what else is there? No desire to buy a boat or anything...I know you're right that I need to get more specific here, but how?

Thanks everyone; you've given me so much to think about, and lots of homework.

Jack

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Re: Help me choose Vanguard options
« Reply #9 on: March 09, 2016, 04:22:57 PM »
Oh wow Cyclone....oh no....wow. Ok, that looks amazing. I'm going to get started on working on my IPS homework now, but it's going to take me a while. A few years, a lifetime maybe. Meanwhile, ...
While working on that IPS, throw everything into VTTSX.  Check again in 10 years and change if needed.  Only somewhat joking....

+1, and not joking at all. There's no point in trying to create a DIY slice-and-dice portfolio if you don't know how you want to slice and dice it yet!

You might as well just buy VTTSX now then exchange it for VTSAX+VTIAX or whatever once you've got your IPS figured out. There aren't any loads or anything (maybe a 30-day minimum hold, but that's it) so swapping around isn't a big deal.

MustacheAndaHalf

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Re: Help me choose Vanguard options
« Reply #10 on: March 09, 2016, 04:29:56 PM »
One change to your plan: "VANGUARD INSTITUTIONAL INDEX" has a $200 million minimum purchase, so it's going to be out of your reach once you move money out of your company plan.  But expense ratios on S&P 500 funds are rather low, so it's not much to sacrifice.  On $1000 invested you'll pay about $0.30 (30 cents) a year for the ETF version (VOO), and a bit more for the investor shares with a $1000 IRA minimum.  So just be prepared to pick another fund than Vanguard Institutional Index Fund.

Jet9

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Re: Help me choose Vanguard options
« Reply #11 on: March 09, 2016, 06:14:40 PM »
Ok, I'm going to seriously look into VTTSX, thanks for confirming this advice, Jack. I just looked through the investments in my husband's Fidelity 401K. I can't even read it, and it goes on for pages. Ridiculous. Simple is good.

Mustacheandahalf: .......WHAAAAAT? Do I have to move funds out of my company 403Bplan? Why, when? I let myself get talked into putting that in my portfolio because it was "such a great opportunity that most people don't have access too" and it "adds diversity." I wonder if it is redundant with Total Stock Market and unnecessary. Now I wonder if it's also more trouble than it's worth.  Please, please explain what I'm missing. Why is this fund problematic? And thanks for the heads up.


Jack

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Re: Help me choose Vanguard options
« Reply #12 on: March 10, 2016, 07:48:54 AM »
Mustacheandahalf: .......WHAAAAAT? Do I have to move funds out of my company 403Bplan? Why, when? I let myself get talked into putting that in my portfolio because it was "such a great opportunity that most people don't have access too" and it "adds diversity." I wonder if it is redundant with Total Stock Market and unnecessary. Now I wonder if it's also more trouble than it's worth.  Please, please explain what I'm missing. Why is this fund problematic? And thanks for the heads up.

Vanguard Institutional Index (which is VINIX or VIIIX, I think) is an S&P 500 index fund. It's not quite the same asset class as a Total Stock Market fund, but close enough to make little difference. An S&P 500 fund holds (more or less) the 500 largest companies; a total market fund holds about 3000 or so. However, because they're cap-weighted, the 2500 smaller companies combined only make up a relatively small percentage of the fund (I'm wildly guessing 10-20%, but you can figure it out by looking at this table and doing the math). So they aren't identical, but yes, they are close enough to be redundant.

The Vanguard Institutional Index fund is perfectly good and extremely cheap (especially if it's VIIIX). It's an excellent choice for the money in your 403B. The only reason to move away from it is if you stopped working for your current employer and wanted to roll over your 403B because of plan administration fees or eligibility or something, because it (unfortunately) isn't available in an IRA -- or if you wanted a different asset class, of course.

Jet9

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Re: Help me choose Vanguard options
« Reply #13 on: March 10, 2016, 05:10:06 PM »
Much appreciated, Jack; thanks!