Author Topic: how does this sample portfolio look?  (Read 6517 times)

jordan.

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how does this sample portfolio look?
« on: April 26, 2016, 07:16:23 PM »
Hello all!

I have been doing some researching on what I plan to invest in once my Roth transfers to Vanguard, I was initially with Edward Jones, I liquidated all of my stocks so I could transfer the money since vanguard did not have most of the mutual funds that i did. I will be transferring around $23,500.00 and was planning on doing the following:

Vanguard Total Stock Market (VTSAX)  - $10,070 (10k min)
Total Stock Market                (VTI)      - $7,000
Target Retirement 2060        (VTTSX)  - $3,000 (3k min)
REIT Index                          (VNQ)     - $2,700

I am currently 22 and since I can't retire till 60 I decided to use VTTSX instead of any particular bonds, I have been looking around and 100% equity looks like its the way I'm going to go given the statistics. Maybe closer to retirement I may put them into bonds but I doubt that will happen.

If you guys have any suggestions or different ways to look at these please do not hesitate to let me have it. I am always open to new viewpoints and knowledge.

Vagabond76

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Re: how does this sample portfolio look?
« Reply #1 on: April 26, 2016, 07:39:40 PM »
First, fuck Edward Jones

Second, why have VTSAX and VTI? They are two classes of the same investment.

I agree with 100% stocks and real estate. Dump the target fund.

jordan.

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Re: how does this sample portfolio look?
« Reply #2 on: April 26, 2016, 08:11:52 PM »
What would you recommend I pick up? Should I just put all the money into VTI and then into something like strategic equity (VIGAX) instead of the target fund? or into an international Stock like VGTSX or VEURX?

MDM

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Re: how does this sample portfolio look?
« Reply #3 on: April 26, 2016, 08:36:38 PM »
I am currently 22 and since I can't retire till 60....
Really?  You already signed a 38 year employment contract? ;)

Quote
If you guys have any suggestions or different ways to look at these please do not hesitate to let me have it. I am always open to new viewpoints and knowledge.
+1 to Vagabond76's comment on the VTSAX/VTI overlap.  Also, VTTSX holds a bunch of VTSMX (investor share class of what VTSAX and VTI hold).

You could do much worse than putting everything into VTTSX now.  Yes, you could save "a little" money by purchasing the admiral-class shares of the underlying funds but I'll let you do the exercise of calculating "a little."

Or, choose pretty much any combination described in https://www.bogleheads.org/wiki/Three-fund_portfolio.


Jeremy E.

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Re: how does this sample portfolio look?
« Reply #4 on: April 26, 2016, 08:51:39 PM »
I agree with the above, but I prefer 100% VTSAX. All public funds in any REIT already exist within VTSAX, also tons of funds in VTSAX are global companies(meaning they export goods outside of the country, giving us lots of foreign exposure within VTSAX). The levels of real estate/foreign exposure may not be the same as the entire world economy, but you have a lot of the exposure nonetheless.

I have to ask, why do you think you can't retire until you're 60?

Vagabond76

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Re: how does this sample portfolio look?
« Reply #5 on: April 26, 2016, 09:00:01 PM »
I don't like target date funds because they typically only convert stock holdings to bond holdings. This is good if stocks go way up and gradually go down after the conversion--which occurs gradually. But if stocks take a hit followed by conversion to bonds, the owner will never make up those losses. In short, it's a crapshoot just like stock picking.

A better alternative to me is to invest for income. Pick a stock fund or ETF (VTI, VIG, VYM or the mutual fund equivalent) and reinvest the distributions. As the share count compounds, within a few years, the yield on cost will exceed a 4% withdrawal rate. Whenever you decide to retire (38 years from now or sooner), turn off the reinvestment and live comfortably on the income for the rest of your life. Leave all those shares according to your will.

PhysicianOnFIRE

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Re: how does this sample portfolio look?
« Reply #6 on: April 26, 2016, 09:04:55 PM »
#1 You're doing awesome with nearly $23,000 at age 22.

#2 You need an IPS

#3 You can retire at 30, 40, 50, 60, or 70. When depends on how much you need and how much you're willing to work for it.

#4 Stick with just VTSAX, a small amount in bonds if you are so inclined, and I see nothing wrong with 10% REIT, particularly in a tax-free account. I wouldn't bother with the Target Date fund.

Best,
PoF

MDM

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Re: how does this sample portfolio look?
« Reply #7 on: April 26, 2016, 09:32:50 PM »
As noted previously, any of these alternatives could prove best when we get to use hindsight.  There are however some things in the quotes below worth mentioning, in case one might read them the wrong way.

...target date funds...typically only convert stock holdings to bond holdings.
This statement is incorrect.  Having the TD fund re-balance for you is actually its primary advantage.  See https://personal.vanguard.com/us/insights/article/tdf-rebalancing-012016.  It is true that over long time periods the TD fund will change its target allocation, but unless you want to keep 100% stocks when you are 65 years old so will you.

#4 Stick with just VTSAX, a small amount in bonds if you are so inclined, and I see nothing wrong with 10% REIT, particularly in a tax-free account. I wouldn't bother with the Target Date fund.
The main difference between this suggestion and VTTSX (see composition below) is the absence or presence of international stocks.  You pays your money and you takes your chances.
Fund                                                                                             Percentage
Vanguard Total Stock Market Index Fund Investor Shares              53.9%
Vanguard Total International Stock Index Fund Investor Shares    36.0%
Vanguard Total Bond Market II Index Fund Investor Shares†           7.0%
Vanguard Total International Bond Index Fund Investor Shares       3.1%

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A better alternative to me is to invest for income. Pick a stock fund or ETF (VTI, VIG, VYM or the mutual fund equivalent) and reinvest the distributions. As the share count compounds, within a few years, the yield on cost will exceed a 4% withdrawal rate. Whenever you decide to retire (38 years from now or sooner), turn off the reinvestment and live comfortably on the income for the rest of your life.
Having a 4% dividend yield need is not sufficient to guarantee lifelong success.  Beyond the absolute dollar amount needed, the 4% Safe Withdrawal Rate is based on the historical performance of investments that had a return much higher than 4%.  See http://www.retailinvestor.org/pdf/Bengen1.pdf and http://www.aaii.com/journal/article/retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.

Jeremy E.

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Re: how does this sample portfolio look?
« Reply #8 on: April 26, 2016, 10:02:35 PM »
As noted previously, any of these alternatives could prove best when we get to use hindsight.  There are however some things in the quotes below worth mentioning, in case one might read them the wrong way.

...target date funds...typically only convert stock holdings to bond holdings.
This statement is incorrect.  Having the TD fund re-balance for you is actually its primary advantage.  See https://personal.vanguard.com/us/insights/article/tdf-rebalancing-012016.  It is true that over long time periods the TD fund will change its target allocation, but unless you want to keep 100% stocks when you are 65 years old so will you.

#4 Stick with just VTSAX, a small amount in bonds if you are so inclined, and I see nothing wrong with 10% REIT, particularly in a tax-free account. I wouldn't bother with the Target Date fund.
The main difference between this suggestion and VTTSX (see composition below) is the absence or presence of international stocks.  You pays your money and you takes your chances.
Fund                                                                                             Percentage
Vanguard Total Stock Market Index Fund Investor Shares              53.9%
Vanguard Total International Stock Index Fund Investor Shares    36.0%
Vanguard Total Bond Market II Index Fund Investor Shares†           7.0%
Vanguard Total International Bond Index Fund Investor Shares       3.1%

Quote
A better alternative to me is to invest for income. Pick a stock fund or ETF (VTI, VIG, VYM or the mutual fund equivalent) and reinvest the distributions. As the share count compounds, within a few years, the yield on cost will exceed a 4% withdrawal rate. Whenever you decide to retire (38 years from now or sooner), turn off the reinvestment and live comfortably on the income for the rest of your life.
Having a 4% dividend yield need is not sufficient to guarantee lifelong success.  Beyond the absolute dollar amount needed, the 4% Safe Withdrawal Rate is based on the historical performance of investments that had a return much higher than 4%.  See http://www.retailinvestor.org/pdf/Bengen1.pdf and http://www.aaii.com/journal/article/retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.
Another difference between "just VTSAX, a small amount in bonds if you are so inclined" and VTTSX, is that the expense ratio of VTSAX is .05%, and the expense ratio of VBMFX(US Bond fund) is .16%, 90% VTSAX and 10% VBMFX would yield an expense ratio of .06%, whereas the expense ratio of VTTSX is .16%.  As an example, if you invested $10,000 for 1 year, and it returned 7%, you would profit $694 and pay $6 in expenses if you had a .06% expense ratio, and profit $684 and pay $16 in expenses if you had a .16% ratio, only a $10 difference but you can then reinvest that $10 and the difference exponentially grows. Over 50 years of keeping that same $10,000 invested and it returning 7%/year with a .06% expense ratio, you'd profit $275,900 and spend $8,700 in expenses, with a .16% expense ratio you'd profit $262,000 and pay $22,700 the profit difference would be $13,900(a pretty big number, although inflation adjusted to todays dollars that would be  about $4,000, still a big number).

Note, I'm not taking into consideration the fact that if you have those two funds, you should rebalance. However this can be negated by just going 100% VTSAX :D
« Last Edit: April 26, 2016, 10:04:43 PM by Jeremy E. »

webguy

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Re: how does this sample portfolio look?
« Reply #9 on: April 26, 2016, 10:14:44 PM »
At your age I would diversify and do:

50% VTSAX - US
30% VGTSX - International
10% VNQ - REIT
10% BND - Bonds

MustacheAndaHalf

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Re: how does this sample portfolio look?
« Reply #10 on: April 27, 2016, 12:38:15 AM »
"But if stocks take a hit followed by conversion to bonds, the owner will never make up those losses."

Here's what I observe in Vanguard's lineup:
Vanguard Target Retirement 2035 is 18.7% bonds
Vanguard Target Retirement 2045 is 10.1% bonds
Vanguard Target Retirement 2055 is 10.1% bonds

One decade of no changes to bonds, another decade with a 8.6% change.  Where do you see a "conversion to bonds"?

jordan.

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Re: how does this sample portfolio look?
« Reply #11 on: April 27, 2016, 01:06:56 AM »
I used 60 because this is going into a Roth Account and I guess I can take the principle out before I am 60, I am going to invest my other spare cash into real estate and my employers 401k match. This will pretty much be my "fun" money once I hit that age. Or am I missing something with a Roth?

jordan.

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Re: how does this sample portfolio look?
« Reply #12 on: April 27, 2016, 01:20:49 AM »
And thank you all for the valuable information! it really means a lot that you guys are taking the time to type out these lengthy emails to shed some light for me!!

missmoneymachine

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Re: how does this sample portfolio look?
« Reply #13 on: April 27, 2016, 05:26:16 AM »
I used 60 because this is going into a Roth Account and I guess I can take the principle out before I am 60, I am going to invest my other spare cash into real estate and my employers 401k match. This will pretty much be my "fun" money once I hit that age. Or am I missing something with a Roth?

You can withdraw money from your Roth before 59.5.  You can take out any money that you have contributed at any time after it has seasoned for 5 years.  Also, see the "How to withdraw funds from your IRA and 401k without penalty before age 59.5" post that is pinned at the very top of the Investor Alley forum.
« Last Edit: April 27, 2016, 05:29:13 AM by missmoneymachine »

Jeremy E.

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Re: how does this sample portfolio look?
« Reply #14 on: April 27, 2016, 07:02:07 AM »
I used 60 because this is going into a Roth Account and I guess I can take the principle out before I am 60, I am going to invest my other spare cash into real estate and my employers 401k match. This will pretty much be my "fun" money once I hit that age. Or am I missing something with a Roth?
Roth IRA contributions can be withdrawn at any time without penalty, any gains they make will require you to wait. Be careful when deciding to take money out of Roth IRA though, as you can only put in $5500/yr

This in no way means you have to wait until you are 60 to retire, it all depends on your savings rate.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Read this and it should help.
« Last Edit: April 27, 2016, 07:54:57 AM by Jeremy E. »

jordan.

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Re: how does this sample portfolio look?
« Reply #15 on: April 27, 2016, 07:35:53 AM »
I used 60 because this is going into a Roth Account and I guess I can take the principle out before I am 60, I am going to invest my other spare cash into real estate and my employers 401k match. This will pretty much be my "fun" money once I hit that age. Or am I missing something with a Roth?

You can withdraw money from your Roth before 59.5.  You can take out any money that you have contributed at any time after it has seasoned for 5 years.  Also, see the "How to withdraw funds from your IRA and 401k without penalty before age 59.5" post that is pinned at the very top of the Investor Alley forum.

Funny that you posted that because I just looked at that last night and the different ways to roll over a traditional IRA into it. Pretty cool stuff.