Author Topic: I think I'm going to take the plunge into Vanguard & have questions...  (Read 11196 times)

KulshanGirl

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So, my primary goal is to pay off my house quickly and reduce my expenses so I can work PT and be home with my child after school.  I know I'm giving up potential future gains on this path, punch self in the face, but time with the little'un ASAP is the main goal here.  I DO have an emergency fund of $12K and the savings I've been putting aside for my daughter, which is at $3K.  I am hoping to put these employees to work and I am thinking of either the VTSMX or VTSAX.  I would be okay with putting the $10K into it to get the VTSAX, and after looking over the site, it looks like the big difference is the higher minimum gets you the lower fees, is that correct?  Otherwise it's the same mix?   

Also, I can get at this money if I have an emergency?  (noob!)

If I do $10K, I'd still have around $5K in case of emergency/immediate F-you money.  I could stick to my mortgage plan and put around $100 per month plus whatever I come in under budget into the Vanguard. 

More info, I'm 41, I put 10% into my 401k and my employer puts in 11% (I KNOW!!!) in one chunk once a year.  This isn't a match, it's just what they do.  So I have 21% of my income going to work for my retirement.  The current balance is only $50K. I don't do a Roth - yet.  (Did I mention I'm a noob?  LOL)  Maybe I should do $5k in a Roth through Vanguard VTSMX and another $5K in a regular VTSMX? 

*hand wringing*  I'm kind of askeerd of the stock market.  This is all so new to me.

Orvell

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #1 on: October 03, 2012, 11:29:27 AM »
Also a noob and also interested in people's responses.

jpo

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #2 on: October 03, 2012, 12:26:01 PM »
Personally, I wouldn't put my emergency fund in VSTAX. Responses will vary here, but my emergency fund is something that shouldn't lose principal... so I keep it in a savings account.

Funds above and beyond the emergency fund, VSTAX is as good a bet as any.

pepper

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #3 on: October 03, 2012, 12:45:13 PM »
I would agree that you probably shouldn't be putting emergency cash into either of these if you have a short time horizon.  As you know stocks will rise and fall over the short term so if you need to access this cash in a downturn you will lose some of your capital.  If you don't mind taking that risk then either of these funds will work.  The only difference between them is the expense ratio which is 0.18% on VTSMX and 0.06% on VTSAX.  Normally you would want to choose the one with the lowest expense ratio but in your case if you decide to invest less then $10,000 it won't make a lot of difference over a year.  At $10,000 invested it will be a difference of $12 over the year ($6 for VTSAX and $18 for VSTMX) so I wouldn't worry too much about it if you decide to invest less then 10,000 into VTSMX.

So what you might want to do is decide how low you can afford to go on your emergency fund and put the remainder in VTSMX (if it is less then 10K).  Then if you ever need extra you can cash out your funds from Vangaurd with the potential for some loss depending on where the market is at at that time.

If you have access to other sources of cash such as a HELOC then you can probably afford to invest a much larger percentage into your Vangaurd account rather then having such a large emergency fund.

TLV

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #4 on: October 03, 2012, 12:48:40 PM »
If you start with VSTMX because you put in less than $10k, when you add more money in the future and bring it over $10k Vanguard makes it very simple to convert to VSTAX (it takes about 3 clicks on the website).

zoltani

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #5 on: October 03, 2012, 02:27:28 PM »
I've been watching VTSAX and it seems awfully high at the moment.  Is it really a good time to initiate a position in VTSAX?

unitsinc

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #6 on: October 03, 2012, 02:35:41 PM »
I've been watching VTSAX and it seems awfully high at the moment.  Is it really a good time to initiate a position in VTSAX?

I've got the same feeling, but I've had it drilled into my head enough to not try and time the market, and that I should just pull the trigger.
« Last Edit: October 03, 2012, 02:46:46 PM by unitsinc »

zoltani

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #7 on: October 03, 2012, 02:40:54 PM »
Yeah I know, I do not want to time the market really, but it seems that for the initial $10,000 position it would be nice to get it when it is lower.  After the initial position I would put DCA into effect (similar to the OP, initial 10,000 position then a set amount each month). 

KulshanGirl

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #8 on: October 03, 2012, 03:13:36 PM »
See, this is all exactly the kind of info I need.  Please keep talking!  :)  Maybe I ought to watch for the next stock downturn to unfold, see when might be a good jumping point, and just do an initial $3k in the VTSMX, with monthly contributions afterwards just to get my feet wet in this whole business.  That'll keep my $12K emergency fund safe in savings for now, and I'll be playing around with just the daughter's savings, she has plenty of time to weather the market, she's 2.  :)   Is it unheard of to have two of the same exact ones, say 2 VTSMX accounts @ $3K each?  I could add $100 to "hers" per month and however much I come in under budget to "mine."   That would leave $9K in the Emergency fund, which is more than 3 months living expenses. 

By the way, this is perhaps college money, perhaps not.  It might end up being not hers after all but that is the plan.  I've just been socking away $100 per month since her birth with her future in mind.

mustachianit

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #9 on: October 03, 2012, 05:42:52 PM »
My question is I am have been thinking about getting into this fund myself.  But, the dividend is so low.  How can anyone live off of that in 20-30 years unless you can put in a ton of money?  Am I looking at this from the wrong angle here? The dividend is .16 a share so you would need a ton of shares to get a good dividend pay out later.

I agree I would wait for a price drop.  I swear every time I buy a stock it dips later.  I would hold out we will have more bad days.  Wait to get in on a better price it does seem high to me too right now.

pepper

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #10 on: October 04, 2012, 11:00:40 AM »
The dividend yield for VTSMX is 1.76% today.  This dividend yield may be a bit low for what you might want in retirement but if you are looking at a 20-30 year time horizon, this certainly leaves you with lots of time to make changes as you get closer and as you learn more about investing.  In the mean time since you own a small piece of every company on the stock market you are well diversified and will benefit from the capital growth of these companies as well as the dividend payout albeit a small one.

As you get closer to retirement you will want to rebalance your portfolio anyway for a more conservative set of investments including dividend paying stocks (or index funds), reits, real estate and bonds.  Of course you can always sell off some of your investments if your dividend payments are not high enough providing it is at a sustainable rate.

As for market timing, here are some articles to read, there are lots more but this should get you started:

Market Timing
http://www.fool.com/investing/general/2012/06/07/on-buffett-market-timing-and-dividends.aspx
http://www.fool.com/investing/general/2006/11/20/say-no-to-market-timing.aspx?source=isesitlnk0000001&mrr=1.00

Dollar Cost Averaging
http://www.investopedia.com/terms/d/dollarcostaveraging.asp#axzz28LhkirsF
http://wiki.fool.com/Dollar-cost_averaging
http://valueaveraging.ca/docs/Analysis_Dollar_Cost_Averaging.pdf

mustachianit

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #11 on: October 04, 2012, 06:14:00 PM »
Thank you.  I found this helpful.  :)

Mr Mark

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #12 on: October 05, 2012, 09:05:15 AM »
Personally, if I had to pick just 1 fund, I would first pick a balanced fund (a mix of stocks and bonds) with a high stock ratio, like VWELX (or the lower cost version with >$10k). Vanguard will do the allocation balancing for you automatically - it really is just 'fire and forget'.

Advantage is less volatility than 100% stock index, and you benefit somewhat from the buy low/sell high aspect of being balanced.

Instead of trying to time the market, feed it in over a couple of months.


Scuba Stache

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #13 on: October 09, 2012, 08:38:23 AM »
What are the groups thoughts on the ETF vs Mutual Fund version - VTI

twinge

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #14 on: October 09, 2012, 12:12:00 PM »
Quote
I DO have an emergency fund of $12K

IMO I think if you have a kid and a house that's not an unreasonable amount to keep in cash.  People differ on this.  Some think you should have a lot more, others think you need less.  Personally, I generally keep about 25K out of investments, though some of that I consider "opportunity funds" meaning if I saw a good investment opportunity I would invest probably all but 5-10K of it and then just shift to rebuilding it again.    I have two kids and own a house (with a mortgage) and have about a 40% savings rate.   Do you have a home equity LOC open? that's another back-up emergency plan.

Quote
Also, I can get at this money if I have an emergency?  (noob!)

Yes, if you put it in a regular taxable investment account or a Roth IRA.  The issue is that if it's anything other than cash you run the risk of needing to withdraw it when prices are down.  Some people with no emergency funds opt to put funds in a cash vehicle in the ROth so you take advantage of the yearly contributions, flexibility and tax advantages but not have the risk of losing money that is needed for an emergency.


 You might want to post your full assets and budget and your plans for PT work for advice if you want to shift gears to PT work as I would worry that your assets are pretty low for your age/responsibilities(i.e., house and young child) and those hopes.   It would be good to get on a serious and realistic track for that asap if you want it to happen.  And paying down the house may not be the best route towards it (or it may be).


grantmeaname

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #15 on: October 09, 2012, 01:54:40 PM »
What are the groups thoughts on the ETF vs Mutual Fund version - VTI
Bogleheads has a good overview sumarizing the differences between the two.

Quote
Also, I can get at this money if I have an emergency?  (noob!)
Yes, if you put it in a regular taxable investment account or a Roth IRA.  The issue is that if it's anything other than cash you run the risk of needing to withdraw it when prices are down.  Some people with no emergency funds opt to put funds in a cash vehicle in the ROth so you take advantage of the yearly contributions, flexibility and tax advantages but not have the risk of losing money that is needed for an emergency.
Remember, though, anything that's cash is guaranteed to lose to the market over time. So you should only stay out of the market and in cash if you think it's more likely that you'll withdraw when the market's down than up (like you anticipate that if you're laid off, you'll be laid off in a market crash). Some of those assumptions are reasonable, but other uses of emergency funds, like extraordinary hospital bills, have no relation to the market's performance.

AccidentalMiser

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #16 on: April 04, 2014, 07:25:49 PM »
I've been watching VTSAX and it seems awfully high at the moment.  Is it really a good time to initiate a position in VTSAX?

I wanted to resurrect this thread to make a point.  These folks were talking about how overpriced the market looked 18 months ago.

If they initiated a 10k position on the day in question, they would have 13k today.  Not a bad return from an "awfully high" market.

My point is that trying to time the market is a bad idea.  It WAS high then, but it's a heck of a lot higher now. 

That's all, thanks for listening.

dsiee

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Re: I think I'm going to take the plunge into Vanguard & have questions...
« Reply #17 on: April 08, 2014, 11:19:50 PM »
I suppose that answers my question on whether to jump in or not!