Author Topic: Indexes... I'm invested, but have no plan  (Read 5113 times)

Spondulix

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Indexes... I'm invested, but have no plan
« on: March 27, 2015, 12:17:52 AM »
Last year, I moved all of our retirement accounts from managed accounts to various index funds at Vanguard. I didn't really have a plan other than get into indexes, so I don't have a plan moving forward. My work 401k just opened up some lower-cost fund options, so it's a good time to evaluate. Here's my questions:

- Since both DH and I are in indexes (which are inherently diversified), do we need to do anything to diversify between us?
- Do we have too much bond exposure? I'm 35, he's 38, but not investing anything new into those funds. I arbitrarily went for 10k on mine just to get Admiral rates

Here's where we're at now:

Husband SEP - 25k (contributes 3-4k/year)
VTSAX Total Stock Market Index (Admiral .05%) 20k
VBLTX Long Term Bond Index (.20%) 5k

Husband Roth - 22k (contributing max, if we don't exceed income limit)
VFIAX 500 Index (Admiral .05%) 16k
VGTSX Total Intl Stock Index (.22%) 6k

My SEP - 20k (no new contributions)
VBTLX Total Bond Index (Admiral .08%) 10k
VTSAX Total Stock Market Index (Admiral .05%) 10k

My Roth - 17k (contributing max, if we don't exceed income limit)
Betterment - 90/10 split 17k

My 401k - 11k (maxing - 18,000 + 4,000 employer contribution)
Dreyfus 500 Index (.20%) 10k
Vanguard Developed Markets (.20%) 1k
Lowest cost new fund options: Vanguard 500 Index (0.05%), Vanguard Mid Cap and Vanguard Small Cap index (0.09)

Brokerage (contributing 10k/year)
VTSAX (Admiral .05%) 15k

matchewed

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Re: Indexes... I'm invested, but have no plan
« Reply #1 on: March 27, 2015, 06:35:50 AM »
Come up with an Investment Policy Statement. It can be individually depending on whether your risk tolerances are different, or together if they're similar enough or if you guys can agree on a path.

That will be your plan.

Diversification depends on how diversified you want to be, developing the above IPS with considering your options and ignoring your current investments will tell you how to invest and will be as diversified as you think you should be.

As for bond exposure (FYI it will make things easier to communicate in percentages when discussing AA rather than dollar amounts as I'm lazy and don't like doing math for people :) ) you are at about 15% bonds. Given you and your husbands risk tolerance and expected returns are you okay with that? If yes then leave it, if no then change it.

A note on your 401k, move out of the dreyfus into the vanguard yesterday. Why pay .2 when you can pay .05?

innerscorecard

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Re: Indexes... I'm invested, but have no plan
« Reply #2 on: March 27, 2015, 08:29:09 AM »
Why aren't you invested any more into these funds?

nereo

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Re: Indexes... I'm invested, but have no plan
« Reply #3 on: March 27, 2015, 08:47:20 AM »
Agreed - and INcome Policy Statement is what you need.

That said, looking over your investments, what I see is that almost all of them overlap.  Investing in any SP500 index fund gives you good diversity overall, so that's the good news. 
Investing in a "total market index" like husband's SEP doesn't add much - 70% of that fund is the 500 largest companies held in your other SP500 funds.
You made no mention what your Bettermend is invested in other than the 90/10 split, but I suspect that, too, is dominated by US large-cap.

Bottom line - I think you are doing fine.  You're investing ~$40k/year (if I read this right) in mostly the SP500 with a light sprinkling of small and mid-cap US stocks, a dash of developing markets and some bonds.  If you want greater small-cap or developing market exposure, switch your 401(k) to reflect this, but set your AA allocation first so you're not randomly investing.

Mostly though, keep saving like you are... you should be good in the end.

Heckler

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Re: Indexes... I'm invested, but have no plan
« Reply #4 on: March 27, 2015, 08:50:22 AM »
What will you do when the US market tanks?   Think internationally to diversify.

I started here with my plan.

https://www.bogleheads.org/wiki/Getting_started


And once you decide to diversify:

http://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts


This file really helped us understand our 7 accounts

http://www.bogleheads.org/wiki/Using_a_spreadsheet_to_maintain_a_portfolio

nereo

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Re: Indexes... I'm invested, but have no plan
« Reply #5 on: March 27, 2015, 09:14:42 AM »
What will you do when the US market tanks?   Think internationally to diversify.
This is a very good thing to think about.
Just realize that the SP500 already has a good deal of international exposure - about 45% by one measure.
http://www.businessinsider.com/chart-sp-500-revenue-geography-2012-6
If you suddenly start buying large quantities of international funds you may find you have more international exposure than you thought you had.

forummm

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Re: Indexes... I'm invested, but have no plan
« Reply #6 on: March 27, 2015, 10:23:38 AM »
What will you do when the US market tanks?   Think internationally to diversify.
This is a very good thing to think about.
Just realize that the SP500 already has a good deal of international exposure - about 45% by one measure.
http://www.businessinsider.com/chart-sp-500-revenue-geography-2012-6
If you suddenly start buying large quantities of international funds you may find you have more international exposure than you thought you had.

A lot of the largest international firms (Nestle, Toyota, Novartis, Anheuser/InBev, etc) have a lot of US exposure too. I think if you are 25-50% international, you're fine. The global market weight is around 55US/45Intl right now. I think the US side is a bit high and will decline relative to intl in the next 10+years.

Kaspian

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Re: Indexes... I'm invested, but have no plan
« Reply #7 on: March 27, 2015, 12:49:52 PM »
Agree that you need an Investment Policy Statement.  ...And I also think that a portion should be in international.  So far, an international index has done 15% this year while US has done 10%.

Also, look for and do risk assessment questionnaire/calculators and answer the questions honestly.  It does no good to pretend you're braver than you really are.  I, for one, am not too brave with my investments.  I'm what used to be (four years ago?) considered "normal" or "aggressive" with a 60/40 equity/bond mix.  Since the last few years have been rosy, people now call the same allocation I had before "conservative".  ...Funny how recency bias works!

Here's a calculator:  https://personal.vanguard.com/us/FundsInvQuestionnaire


Spondulix

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Re: Indexes... I'm invested, but have no plan
« Reply #8 on: March 27, 2015, 01:22:46 PM »

A note on your 401k, move out of the dreyfus into the vanguard yesterday. Why pay .2 when you can pay .05?
Super helpful advise all around - I've never even heard of an investment policy statement. The new funds don't open up end of April (I just got an alert message about it). Definitely in the calendar to do. :)

Spondulix

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Re: Indexes... I'm invested, but have no plan
« Reply #9 on: March 27, 2015, 01:36:48 PM »

Why aren't you invested any more into these funds?
You mean up til now? Income has drastically shifted in the past 5 years (like 70k combined to 180k combined). We're power saving, but trying to live how our income was before.

We're actually going to be close (or over) the Roth limit this year, but I asked about that in another thread. There's more to save, and I'm wondering if brokerage really is the best place (backdoor Roth?)

Spondulix

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Re: Indexes... I'm invested, but have no plan
« Reply #10 on: March 27, 2015, 01:42:05 PM »

You made no mention what your Bettermend is invested in other than the 90/10 split, but I suspect that, too, is dominated by US large-cap.
90/10 is pretty arbitrary - I just didn't want too much more bond exposure since I've got it in the other account. I think it's 35% emerging markets index, and the rest is the typical Betterment mishmash. I've considered getting out of Betterment since I have no control over the funds (now that I've learned more)

nereo

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Re: Indexes... I'm invested, but have no plan
« Reply #11 on: March 27, 2015, 03:25:08 PM »
Agree that you need an Investment Policy Statement.  ...And I also think that a portion should be in international.  So far, an international index has done 15% this year while US has done 10%.
just curious, which international index are you looking at?  My European index has sucked lately.

Eric

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Re: Indexes... I'm invested, but have no plan
« Reply #12 on: March 27, 2015, 03:35:35 PM »
Agree that you need an Investment Policy Statement.  ...And I also think that a portion should be in international.  So far, an international index has done 15% this year while US has done 10%.
just curious, which international index are you looking at?  My European index has sucked lately.

Also, considering that VTSMX has returned about 1% YTD, so where are you getting your 10% US?  Unless by "this year" you mean "the last 365 days", but that's generally not how it's phrased.

Kaspian

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Re: Indexes... I'm invested, but have no plan
« Reply #13 on: March 30, 2015, 11:21:27 AM »
Agree that you need an Investment Policy Statement.  ...And I also think that a portion should be in international.  So far, an international index has done 15% this year while US has done 10%.
just curious, which international index are you looking at?  My European index has sucked lately.

Also, considering that VTSMX has returned about 1% YTD, so where are you getting your 10% US?  Unless by "this year" you mean "the last 365 days", but that's generally not how it's phrased.

Sorry, I'm Canadian and don't think you guys have it.  But I can't understand why there would be a difference in the indices?  (Currency fluctuation, maybe?  You're possibly not seeing the same gains because the US dollar has gone up so much in comparison to the Euro.  Or the Canadian dollar has fallen?  ...I don't know.)  15.39% YTD.

It tracks the http://en.wikipedia.org/wiki/MSCI_EAFE "Vanguard has the mutual fund Vanguard Developed Markets Index Inv (Mutual fund: VDMIX) and the Vanguard FTSE Developed Markets ETF (NYSE Arca: VEA); these funds previously used the MSCI EAFE, but now use the FTSE Developed ex North America Index, which is very similar but includes South Korea."


See attached.
« Last Edit: March 30, 2015, 11:32:24 AM by Kaspian »

nereo

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Re: Indexes... I'm invested, but have no plan
« Reply #14 on: March 30, 2015, 11:45:03 AM »

Sorry, I'm Canadian and don't think you guys have it.  But I can't understand why there would be a difference in the indices?  (Currency fluctuation, maybe?  You're possibly not seeing the same gains because the US dollar has gone up so much in comparison to the Euro.  Or the Canadian dollar has fallen?  ...I don't know.)  15.39% YTD.
Ok - I think what you are talking abotu can be found here: https://research.tdwaterhouse.ca/research/public/MutualFundsProfile/Summary/ca/TDB911?addRecent=true&omni_prop2=international%20index%20&omni_prop3=&omni_prop14=5&omni_prop15=tdw:symbol%20search
Looks like equities in Europe, Asia and Oceania, none in Africa or N/S America.  The gains seen are in $CAD, not USD, so it isn't quite an apples-to-apples comparison.

It's just a little odd to say "so far an international index has [done better than the SP500]" without talking about which international fund you are considering. 
I can guarantee you that, for every single year over the past decade you could find "an international fund" that did better than the SP500.  I'm also sure you can find "an international fund" that did worse. 

Kaspian

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Re: Indexes... I'm invested, but have no plan
« Reply #15 on: March 31, 2015, 09:27:10 AM »
It's just a little odd to say "so far an international index has [done better than the SP500]" without talking about which international fund you are considering. 
I can guarantee you that, for every single year over the past decade you could find "an international fund" that did better than the SP500.  I'm also sure you can find "an international fund" that did worse.

Right, I agree--it was an overgeneralization for sure. 

But so was your:

Quote
Just realize that the SP500 already has a good deal of international exposure - about 45% by one measure.

That's good that the S&P500 has international exposure, but what about the other way around?  Internationals equity  companies based in developed markets outside the U.S.?  There's often more growth opportunities in those markets than those which have already been listed in the S&P.

My comment was meant to be in support of earlier posters' recommendation to diversify internationally and add a corresponding asset class for more balance.

https://www.franklintempleton.com/forms-literature/download/ALLOC-FL