Investments Outside of TSP. Where?

[PXS1234]

Hi all,

My TSP investment plan is as follows:

70% stock, 30% bonds
-40% C Fund, 20% I Fund, 10% S Fund, 15% in both G and F funds

I want to invest in some Vanguard index funds after I max out my TSP. What would you suggest? I want to diversify my portfolio so I am not investing in essentially the same things as my TSP. For instance, since I'm investing heavily in the C Fund, perhaps I shouldn't invest in the SP 500 for my IRA.

Thoughts? Suggestions?

[MustachianMD]

The TSP has a great overall selection of funds. I think the other options for what to invest in would be an international bond and an REIT, I prefer vanguard and would go with one of their indexed funds. For funds in a taxable account I would recommend the Vanguard Total Stock Market Index Fund (VTSAX) has a low expense ratio (especially once you qualify for admiral shares- 0.05%) and the capital gains on it has not been bad. If you want some international funds you can also purchase the Vanguard Total International Stock Index Fund (VTIAX). Both of these funds are relatively tax efficient.

As your investments grow in your non TSP accounts, I would consider shifting your allocation in your TSP. For instance, the G-fund is very popular since it guarantees a return and will never lose money so you may end up increasing the amount you allocate into this as you shift from a stocks to bonds and as your total amount of stocks in all your investments increase and you find that you need to rebalance your bond fund distribution.

Hope these suggestions help. Let me know if you need any clarification

[PXS1234]

Great suggestions, thank you. I plan on maxing my TSP every year, and I am interested in putting away additional money. It would behoove me to use tax advantaged accounts to take advantage of my loan forgiveness program (10 years of paying 15% of my discretionary income then the rest of my balance is forgiven tax free).

Does this information (that is, I'm maxing out my TSP) sway your opinion as to whether I should contribute to the VTSAX or VTIAX? Or even another index fund?

[MustachianMD]

It does not sway me. I have maxed out my retirement and contribute to an IRA (don't qualify for a roth) and I also contribute to an HSA (which I also invest in). I currently fill my taxable account with a mix of the VTSAX and VTIAX. My plan is to rebalance by changing some of my tax sheltered allotment into bonds since they are tax inefficient.

Both the VTSAX and VTIAX have been pretty efficient for me. I end up paying a lot more in gains from individual stocks I have left over from before my mustachian/bogle days. If you want a small cap tilt, you can also do the Vanguard Small Cap index fund (VSMAX I think). 

My current contributions have the following ration: 2:1:1 for VTSAX:VTIAX:VSMAX.

[MustachianMD]

Depending on your tax bracket, it may be a wash or loss to invest in the international fund in your taxable account in terms of taxes you have to pay and tax credits you get from paying international taxes. See the boglehead forum below.

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=130486

Til you figure out what is best for you, you may just want to stick with the Total stock market index fund.

[DoubleDown]

You've got a reasonable and diversified allocation in TSP, and I see no reason not to aim for the same kind of diversified allocation outside your TSP. If you feel like you want to be more risky outside the TSP, you can amp up the equities and go lower on the bonds, but I don't think you should feel like you have to do something different than you're doing in the TSP.

Also, I'm a big proponent of real estate. It's not for everyone, but it provides an excellent diversification outside of "paper" assets as well as a fantastic hedge against inflation. Plus in the U.S., you often get tax breaks by deducting mortgage interest and property taxes (and other expenses as well if it's investment property), if you're itemizing deductions that exceed the standard deduction.