Author Topic: IRA - VTIVX to VFIAX  (Read 1534 times)

paulkots

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IRA - VTIVX to VFIAX
« on: November 18, 2016, 12:14:01 PM »
Hey everyone, I am new to the forum and also new to invest, IRAs, etc. Trying to read as much as I can to learn.

I am trying understand the benefits and the negatives of doing the below.

I want to exchange($10k) the following funds on my Roth IRA account. VTIVX to VFIAX. (I would be transferring more than half my IRA fund if I do this)

The returns on VFIAX are better in the 10 year, 5 year, etc periods. The expense ratio on VFIAX is 0.05% while VTIVX is 0.16% so I will save some money there too. The only negative I see is that I will not be 90/10 on stocks vs bonds. I am 30 years old so I think this will pay off. I am maxed for this years Roth IRA but I can buy some bond funds next year to get everything back to 90/10.

Am I not seeing something or doing something wrong?
« Last Edit: November 18, 2016, 12:19:13 PM by paulkots »

Scandium

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Re: IRA - VTIVX to VFIAX
« Reply #1 on: November 18, 2016, 12:38:33 PM »
Am I not seeing something or doing something wrong?

Yes you are doing something wrong; you are changing funds based on recent performance. Don't look at previous performance, ever! This may or may not be a good switch, but you need to understand what these funds are holding, and why a switch is necessary for you in relation your overall portfolio and target allocation etc.

VTIVX is target retirement 2045. Holding 54% US, 36% international and 10% bonds.
VFIAX is the S&P500.

You would be going from being globally diversified (almost 10,000 different stocks I believe), to holding just the top 500 megacorps in america. I this your desired allocation? Do you have other international, why/why not?  If you have answers to these and this line up with our plan then yes go ahead. But don't chase performance.

Personally: I don't believe in american exceptionalism so I prefer 30-40% international as well to cover all bases. International has lagged the last decade so if anything it's "due" to outperform (but don't bet on it). The target retirement fund is an excellent, simple 1-fund solution. If you don't have time/desire to learn you could do far worse than putting everything in there for decades then retiring, without having to change a thing! IMO I think you should stick with it, but that's totally up to you.

paulkots

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Re: IRA - VTIVX to VFIAX
« Reply #2 on: November 18, 2016, 02:28:44 PM »
Thank you.
« Last Edit: November 18, 2016, 02:42:13 PM by paulkots »

Another Reader

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Re: IRA - VTIVX to VFIAX
« Reply #3 on: November 18, 2016, 04:26:53 PM »
I disagree about American exceptionalism because there is a long history of successful business growth here and those GAAP's that seem to elude the emerging market companies turn me off.  Warren Buffett is a big proponent of the S&P 500, he said he would advise his wife to put their money in it when he dies.

In your shoes, I would read up on investing.  If you like indexing, read the JL Collins series and have a look at the Bogleheads site.  I might consider the total stock market fund, since the bulk of that is S&P 500.   Some folks believe a value tilt enhances returns.  There are several schools of thought on how to approach that.  Once you have done your homework, develop an investment policy statement and an asset allocation that you can stick to.