Author Topic: Vanguard: Is it really that simple?  (Read 4715 times)

koifish

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Vanguard: Is it really that simple?
« on: November 03, 2015, 12:55:03 PM »
Hi all, first time poster so apologies if I'm out of place.

As a simple background, I've just started working out of college at a 50k/yr salary position which offers 401k and profit sharing. Through the blessings of my father I am also debt-free, and I currently have around 100k in the bank. My father always worked very hard to provide for us. His mantra was "I take care of my kids." and it extended to the rest of our family and to the people he knew as well. It was this caring nature that has put me in such a very fortunate position already, and I want to make the most of it and not waste this great gift that he has given me.

My intent is to take 50-80k from the bank and invest it now to get the dividend ball rolling. In addition, I receive 1.5k every two weeks from my job which is direct deposited into my bank account. I am working on shaving my living expenses down to that 50-75% range (so about 750-1500 a month), so that I can be feeding most of my salary into my investments and reinvest 100% of the dividend as well. Depending on how much I can invest, how much more I make in years to come (my employer and I had discussed pay-raise options during my interviews), and how efficiently I can live while still being healthy and happy, I think it shouldn't be hard to retire from regular work before I'm 35 (or in 11 years). By then I want to be living off of about 1k a month and continue investing any higher dividend, so that I can continue to raise how much I have. In this way, the amount I can actually spend should increase, allowing me to make payments as needed for discretionary spending as needed.

My problem is that I'm just so overwhelmed by everything that is investing. Finances were never very interesting to me before, but in response to MMM I've been trying to get more into it by studying different terms and reading articles on Investopedia. I have also been slowly working through the blog, and just recently an NPR story once again brought that word to my mind: Vanguard. I understand the concept, and why they're a strong investment choice, but it seems almost too easy, you know? I'm the type who easily succumbs to analysis paralysis, and when 10's of thousands are on the line you can be darn sure that I'm right well scared stiff. The fear of losing my investment money in a faulty decision is very real, and I just don't know if I can invest so much so freely into one place. Even if indexes do build against the whole of the market, I find the notion of investing all of it with one enterprise rings too much of 'putting all your eggs in one basket'. Is there real reason for my worry, or am I blowing it out of proportion? And how much of my plan is reasonable overall?

Retire-Canada

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Re: Vanguard: Is it really that simple?
« Reply #1 on: November 03, 2015, 01:09:49 PM »
Even if indexes do build against the whole of the market, I find the notion of investing all of it with one enterprise rings too much of 'putting all your eggs in one basket'. Is there real reason for my worry, or am I blowing it out of proportion? And how much of my plan is reasonable overall?

http://forum.mrmoneymustache.com/ask-a-mustachian/is-it-safe-to-keep-all-your-money-in-vanguard-(in-only-one-place)/

Cromacster

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Re: Vanguard: Is it really that simple?
« Reply #2 on: November 03, 2015, 01:10:35 PM »
Even if indexes do build against the whole of the market

They won't.  Index funds more or less follow the market.  You may earn dividends though.

I find the notion of investing all of it with one enterprise rings too much of 'putting all your eggs in one basket'.

You are not putting your eggs in one basket.  Vanguard is the brokerage house, you are not investing in Vanguard as a company.  You are investing in markets as a whole if you choose the index route.

I recommend you read

http://jlcollinsnh.com/stock-series/

It will help you learn some of the basics in index investing and learning about Asset Allocation etc..

Welcome to the forums!

Jack

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Re: Vanguard: Is it really that simple?
« Reply #3 on: November 03, 2015, 01:26:07 PM »
(koifish, ignore this because if you're overwhelmed it'll just confuse you more. Just know that the gist is "Vanguard is exceptionally good.")

Vanguard is the brokerage house, you are not investing in Vanguard as a company.

Technically, you actually are! Vanguard has a unique corporate structure whereby it is owned by its own funds, so when you buy shares of a Vanguard fund you're buying shares of Vanguard itself (along with all the other companies in the fund).

rugorak

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Re: Vanguard: Is it really that simple?
« Reply #4 on: November 03, 2015, 01:32:52 PM »
I recommend you read

http://jlcollinsnh.com/stock-series/

It will help you learn some of the basics in index investing and learning about Asset Allocation etc..
+1 to this. Everything else that has been said is great too.

I asssume this is the NPR story you are refering to - http://www.npr.org/2015/10/21/443192311/the-george-washington-of-investing-wants-you-for-the-revolution

And at 50K a year take home of $1500 a week means you aren't doing a 401k/403b. You should start there. As others have linked to great things explaining why but the short version is tax savings.

iamlindoro

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Re: Vanguard: Is it really that simple?
« Reply #5 on: November 03, 2015, 02:41:02 PM »
Here are what should be your priorities:
1. Invest enough to get your 401k Match
2. Invest full Roth amount ($5500) or Traditional IRA ($5500) in Vanguard
3. Invest up to your 401k limit ($18000)
4. If you have a High Deductible health plan, invest the max on your Health Savings Account.

I've never seen anyone list HSA after both IRA and 401k limit.  HSAs are (as Mad Fientist, who you link, says) the ultimate retirement account.  Both your contribution and your gains are untaxed, so most people put the HSA immediately after 401k match and paying high interest debt.

Telecaster

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Re: Vanguard: Is it really that simple?
« Reply #6 on: November 03, 2015, 03:21:58 PM »
I'm the type who easily succumbs to analysis paralysis, and when 10's of thousands are on the line you can be darn sure that I'm right well scared stiff. The fear of losing my investment money in a faulty decision is very real, and I just don't know if I can invest so much so freely into one place. Even if indexes do build against the whole of the market, I find the notion of investing all of it with one enterprise rings too much of 'putting all your eggs in one basket'. Is there real reason for my worry, or am I blowing it out of proportion? And how much of my plan is reasonable overall?

It is overwhelming, so here is what you do:  Invest the whole thing in Vanguard Total Market Index, VTSMX.   That right there, is about 87% of everything you need to do.   You are now hugely diversified and even if you stop right there and do nothing, everything will turn out just fine.   

Now, at your leisure, go ahead and read the stock series.   Read some books by William Bernstein.  Map out a plan.   Take your time and think it through.  At some point you'll probably want to do some shuffling here and there, but very likely VTSMX will remain a significant part of your holdings for the rest of your life.  So good job. 

SuperSecretName

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Re: Vanguard: Is it really that simple?
« Reply #7 on: November 03, 2015, 03:26:20 PM »
When you select your funds, always select "reinvest dividends".
A bit of a tangent, but I wouldn't say "always."

If you have a taxable account, are interested in maybe tax loss harvesting at some point, and share the same funds between your retirement and taxable, you don't want to reinvest dividends.  You need a clear 30 day window on either side of your TLH.   This all can be avoided by having different funds in taxable vs. tax-advantaged.

Again, a bit off topic, but worthy of a mention.

PizzaSteve

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Re: Vanguard: Is it really that simple?
« Reply #8 on: November 03, 2015, 07:30:17 PM »
There are good answers so far.

The jist is, yes it really is that simple.  Financial advisors try to make it complicated to separate you from your money,

I recommend Google of 'bogleheads wiki'. Read the intro.  Pick an allocation and go for a simple 2-3 fund portfolio.  Have some cash in a savings account, some in a total market index fund (fees below .1%), some in an index bond or treasuries fund.  Vanguard, Fidelity or Schwab are my recommended brokers.  All of them have low cost index funds or ETFs you can buy.  Do not pay for advice.  Do not let them try to add complexity.  Just buy in proportion to your allocation.  6months pay in cash plus 90/10 stocks bonds is good for younger (20+ years horizon), 50/50 for retired folks, if close to your exact needed amount.  Older folks or the very risk adverse can be more aggressive or more conservative by altering percentage of stock higher or lower. If a big stash, more stocks usually ok (better returns, but also risk of losses).  Perhaps 70/30 or 80/20.
« Last Edit: November 03, 2015, 07:32:12 PM by PizzaSteve »

MDM

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Re: Vanguard: Is it really that simple?
« Reply #9 on: November 03, 2015, 10:18:34 PM »
My problem is that I'm just so overwhelmed by everything that is investing.
There are various ways to invest simply.  There is also no way to know beforehand which will do best.  For someone just starting (e.g., you), one defensible strategy is to put all your investable money into VTTSX.  See https://personal.vanguard.com/us/funds/snapshot?FundId=1691&FundIntExt=INT.

In the future, if you choose to get fancier, you could reallocate.

Jack

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Re: Vanguard: Is it really that simple?
« Reply #10 on: November 05, 2015, 07:20:38 AM »
I can agree with putting the HSA first if you have that option and are willing to deal with the extra paperwork involved.  I'm pretty new to HSAs and haven't used it for investing yet and am also uncertain as to what the tax implications are for it once a Republican gets back in the White House.

By all rights, Republicans should want to make HSAs even better. (Unless a Democrat proposed it first, then all Republicans would rail against HSAs as being some kind of deadly evil.)

Also, given who's leading their field of candidates, I wouldn't be too worried about a Republican in the White House anytime soon.

ooeei

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Re: Vanguard: Is it really that simple?
« Reply #11 on: November 05, 2015, 07:28:11 AM »
I recommend you read

http://jlcollinsnh.com/stock-series/

It will help you learn some of the basics in index investing and learning about Asset Allocation etc..

Welcome to the forums!

+1 again. 

OP, if you are actually skittish about investing this money (and rightly so, this is a relatively large amount of money for you), there's nothing wrong with putting $10k every month or two into the Vanguard account and dollar cost averaging over a year or two.  Your return will be slightly lower than investing it all at once, but this will help you avoid an unlucky circumstance of a market correction immediately after investing the full amount.  At your experience level (and based on the hesitance you show in the OP), I'm not sure you'd be able to "stick it out" if your father's legacy dropped by $30,000 immediately after you invested it.

Better to reduce your return by a percent or two for a year than to pull your hair out and/or potentially bail at the bottom if there's a market correction.  Saying you'd stick it out, and actually watching your life savings drop every day is a big difference.

Something to consider.
« Last Edit: November 05, 2015, 07:31:06 AM by ooeei »