Author Topic: Purchase VTSMX right now?  (Read 9935 times)

LeboLebo

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Purchase VTSMX right now?
« on: August 19, 2014, 12:12:44 AM »
VTSMX is trading at an all time high. I am looking to make my first purchase of this fund (at the $10,000 minimum to take advantage of the Admiral shares) but am hesitant due to the relative high costs vs. historical cost.

No question really, just want to see what others might think of this

not_a_trex

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Re: Purchase VTSMX right now?
« Reply #1 on: August 19, 2014, 12:26:39 AM »
The investor share fee of 0.17% isn't too large to begin with. You would be at most $12 out in management fees had you gone all in with 10k. If you're not comfortable throwing 10k+ in all at once you can still purchase investor shares if you put up at least 3k. Dollar cost averaging your way in is a perfectly reasonable way of doing it if it helps you sleep at night.

That being said, a financial company (Vanguard?) did a study comparing the performance of putting in a lump sum and dollar cost averaging an equivalent amount into the market. The lump sum outperformed DCA'ing ~two thirds of the time.

larmando

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Re: Purchase VTSMX right now?
« Reply #2 on: August 19, 2014, 01:13:51 AM »
I wonder if there's such a study for all time highs! :) :)

matchewed

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Re: Purchase VTSMX right now?
« Reply #3 on: August 19, 2014, 06:12:42 AM »
I think it is a question that is frequently brought up.

In short you're using an immediacy bias to color your perception of investing. You're looking at the immediate past and saying "The market is at an all time high and will crash, I'm afraid." While you should be looking at the long future and saying "The market in the long run is driven by sound economic principles. These principles should keep driving the economy in a generally positive direction. I'm investing for the long run. Therefore I should invest and not worry about what the market will do tomorrow."

http://forum.mrmoneymustache.com/investor-alley/need-reinforcement-to-just-invest-now-and-not-wait-for-further-declines/
http://forum.mrmoneymustache.com/investor-alley/is-the-stock-market-too-expensive-to-get-back-in/
http://forum.mrmoneymustache.com/investor-alley/current-market-has-me-scared-to-invest/

In short you are participating in emotional market timing. Usually a bad thing. Or at the very least not a good thing.

Philociraptor

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Re: Purchase VTSMX right now?
« Reply #4 on: August 19, 2014, 06:25:45 AM »
Don't forget that by not investing you are missing out on dividends!

skunkfunk

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Re: Purchase VTSMX right now?
« Reply #5 on: August 19, 2014, 07:40:10 AM »
Don't forget that by not investing you are missing out on dividends!

Not really true. Expected dividends are built into the price, there's really no advantage to buying earlier. Otherwise, everyone would cash in out then out sandwiched around dividend time.

Jack

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Re: Purchase VTSMX right now?
« Reply #6 on: August 19, 2014, 07:47:37 AM »
I wonder if there's such a study for all time highs! :) :)

The market always goes up. Therefore, it is often at an all-time high.

Left

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Re: Purchase VTSMX right now?
« Reply #7 on: August 19, 2014, 08:53:08 AM »
Not really true. Expected dividends are built into the price, there's really no advantage to buying earlier. Otherwise, everyone would cash in out then out sandwiched around dividend time.
well not really... to me anyways, by not investing, I am missing out on dividends because money is sitting in bank... unless you mean trying to wait until the market falls then buying? and again, when is that going to happen? this is how he's missing out on dividends.

skunkfunk

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Re: Purchase VTSMX right now?
« Reply #8 on: August 19, 2014, 08:54:33 AM »
Not really true. Expected dividends are built into the price, there's really no advantage to buying earlier. Otherwise, everyone would cash in out then out sandwiched around dividend time.
well not really... to me anyways, by not investing, I am missing out on dividends because money is sitting in bank... unless you mean trying to wait until the market falls then buying? and again, when is that going to happen? this is how he's missing out on dividends.

I'd say he's missing out on potential gains by waiting, yes. But dividends specifically?

matchewed

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Re: Purchase VTSMX right now?
« Reply #9 on: August 19, 2014, 08:57:24 AM »
Not really true. Expected dividends are built into the price, there's really no advantage to buying earlier. Otherwise, everyone would cash in out then out sandwiched around dividend time.
well not really... to me anyways, by not investing, I am missing out on dividends because money is sitting in bank... unless you mean trying to wait until the market falls then buying? and again, when is that going to happen? this is how he's missing out on dividends.

I'd say he's missing out on potential gains by waiting, yes. But dividends specifically?

I'm sure you'd both agree that by not investing now that the OP would be missing out on any gain, whether that would be appreciation or dividends, that would occur during the waiting for a dip. :)

Left

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Re: Purchase VTSMX right now?
« Reply #10 on: August 19, 2014, 09:03:38 AM »
I was thinking more in the terms that if he waits and market doesn't fall for another year he misses out on the dividends because if it falls any gains would be lost until it recovered anyways. Dividends don't get taken back if the stock price falls so it's more certain.

But yes, he is missing out by not investing :)

hodedofome

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Re: Purchase VTSMX right now?
« Reply #11 on: August 19, 2014, 11:33:29 AM »

Dodge

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Re: Purchase VTSMX right now?
« Reply #12 on: August 19, 2014, 12:06:26 PM »
The market always goes up.

Except when it doesn't.

That's why we diversify (just looking for an excuse to show this chart :D )


rmendpara

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Re: Purchase VTSMX right now?
« Reply #13 on: August 19, 2014, 12:48:31 PM »
VTSMX is trading at an all time high. I am looking to make my first purchase of this fund (at the $10,000 minimum to take advantage of the Admiral shares) but am hesitant due to the relative high costs vs. historical cost.

No question really, just want to see what others might think of this

.12% expense ratio difference is not a reason to change your investment allocation. Don't pinch pennies when you're talking about OVER TEN THOUSAND DOLLARS.

If you would feel more comfortable investing the cash under your mattress... please, feel free.

hodedofome

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Re: Purchase VTSMX right now?
« Reply #14 on: August 19, 2014, 12:52:16 PM »

That's why we diversify


Yeah tell that to JCollins (where the original link went to).

pdxbator

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Re: Purchase VTSMX right now?
« Reply #15 on: August 19, 2014, 02:17:09 PM »
Wow. That Japanese stock market graph really is shocking. Shows you just how things could go if all of the US were to become MMM. So don't be too preachy and spread the word or my retirement investments will go all to hell. :)

hodedofome

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Re: Purchase VTSMX right now?
« Reply #16 on: August 19, 2014, 02:24:13 PM »
I see about 0% chance the US goes with MMM's philosophy. It'll always be a niche, people love their stuff too much.

It is something to be aware of however, in the event of peak population. Hard to grow a business if the world's population peaks out. Europe and Japan are already there.

matchewed

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Re: Purchase VTSMX right now?
« Reply #17 on: August 19, 2014, 02:27:07 PM »
Wow. That Japanese stock market graph really is shocking. Shows you just how things could go if all of the US were to become MMM. So don't be too preachy and spread the word or my retirement investments will go all to hell. :)

It doesn't show anything of the sort. There is no connection between the MMM lifestyle expanding to everyone and what happened in Japan.

skyrefuge

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Re: Purchase VTSMX right now?
« Reply #18 on: August 19, 2014, 03:44:40 PM »
Dividends don't get taken back if the stock price falls so it's more certain.

This is a misunderstanding of how dividends work. Dividends cause the stock price to fall, by the exact amount of the dividend per share.

If he invested $10k in an index that paid no dividends, and "the market" fell 10%, his investment would be worth $9k.

If he invested $10k in an index that paid $1k in dividends, and "the market" fell 10%, he'd have $1k in dividend cash, but his investment would now be worth only $8k, for the same total of $9k.

There is no free lunch in dividends.

dragoncar

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Re: Purchase VTSMX right now?
« Reply #19 on: August 19, 2014, 03:58:04 PM »
Wait until the 80/20 elliot wave retracement to the mark III support level before executing a fibonacci momentum limit order.

eta: unless the fed minutes indicate a macro boundary inversion on your trigger screen (but that goes without saying, given the current moving average)
« Last Edit: August 19, 2014, 04:01:05 PM by dragoncar »

Dodge

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Re: Purchase VTSMX right now?
« Reply #20 on: August 19, 2014, 04:02:11 PM »
Wow. That Japanese stock market graph really is shocking.

Here's a longer chart, to provide some perspective on what happened:



I wish I had a growth chart that went back that far, so we can see what the total return would've looked like, with dividends reinvested.  In any case, there are lots of people who say, "What happened in Japan couldn't possibly happen here.  They are significantly smaller than us, less diverse industries, less companies...etc."  Are you willing to best your nest egg on that?  Adding bonds and international stocks won't impact your returns much (if at all), and will provide much diversification.  Personally, I think Vanguard's LifeStrategy Growth fund has it right (though I have no problem skipping the 4% in international bonds):


Left

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Re: Purchase VTSMX right now?
« Reply #21 on: August 19, 2014, 06:32:50 PM »
This is a misunderstanding of how dividends work. Dividends cause the stock price to fall, by the exact amount of the dividend per share.

If he invested $10k in an index that paid no dividends, and "the market" fell 10%, his investment would be worth $9k.

If he invested $10k in an index that paid $1k in dividends, and "the market" fell 10%, he'd have $1k in dividend cash, but his investment would now be worth only $8k, for the same total of $9k.

There is no free lunch in dividends.
my understanding was that using your example, with $1k cash on hand, and a lower stock price, he could then reinvest in same stock and get more shares which is better is it not? But this is assuming the dividend came before the market crash

skyrefuge

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Re: Purchase VTSMX right now?
« Reply #22 on: August 19, 2014, 07:36:16 PM »
my understanding was that using your example, with $1k cash on hand, and a lower stock price, he could then reinvest in same stock and get more shares which is better is it not? But this is assuming the dividend came before the market crash

Sure, that's true, but your assumption is key. In the absence of a dividend, you can also simply sell $1k of your shares before the market crash, and then reinvest in the same stock and get more shares after it crashes. Once again, there is no advantage to be gained with dividends.

kyleaaa

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Re: Purchase VTSMX right now?
« Reply #23 on: August 20, 2014, 02:17:48 PM »
Do it. I buy more shares of that particular fund a few times every month.

Jack

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Re: Purchase VTSMX right now?
« Reply #24 on: August 20, 2014, 02:43:31 PM »
Wow. That Japanese stock market graph really is shocking.

Here's a longer chart, to provide some perspective on what happened:



I wish I had a growth chart that went back that far, so we can see what the total return would've looked like, with dividends reinvested.

Yeah, I've been looking for charts that include dividends off and on since yesterday (in hopes of rebutting), and I couldn't find any either. They should help significantly, though (although perhaps not significantly enough to erase all the losses).

Besides, when you talk about Japan you're really talking about the dangers of investing a lump sum at the absolute peak. My wild guess is that if you either dollar-cost-averaged or invested at any value below about 25,000, you would have still made money after dividends even despite the stagnation (there's a blog post about profiting from holding Kodak stock despite the company going bankrupt (because of dividends over time), but I don't remember the URL to cite it right now).

Eric

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Re: Purchase VTSMX right now?
« Reply #25 on: August 20, 2014, 02:51:30 PM »
(there's a blog post about profiting from holding Kodak stock despite the company going bankrupt (because of dividends over time), but I don't remember the URL to cite it right now).

I think it's this Joshua Kennon post you're referring to:

http://www.joshuakennon.com/eastman-kodak-example/

Jack

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Re: Purchase VTSMX right now?
« Reply #26 on: August 20, 2014, 03:07:39 PM »
(there's a blog post about profiting from holding Kodak stock despite the company going bankrupt (because of dividends over time), but I don't remember the URL to cite it right now).

I think it's this Joshua Kennon post you're referring to:

http://www.joshuakennon.com/eastman-kodak-example/

Ah, there it is, thanks!

The point I want to make from it is thus: Even though the value of the stock eventually went to zero, because it was held for 25 years before that happened the investor would still have doubled his money just on dividends.

But if that investor had been scared and waited so that his money was only in the market for a couple of years, he would have lost his shirt.

LeboLebo

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Re: Purchase VTSMX right now?
« Reply #27 on: November 06, 2014, 01:16:00 AM »
I did it and dropped 20k in the Admiral version

Thanks everyone for all the feedback

Some additional context, perhaps a poor choice of word usage when I said high costs, actually referring to the high price, 50 something a share relative to the historical price (as low as 17 I believe).

Additionally, my fathers experience was coloring my fear of moving forward. My dad is a steady, value investor and loves Index funds. I remember visiting the library(!) to research stocks and funds when I was a kid. While it didn't totally rub off, as I was a sucka consumer until 28, it did give me an interesting foundation to draw from.

All this being said, he lost half of his money, which some was earmarked for my college savings during 2000-2002. With the urging of this forum I continued investigating historical returns, realizing this was nothing to be fearful of. I live overseas and haven't had many opportunities to discuss with my dad his investments and how the rebounded. I'm hoping this Thanksgiving when I am back to visit we can discuss and I can smash this insane fear forever.

thenextguy

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Re: Purchase VTSMX right now?
« Reply #28 on: November 06, 2014, 10:42:48 AM »