Author Topic: Vanguard Questions & My Background/Story  (Read 4484 times)

MrsCoolCat

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Vanguard Questions & My Background/Story
« on: December 31, 2014, 07:36:19 PM »
Hi! So I'm going to talk more about my situation and Qs about Vanguard. I thought I was setting up an account but there were questions about which account I wanted that I did not understand.

First, a bit about me. I'm turning 31 in 2015, recently married, own my car (paid off), own my townhome (with my mom as the co-owner so no mortgage) and employed with an average salary yet enough to save. I have managed about $x7k total between Roth IRAs and 401ks and $x1k in personal savings. Yes, I know I need to invest it.

My goal is early retirement so that I can do my own thing whenever the heck I want. The sooner the better. My husband recently joined this forum and is a lawyer, but he plans on being FI rather than RE. So since I am new I have recently put in the $5,500 Roth IRA for 2014. I do the employer match of 3% but also recently updated my contribution amount so that I can reach the $18k for 401k for 2015. At least that's my plan. I read something about not all employers do the same with the 401k max. Idk.

I would say I save about $1k a month but I know I can cut back and I know how. Pretty much eating out less and buying less shoes, bags and stuff I never use. So with that in mind granted my current savings and whatever I can manage to salvage for 2015, what am I doing on Vanguard?

I have $x5k of the $x7 in Fidelity but my husband thinks I should do Vanguard because of the low expense ratio. I don't know which I'm supposed to choose for my situation. I'm guessing I may put down the $xk into the Vanguard account. Not sure; I'll have to do more research. Below are the 4 Vanguard setup account Qs that I wasn't sure about? Am I the General Savings, Individual, Reinvest (or not???) and Prime Money Market Account? I have no idea. I might give them a call soon to see if they can answer my Qs, but figured this was a more trustworthy source! Thank you all in advance! I love that I found this website! :-)

1. Am I General Savings since I plan on retiring as early as possible and not necessarily 59.5?
A. Non-retirement
B. General Savings

2.
A. Individual
B. Joint
C. Trust

3.
A. Reinvest
B. Transfer to money market fund

4. Do/should I choose the Prime Money Market Account or Tax-Exempt?
A. Prime Money Market Account
B. Tax-Exempt Money Market Account
« Last Edit: February 21, 2015, 12:18:54 PM by MrsCoolCat »

iamlindoro

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Re: Vanguard Questions & My Background/Story
« Reply #1 on: December 31, 2014, 07:46:34 PM »
I think the questions are missing :)  (Though from the options, I can guess what most of them will be)

BTW, if you like Fidelity and already have everything set up there, you can certainly invest there as they have their own low cost index funds that are just as good as Vanguard options.  VTSAX at Vanguard is more or less analogous to FSTVX, etc.

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

... And that's coming from a guy who has everything at Vanguard. 

You're also not telling us what type of account you're setting up at Vanguard, but I'm guessing since you're already going to be maxing out your 401k through your employer that it's just a regular after-tax mutual fund account.

Question 2 is probably the kind of entity opening the account, which in this case would be you, an Individual.  Question 3 is probably a question about what to do with dividends.  This is up to you, but most of us choose to reinvest them rather than have them paid out.  Can't quite tell what Questions 1 and 4 are supposed to be.


MrsCoolCat

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Re: Vanguard Questions & My Background/Story
« Reply #2 on: December 31, 2014, 07:53:39 PM »
I think the questions are missing :)  (Though from the options, I can guess what most of them will be)

BTW, if you like Fidelity and already have everything set up there, you can certainly invest there as they have their own low cost index funds that are just as good as Vanguard options.  VTSAX at Vanguard is more or less analogous to FSTVX, etc.

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

... And that's coming from a guy who has everything at Vanguard. 

You're also not telling us what type of account you're setting up at Vanguard, but I'm guessing since you're already going to be maxing out your 401k through your employer that it's just a regular after-tax mutual fund account.

Question 2 is probably the kind of entity opening the account, which in this case would be you, an Individual.  Question 3 is probably a question about what to do with dividends.  This is up to you, but most of us choose to reinvest them rather than have them paid out.  Can't quite tell what Questions 1 and 4 are supposed to be.

Thanks! I edited the questions in my original post. Hopefully that's more clear now.

OneCoolCat

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Re: Vanguard Questions & My Background/Story
« Reply #3 on: December 31, 2014, 08:37:03 PM »
I read on here that many people chose to take dividends and have them diverted to a money market account rather than reinvest the funds in a taxable account because it is sometimes more tax efficient.  Anyone know anything about this?

thedayisbrave

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Re: Vanguard Questions & My Background/Story
« Reply #4 on: January 01, 2015, 10:21:22 AM »
This is what I do, and what I suspect many do.  It is to re-balance with "new money" rather than selling off appreciated shares (which would then make you have to pay cap gains taxes on those shares).  The dividend funds ARE re-invested, but in a way that re-balances rather than just automatically re-investing into the fund it came out of.  Make sense?

So far, since my Roth is so small, I only have one fund in there, and I just set that to automatically reinvest.  Will probably change soon as I gain more space though.

Hope that helps.

astvilla

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Re: Vanguard Questions & My Background/Story
« Reply #5 on: January 01, 2015, 01:56:44 PM »
This is what I do, and what I suspect many do.  It is to re-balance with "new money" rather than selling off appreciated shares (which would then make you have to pay cap gains taxes on those shares).  The dividend funds ARE re-invested, but in a way that re-balances rather than just automatically re-investing into the fund it came out of.  Make sense?

So far, since my Roth is so small, I only have one fund in there, and I just set that to automatically reinvest.  Will probably change soon as I gain more space though.

Hope that helps.

Not to derail the topic but what is the philosophy behind taking the dividends and putting them in money market? Where do the funds from money market go to then? Does that mean when you pick fund and they ask if you want to reinvest in buying new shares in any index fund giving dividend/distribution you should say no?

There was another thread about Fidelity vs Vanguard. Some differences but you can't go wrong with either. Some have both, I have money in both, no difference IMO really in performance.

Chrissy

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Re: Vanguard Questions & My Background/Story
« Reply #6 on: January 01, 2015, 02:27:34 PM »

Not to derail the topic but what is the philosophy behind taking the dividends and putting them in money market? Where do the funds from money market go to then? Does that mean when you pick fund and they ask if you want to reinvest in buying new shares in any index fund giving dividend/distribution you should say no?

There was another thread about Fidelity vs Vanguard. Some differences but you can't go wrong with either. Some have both, I have money in both, no difference IMO really in performance.

When I was focused on individual stocks, I did this.  I used the dividends to buy different stocks, and hence diversify.

thedayisbrave

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Re: Vanguard Questions & My Background/Story
« Reply #7 on: January 01, 2015, 02:42:26 PM »
This is what I do, and what I suspect many do.  It is to re-balance with "new money" rather than selling off appreciated shares (which would then make you have to pay cap gains taxes on those shares).  The dividend funds ARE re-invested, but in a way that re-balances rather than just automatically re-investing into the fund it came out of.  Make sense?

So far, since my Roth is so small, I only have one fund in there, and I just set that to automatically reinvest.  Will probably change soon as I gain more space though.

Hope that helps.

Not to derail the topic but what is the philosophy behind taking the dividends and putting them in money market? Where do the funds from money market go to then? Does that mean when you pick fund and they ask if you want to reinvest in buying new shares in any index fund giving dividend/distribution you should say no?

There was another thread about Fidelity vs Vanguard. Some differences but you can't go wrong with either. Some have both, I have money in both, no difference IMO really in performance.

The money market is just a holding tank -- shouldn't be a long-term place to park your money, IMO.  The dividend dollars go there to hang out and when I'm ready, they get re-diverted to the necessary investments.  Recently, my international allocation has dropped in value so that's where I've been putting those dividend dollars - to keep that allocation where I want it.  The fund doesn't ask you about dividend reinvestment, the account does. 

Fidelity and Vanguard are brokerage/mutual fund companies.  They both offer low cost funds - Fidelity's lowest cost index funds bear the name "Spartan."  Vanguard is different from Fidelity in that Vanguard is client-owned: the mutual funds own the company, so the investors owning the mutual funds own the company.  They don't have to answer to external shareholders etc.  That is what makes Vanguard unique and why it continues to be popular among investors.  But Fidelity is a fine choice as well. 

To the OP - if you have any questions, call Vanguard.  They can walk you through it.  As an investor, they answer to you and have your best interests at heart.  You will get great advice here as well, but obviously they can walk you through the process in a more real-time manner.

Good luck!

MrsCoolCat

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Re: Vanguard Questions & My Background/Story
« Reply #8 on: January 01, 2015, 03:07:30 PM »

To the OP - if you have any questions, call Vanguard.  They can walk you through it.  As an investor, they answer to you and have your best interests at heart.  You will get great advice here as well, but obviously they can walk you through the process in a more real-time manner.

Good luck!

Thanks everyone! Yea, I'll call tom. I had errors registering today & customer service is closed. Happy New Year indeed!
« Last Edit: January 01, 2015, 03:09:12 PM by ChinaChao »

astvilla

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Re: Vanguard Questions & My Background/Story
« Reply #9 on: January 01, 2015, 03:56:56 PM »
This is what I do, and what I suspect many do.  It is to re-balance with "new money" rather than selling off appreciated shares (which would then make you have to pay cap gains taxes on those shares).  The dividend funds ARE re-invested, but in a way that re-balances rather than just automatically re-investing into the fund it came out of.  Make sense?

So far, since my Roth is so small, I only have one fund in there, and I just set that to automatically reinvest.  Will probably change soon as I gain more space though.

Hope that helps.

Not to derail the topic but what is the philosophy behind taking the dividends and putting them in money market? Where do the funds from money market go to then? Does that mean when you pick fund and they ask if you want to reinvest in buying new shares in any index fund giving dividend/distribution you should say no?

There was another thread about Fidelity vs Vanguard. Some differences but you can't go wrong with either. Some have both, I have money in both, no difference IMO really in performance.

The money market is just a holding tank -- shouldn't be a long-term place to park your money, IMO.  The dividend dollars go there to hang out and when I'm ready, they get re-diverted to the necessary investments.  Recently, my international allocation has dropped in value so that's where I've been putting those dividend dollars - to keep that allocation where I want it.  The fund doesn't ask you about dividend reinvestment, the account does. 

Fidelity and Vanguard are brokerage/mutual fund companies.  They both offer low cost funds - Fidelity's lowest cost index funds bear the name "Spartan."  Vanguard is different from Fidelity in that Vanguard is client-owned: the mutual funds own the company, so the investors owning the mutual funds own the company.  They don't have to answer to external shareholders etc.  That is what makes Vanguard unique and why it continues to be popular among investors.  But Fidelity is a fine choice as well. 

To the OP - if you have any questions, call Vanguard.  They can walk you through it.  As an investor, they answer to you and have your best interests at heart.  You will get great advice here as well, but obviously they can walk you through the process in a more real-time manner.

Good luck!

Hmm okay so should it be reinvested in the same fund and buy back those shares? Guess I'm confused here, I understand using dividends in individual stocks to diversify but what about using the dividends/distribution from index funds and buying back more shares of the fund? There was mention about tax efficiency and I was wondering how it's more tax efficient to not reinvest dividends? Or is it just rebalancing like seeing 1 side drop and filling the hole with dividends you got from another fund? Couldn't you technically argue that you miss out on gains by having dividends in money market and not in index funds or stock during that time period?

Chrissy

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Re: Vanguard Questions & My Background/Story
« Reply #10 on: January 01, 2015, 04:17:47 PM »

Hmm okay so should it be reinvested in the same fund and buy back those shares? Guess I'm confused here, I understand using dividends in individual stocks to diversify but what about using the dividends/distribution from index funds and buying back more shares of the fund? There was mention about tax efficiency and I was wondering how it's more tax efficient to not reinvest dividends? Or is it just rebalancing like seeing 1 side drop and filling the hole with dividends you got from another fund? Couldn't you technically argue that you miss out on gains by having dividends in money market and not in index funds or stock during that time period?

Yes, this is also a valid strategy.

thedayisbrave

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Re: Vanguard Questions & My Background/Story
« Reply #11 on: January 02, 2015, 07:37:24 AM »

Hmm okay so should it be reinvested in the same fund and buy back those shares? Guess I'm confused here, I understand using dividends in individual stocks to diversify but what about using the dividends/distribution from index funds and buying back more shares of the fund? There was mention about tax efficiency and I was wondering how it's more tax efficient to not reinvest dividends? Or is it just rebalancing like seeing 1 side drop and filling the hole with dividends you got from another fund? Couldn't you technically argue that you miss out on gains by having dividends in money market and not in index funds or stock during that time period?

It should be reinvested in the same fund if according to your predetermined asset allocation, it is the one that deviates from the AA by being too low.  For example, if I'm 60 stocks/40 bonds and due to market fluctuations, that turns into 70/30, I will use new dividend dollars and put those into bonds to try to get it back to my ideal 60/40.

It's not necessarily more tax efficient, since you'll be paying taxes on those dividend distributions either way.  It's just easier when you go to sell, because you won't have the annoying little automatic reinvestment amounts like 0.55 shares each month - especially if you have a smaller portfolio.  It just makes for less 'work" in the future.  And the whole point of the money market is to be a SHORT TERM place to park your money.  Mine rarely stays there more than a few weeks before it's re-diverted.   So maybe incremental gains if you really want to be technical, but to me the benefits of being able to direct those dollars into the investment I choose outweighs that technicality. 

MrsCoolCat

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Re: Vanguard Questions & My Background/Story
« Reply #12 on: January 23, 2015, 08:56:14 PM »
Thanks everyone! I've definitely been trying and calling Fidelity and Vanguard every couple of days for like the past few weeks, but it's going. :-D