Vanguard Fund to Invest in?

[SwordGuy]

My employer's 401k plan has a limited selection of Vanguard Funds to choose from.

They are:

VERSX  Emerging Mkts Stk Index - Signal
VGENX  Energy - Inv
VFWIX  FTSE All-World Ex-US Index
VMVIX  Mid Cap Value Index Fund
VMMXX Prime Money Market Inv
VGRSX  REIT Index Signal
VSISX   Small Cap Index Signal
VTWNX  Target Retire 2020 Investor
VTHRX   Target Retire 2030 Investor
VFORX   Target Retire 2040 Investor
VFIFX    Target Retire 2050 Investor

I just started this particular 401k 45 days ago, so it doesn't have that much in it, about $3500.  Right now it's in the default choice, VTWNX, the Target Retire 2020 Investor.  I turn 66 in 2023.

With Employer matching and the over 50 catch-up provision, I'll be putting in $25350 a year into this 401k account.  It's the max I can put in.

I'm leaning towards the VTWNX as it will self-manage to a "safer" mix of investments over time.


For a "growth component", I'm opening up a Vanguard account of my own, in which I can invest in any of the Vanguard funds.  I'll have from $2000 to $4000 to invest per month depending upon how well we control our spending.  I'm going to try doing it on auto-pilot which will help with the spending control considerably.  (If you don't see it, it's harder to spend it - assuming you have a lick of sense.)

I also have about $60,000 in a regular taxable CD that's no longer earning much interest that I can invest.   I'll be able to use that to hit the minimums on some of the funds in the Growth Category.  I'm not sure when it comes due, though, or how much I'll lose if I take it out early.  So the extra $60,000 will be available within a year at the latest.

I'm looking at putting money into one of these three funds (VTSAX, VTI or VTSMX).  They seem to be similar, but I don't understand the underlying differences.  (I've asked for a clarification on this thread, "https://forum.mrmoneymustache.com/investor-alley/confused-about-vanguard-fund-types!/".)


I'll be talking to my accountant about the possibility of opening up a "back door Roth IRA".  I have from $150000 to $200000 in old IRAs and 401ks from old companies I would like to consolidate into the new Vanguard account.   Since Roth IRAs don't pay taxes when pulling out the money, maybe one of these vanguard dividend funds would be a good choice?  VDAIX, VIG, VDIGX, VYM.  The intent would be to have tax-free dividend payments to cover some living expenses?


I'll keep about $5000 in regular savings/checking account for handy emergency cash.

Here are my questions:

• Which of the above EMPLOYER 401k vanguard funds would you suggest, and why?
  Which of the Vanguard Funds would you suggest for the Growth component?
  Which of the Vanguard Funds would you suggest for the backdoor Roth IRA?

[/b]


Thanks in advance for the help!

[iamlindoro]

The fund you chose, VTWNX, is probably a nice choice for you.  It is essentially a nicely diversified portfolio in a single purchase, which will be appropriately rebalanced as your target date looms closer.  You can't ask for much more than that, and Vanguard Funds are among the best there are.

For growth, it's largely dependent on your level of risk tolerance.  You at ~55 might feel more risk averse than I do at 33.  You might not.  If you can put up with volatile fluctuation but a very good average yield, VTSMX/VTSAX are hard to beat.  Remember, one of the nice things about the total market index funds that few outside of MMM highlight is that it's effectively impossible to lose all your money.  The fund represents the entire market and is thus refreshed with new companies and pruned of dead ones on an ongoing basis.  Your shares in a market index fund can't cease to exist unless the markets themselves do-- and if that happens, you problem won't be investments, it'll be how to most effectively combat the marauding zombie hordes.  You'll have winning years and you'll have losing years, but over a longer period of time (10, 20, or more years) the average return on the total market will come out to around 8-10% per year.

IF you are more risk averse, you might weight yourself more heavily towards bonds using something like VBMFX... you could go 50/50 VTSAX/VBMFX, 60/40... you decide!

[rugorak]

Ultimately it depends on you. How soon do you think you will retire, how much volatility can you accept, etc.

Basically your choices are less growth but less chance of short term losses vs more growth but stronger chance of short term losses. Over any 10 year period the stock market has always gone up in value. Assuming you plan on 65 as your retire date you hit that grey area.

If I woke up in your shoes with the tiny bit of information given I would put it all in stocks. That assumes that if you had to you could work a few more years if the market happened to tank right then. But I would get a total market fund. Chances of losing everything are slim to none as mentioned and usually it only takes 2 years to regain losses at worst.

[chucklesmcgee]

VTSMX- Regular total stock market mutual fund
VTSAX- Admiral total stock market mutual fund- same funds and general performance as VTSMX with lower fees- higher minimum balance required to purchase
VTI- VTSMX as an ETF. Look up mutual funds vs. ETFs.

Which of the Vanguard Funds would you suggest for the Growth component?
Any of the above, look into difference in tax consequences and expenses for mutual funds vs. ETF.

Which of the Vanguard Funds would you suggest for the backdoor Roth IRA?
VTSMX/VTSAX/VTI whatever has the lowest expense ratio