Author Topic: Short Term Investing Options (< 4-5 yrs)  (Read 1566 times)

kcore2000

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Short Term Investing Options (< 4-5 yrs)
« on: December 17, 2019, 08:50:13 AM »
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« Last Edit: February 07, 2020, 09:14:34 AM by kcore2000 »

MustacheAndaHalf

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #1 on: December 17, 2019, 10:13:32 AM »
You should consider moving your business to another broker.  I don't know who provided you that fund, but it has a very high expense ratio of 2.0%.
https://www.morningstar.com/funds/xnas/unavx/quote

If you instead buy VTI , ITOT or SCHB you'd have an expense ratio of 0.03%.  With $17,000 over 4 years, your existing fund takes 2%/year of your money, or $340/year.  That will cost roughly $1,300 over 4 years.  If you instead place it in any of the ETFs I mentioned, you'll pay $5/year, or $20 over 4 years.  So save over $1,000 and switch to Vanguard, Schwab or Fidelity.

I'm assuming you're not at a discount brokerage, and someone limited your options in such a way that you picked this fund.  That someone isn't working in your best interest.  That's why I'd suggest moving your money somewhere more suitable.

Total stock market funds cover every stock in the US market, so they can't miss.  You're buying the market consensus of what things are worth, which beats 80-90% of specific mutual funds.  One person or fund has a lot of trouble beating the market every time.

I'd agree, however, with only 1/3rd in equities.  You might want some growth, but you're also taking a risk the stock market drops 3-4 years from now, and prevents you from buying a house.  If that happens, can you wait a year or two?  The answer determines if you should be in equities.

Rob_bob

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #2 on: December 17, 2019, 12:41:14 PM »
Wow, it looks like GIREX has a front end load of 5.75%, ouch!  And if you are buying those at TDA don't you pay a fairly large trading fee for mutual funds?  And all have fairly high ER too.

How would you feel if those funds were down 30% when you need the cash?

Maybe 5 years CDs for short term money?

bacchi

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #3 on: December 17, 2019, 01:16:14 PM »
Not only are those awful funds but they're also too risky.

IF you want the money to 100% be there in 4-5 years, you've got to go with CDs or US bonds.

Putting anything into the market is risky. If the market doesn't cooperate, it'll push you out. If you're ok with that, and you can wait 8+ years to buy a house instead of 4-5, then put some in the market.

But, for the love of god, don't use those funds. Use VTI, VXUS, and BND.

MustacheAndaHalf

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #4 on: December 17, 2019, 09:09:20 PM »
Great suggestions ... I am just working within my TD Ameritrade account so I have control of all things and I'm just using a Financial Advisor for consulting.
Since you didn't mention that until now - ask yourself how I knew you were getting bad financial advice, before you told me you had a financial advisor.  The key is "expense ratio" or annual fee.  You can look up "GIREX morningstar" and see the expense ratio.

UNAVX Already distributed $16,500
GIREX
VARBX
Look up these funds online: they are charging about 2% each, which is very high.  Some have "load fees".  Unfortunately there are many mutual funds that pay financial advisers who recommend their fund.  Some of the load fee goes to the person who told you to buy that, even though that's a conflict of interest.

If you had a Vanguard account (which is free to open), I'd suggest Vanguard LifeStrategy Income Fund (VASIX).  That fund is intended for your 3-5 year time frame, and holds just 20% equities.  It holds both stocks and bonds, domestic and international.  And yet for all that, you only pay 0.11% per year in fees (the "expense ratio").

TD Ameritrade has $0/trade for stock and ETF purchases.  So you could also buy ETFs there:
20% VTI (Vanguard Total Stock Market ETF), 0.03% expense ratio
80% BSV (Vanguard Short Term Bond ETF), 0.07% expense ratio

But let me review why you need to fire your financial advisor:
* they are suggesting 100% equities for money you need in 4-5 years.  That's bad advice.
* they suggest funds with 2% expense ratios, which costs you 2% of your money every year
* you are paying "load fees", which cost you 5% and often pay the adviser, even though it's a conflict of interest

Rob_bob

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #5 on: December 18, 2019, 06:27:14 PM »
When people talk about diversification they are not saying have some money in Vanguard and some in Fidelity etc. Any single Total Stock Market fund is going to be as divers as you need for U. S. stocks. After that you would want some international and maybe some bonds. A three fund portfolio all from one company would be all you really need.

MustacheAndaHalf

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #6 on: December 19, 2019, 07:54:00 AM »
There's no diversification between VTSAX and VTI.  One way to see this is by going to Vanguard's data on those two funds.  The "portfolio" tab shows the top 10 holdings.  You'll see they're identical.  In terms of the stock market, both are "total stock market" funds, which means they buy every U.S. company they can.

If your funds are 100% U.S., the best step for diversifying is international.  Maybe 1/5th international.  But since you have a 5 year time frame, I didn't mention it: it would amount to about 4% of your assets, and won't make a big difference.  Long term, though, international (like VXUS) is a good thing to hold in your retirement portfolio.

How did you come up with funds that have a 2% expense ratio?  Was that your financial adviser?  Was it you?
I ask in order to suggest what to do next.  Sometimes people see really good performance, and they think it repeats.  If performance always repeated, the stock market wouldn't be so complicated.  But it's a prediction machine for all companies involved in it, adjusting their values based on current and future events.

moof

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #7 on: December 19, 2019, 01:02:15 PM »
For a 5 year time horizon the easy answer is CD's or a bond fund and get 1-4% semi-guaranteed.  But this is where a gut check is in order.

On average you'll do better sticking in all in stocks, you just have to be willing to take a -13% average return, or hope for a +33% return if you go by the historical record.  So if you have flexibility on when you withdraw, or you are OK with that risk you can go all stocks and hope to get somewhere around the average 7% historical level.  Basically you have a 1 in 5 chance of zero or negative returns, and an 80% change of beating a savings account at ~0%, and a 60-70% chance of beating CD's or bond funds.

I can tell you I am 80% in stocks and about 4-5 years from retiring, but I have some flexibility to keep working longer if returns fall short, and my withdrawals will be gradual and not lump sum.

Rob_bob

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Re: Short Term Investing Options (< 4-5 yrs)
« Reply #8 on: December 19, 2019, 03:25:38 PM »
When people talk about diversification they are not saying have some money in Vanguard and some in Fidelity etc. Any single Total Stock Market fund is going to be as divers as you need for U. S. stocks. After that you would want some international and maybe some bonds. A three fund portfolio all from one company would be all you really need.

I understand that but what about Admiral Shares vs ETF. I currently have VTSAX (admiral) and VTIAX (admiral international), so would it make sense to also invest into VTI (ETF) and VXUS (international ETF) that are pretty much the same funds as VTSAX/VTIAX? I would think I would want to diversify within Vanguard ...

VTSAX is for people who like mutual funds for the automatic investing of a specific dollar amount each week/month because you get fractional shares and you buy/sell at the days closing price.

VTI is an ETF which trades all through the day and you buy whole shares so the dollar amount you buy is based on current share price for whole shares, not fractional.

There is no practical difference in the holdings of the funds.