Author Topic: Which Vanguard Fund to Choose for Traditional/Roth IRA?  (Read 7750 times)

VioletVixen

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Which Vanguard Fund to Choose for Traditional/Roth IRA?
« on: January 19, 2015, 08:45:43 PM »
I am curious as to which Vanguard funds most people regard as being the best for FIRE? I am ready to open my first IRA and I went through Vanguard's "Portfolio Recommendation" which suggested Vanguard LifeStrategy Moderate Growth Fund (VSMGX). Does this sound right? What do you use, and why? My plan is to invest as much as I can into a Traditional IRA each year.
« Last Edit: January 22, 2015, 06:13:07 PM by violetvixen »

MDM

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Re: Which Vanguard Fund to Choose for Traditional/Roth IRA?
« Reply #1 on: January 19, 2015, 09:55:10 PM »
VSGMX looks perfectly reasonable.  Just because, compare it to VTTSX as well as VASIX(https://personal.vanguard.com/us/funds/snapshot?FundId=0914&FundIntExt=INT, https://personal.vanguard.com/us/funds/snapshot?FundId=1691&FundIntExt=INT, and https://personal.vanguard.com/us/funds/snapshot?FundId=0723&FundIntExt=INT). 

Scroll down in those links until you find the Portfolio Composition.  In brief, VSGMX is 75/25 stocks/bonds, VTTSX is 90/10 stocks/bonds, and VASIX is 60/40 stocks/bonds.  None of the allocations are "right," nor are any "wrong" - pick whatever lets you sleep easy enough at night.

Dodge

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Re: Which Vanguard Fund to Choose for Traditional/Roth IRA?
« Reply #2 on: January 19, 2015, 10:43:33 PM »
There isn't enough information here for us to determine.

Your Asset Allocation choice is very personal, and isn't a decision we can make for you. It depends on your willingness, ability, and need to take risk. I recommend watching the Boglehead videos, and making an IPS:

http://www.bogleheads.org/wiki/Video:Bogleheads%C2%AE_investment_philosophy

Yes he is over the top, but the information is solid. If you insist on a recommendation, I went with 80/20 stocks/bonds - equivalent to the LifeStrategy Growth Fund

https://personal.vanguard.com/us/funds/snapshot?FundId=0122&FundIntExt=INT

and think that's a good place for someone reaching for FIRE. You really need a high stock allocation for long retirements, but too heavy can have disastrous results. The calculators I've used show 80/20 is about optimal.

Good luck!

VioletVixen

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Re: Which Vanguard Fund to Choose for Traditional/Roth IRA?
« Reply #3 on: January 24, 2015, 08:12:36 PM »
Thank you, MDM and Dodge. The 80/20 mix appeals to me because I am just starting to save and I imagine I won't have enough savings to retire for at LEAST 15 years, so it would make sense to take more risk now, right? Thanks for the links!

I've heard that MMM recommends VTSAX -  the Vanguard Total Stock Index Fund, Admiral Shares; but it requires a $10,000 investment. I am scrambling to round up $5500 to open and max out an IRA fund for 2014. Why does MMM think the "Admiral Shares" fund is better than the Vanguard LifeStrategy Growth Fund (VASGX)? If I wanted to switch the money from my VASGX fund into a VTSAX fund at a later time, could I?

dandarc

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Re: Which Vanguard Fund to Choose for Traditional/Roth IRA?
« Reply #4 on: January 24, 2015, 08:22:00 PM »
Admiral shares are the lowest cost funds there are pretty much.  VTSAX ER is .05%.  VASGX ER is .18%.  Of course these are also not comparable funds - you might find the extra .13% is worth it to you to have the bonds and rebalancing handled for you.  You might not.

You could build up in VASGX, then when you have enough put together get into the admiral shares and handle the allocation / rebalancing yourself.

VioletVixen

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Re: Which Vanguard Fund to Choose for Traditional/Roth IRA?
« Reply #5 on: January 25, 2015, 12:51:23 AM »
Thanks, dandarc. I'm trying to figure out if doing the allocating/rebalancing myself will be worth it. Is it difficult/time consuming/stressful? Is .05% to .18% a large difference in terms of overall earning potential?

Also, if I eventually had enough to put into a VTSAX, I would then need a total bond index fund to go with it (allocate/rebalance them myself), correct?

dandarc

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Re: Which Vanguard Fund to Choose for Traditional/Roth IRA?
« Reply #6 on: January 25, 2015, 08:50:43 AM »
https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/holdings/0122

It is actually 4 funds.  To actually replicate this fund with admiral shares, you'd need 250K (smallest percentage is 4%, so 25X 10K that you'd need for that fund).  If you did that, your combined ER as of writing would be .000818 - so you'd save a tenth of a percent essentially, or about $250 / year or less on a 250K account.

Another option would be to open a brokerage at vanguard and buy ETFs and get the admiral expense ratios without the high minimums.  While Vanguard doesn't charge commission for buying their ETFs through their brokerage, there are a couple of additional costs to keep in mind - the bid-ask spread and the fact that you have to buy whole shares.

I'm personally planning on just putting everything I can into life-strategy growth (at least in my tax-advantaged accounts - have several to roll over, so it will be a while before this is fully realized) and being OK with that.  .18% is pretty low - the lowest fee in my wife's 457 plan is about .5%, for example.  A guy posted here recently a list of 401K options where almost none of them had an ER below 1%.

teen persuasion

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Re: Which Vanguard Fund to Choose for Traditional/Roth IRA?
« Reply #7 on: January 25, 2015, 10:24:01 AM »
Thank you, MDM and Dodge. The 80/20 mix appeals to me because I am just starting to save and I imagine I won't have enough savings to retire for at LEAST 15 years, so it would make sense to take more risk now, right? Thanks for the links!

I've heard that MMM recommends VTSAX -  the Vanguard Total Stock Index Fund, Admiral Shares; but it requires a $10,000 investment. I am scrambling to round up $5500 to open and max out an IRA fund for 2014. Why does MMM think the "Admiral Shares" fund is better than the Vanguard LifeStrategy Growth Fund (VASGX)? If I wanted to switch the money from my VASGX fund into a VTSAX fund at a later time, could I?
When I first opened our Roths, I put our contributions in VTSMX, which is the Investor share class version of Total Stock market.  It has an expense ratio of .17.  As soon as our balances exceeded $10k, we were automatically upgraded to Admiral shares.  VTSMX has a minimum of $3k.