Retirement-Era |OT| How to Invest For Retirement

[feline fury]

I'm not sure what you mean. In my account, the Roth IRA account clearly says "Roth IRA Brokerage". Are you talking about the "Contributions" section within the employer plan? Maybe you can provide a screenshot with any sensitive information removed.

In my account, Roth contributions are labeled as "Roth 401K"; "After Tax" refers to non-Roth after tax contributions:

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is what I'm talking about. I'm assuming it's the same as a Roth 401k but I'm not certain. Didn't realize the Vanguard interface can use different terminology with different employers.

 

[tokkun]

is what I'm talking about. I'm assuming it's the same as a Roth 401k but I'm not certain. Didn't realize the Vanguard interface can use different terminology with different employers.

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Yeah, that is strange, I didn't realize the UI was different for different companies.

 

[Walter White Walker]

I have the ability to start a new 3 fund portfolio with 30K. I'm 29. How would you allocate?

Keep in mind I don't know that I need international exposure considering all US companies sell internationally, but let me know what you think. Should I do 80/20 total stock / total bond?

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I believe in doing international as well, including developed and emerging. That way you get the broadest diversity possible. Some people worry about currency risk but those go up and they go down and I don't worry about it a whole lot myself but ymmv.
I'm at Schwab but I hear at Vanguard VTWSX is great if you want to own the world's stock market in one fund. There's something like 7500 companies stocks in it and it charges .19% a year. You can likely do even better on the fees if you're willing to have more funds (such as one for US, one for developed international, one for emerging markets) but it's still a pretty solid fund.

 

[TheTrinity]

Investing is intensely personal and there isn't a one size fits all solution. At your age I'd only do bonds if you think you'll freak out if there's a significant downward market correction. Otherwise, I don't think bonds are worth it until you get closer to retirement. FWIW, Vanguard's target 2055 retirement fund has around 10% bonds.

From a tax efficiency perspective it's better to have bonds in a tax deferred account like a 401k or Roth Ira. For example, I have most of my international holdings in my taxable account and my bonds in my 401k. FYI - I'm 41 so I've started buying bonds.

edit - I assume you're investing for retirement and have a buy and hold approach.

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Just to throw out another viewpoint here, some people consider it a better idea to put all stocks in tax-sheltered accounts as much as possible and leave the bonds to taxable accounts.
The theory here is that stocks will grow much more than bonds so it makes sense to shelter the large capital gains. Now of course the reason that people traditionally shelter bonds is because of their tax inefficiencies, but there are ways around that in taxable accounts.

I only know the Canadian ETFs but I'm sure there are equivalents in the states. Basically, instead of your normal bond ETF like ZAG or whatever you could go for more exotic products such as Strip Bonds, Discount Bonds, or a Total Return Swap ETF. These include things like BXF, ZDB, and HBB.

Some further reading on these at the following links
http://canadiancouchpotato.com/2014/05/08/a-tax-friendly-bond-etf-on-the-horizon/ (HBB)
http://canadiancouchpotato.com/2015/03/03/which-bond-etf-is-most-tax-efficient/ (BXF)
http://canadiancouchpotato.com/2014/11/19/ask-the-spud-bond-etfs-in-taxable-accounts/

 

[PopcornMegaphone]

Just to throw out another viewpoint here, some people consider it a better idea to put all stocks in tax-sheltered accounts as much as possible and leave the bonds to taxable accounts.
The theory here is that stocks will grow much more than bonds so it makes sense to shelter the large capital gains. Now of course the reason that people traditionally shelter bonds is because of their tax inefficiencies, but there are ways around that in taxable accounts.

I only know the Canadian ETFs but I'm sure there are equivalents in the states. Basically, instead of your normal bond ETF like ZAG or whatever you could go for more exotic products such as Strip Bonds, Discount Bonds, or a Total Return Swap ETF. These include things like BXF, ZDB, and HBB.

Some further reading on these at the following links
http://canadiancouchpotato.com/2014/05/08/a-tax-friendly-bond-etf-on-the-horizon/ (HBB)
http://canadiancouchpotato.com/2015/03/03/which-bond-etf-is-most-tax-efficient/ (BXF)
http://canadiancouchpotato.com/2014/11/19/ask-the-spud-bond-etfs-in-taxable-accounts/

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I think this is completely fair and I'm glad you mentioned it. The tax efficient link I provided earlier discusses your counterpoint. It's worth noting, I advocate buying bonds closer to retirement so that can mute long term gain effects. Additionally, if you're in a fairly high tax bracket now and you expect it to be lower in retirement it may make even more sense to defer those gains.

Ultimately most financial advisers recommend bonds in tax deferred accounts so that's what I do. YMMV.


edit - I do the 3 fund portfolio, so I'm not interested in certain exotic bonds. In fact, I think exotic bonds is the wrong approach for retirement planning.

 

[Charismagik]

I'm looking on some feedback on what I should allocate for my 401k. I'm mid 40s and was doing OK until the past couple of months where it seems like I'm just throwing money away putting it in(I know you can't "time the market"). I'm a complete novice and just want something simple to follow. Right now I have the following:

60% Northern Trust S&P Index DC NL Tier 3
30% NT Collective All Country World EX-US IMI Tier 3
10% NT Collective Aggregate Bond Index NL Tier 3
The other % is my company match that I have to move to the above periodically

This is what I have to work with(I think it's the right screen). Any help would be appreciated:

 

[tokkun]

I'm looking on some feedback on what I should allocate for my 401k

...

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60% S&P, 30% International, 10% bonds is a perfectly reasonable long-term allocation, so the only problem is if those funds have really bad expense ratios.

 

[Charismagik]

60% S&P, 30% International, 10% bonds is a perfectly reasonable long-term allocation, so the only problem is if those funds have really bad expense ratios.

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Thanks. This is what they show. I can look up others if it will help:

(.02%) 60% Northern Trust S&P Index DC NL Tier 3
(.1%) 30% NT Collective All Country World EX-US IMI Tier 3
(.04%) 10% NT Collective Aggregate Bond Index NL Tier 3

 

[tokkun]

Thanks. This is what they show. I can look up others if it will help:

(.02%) 60% Northern Trust S&P Index DC NL Tier 3
(.1%) 30% NT Collective All Country World EX-US IMI Tier 3
(.04%) 10% NT Collective Aggregate Bond Index NL Tier 3

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Those are good expense ratios. There is really nothing wrong with your current investment mix. The only thing you might want to change is increasing the fraction in bonds as you get closer to retirement.

 

[TheTrinity]

Yep, those all look good.
Be assured that you're not just throwing money away, you're doing well.

This trade war stuff in the last couple days has smacked the crap out of the market, but there's plenty of time to recover.
You say you're mid-40s, do you have a roughly planned retirement time period? As tokkun said, you'll want to become more protective as you get closer.

I think this is completely fair and I'm glad you mentioned it. The tax efficient link I provided earlier discusses your counterpoint.

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Yep, and I want to make it clear that I'm not condoning or condemning this strategy, just wanted people to be fully aware of options.

I probably wouldn't do this kind of thing either, as it makes things less simple.

 

[FliX]

Trophy unlocked: 401k full for the year. :)

 

[Charismagik]

Those are good expense ratios. There is really nothing wrong with your current investment mix. The only thing you might want to change is increasing the fraction in bonds as you get closer to retirement.

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Right. I saw some charts that advised different ratios. Like for me, one recommended around 75% stock/25% bond and that was being somewhat aggressive

Yep, those all look good.
Be assured that you're not just throwing money away, you're doing well.

This trade war stuff in the last couple days has smacked the crap out of the market, but there's plenty of time to recover.
You say you're mid-40s, do you have a roughly planned retirement time period? As tokkun said, you'll want to become more protective as you get closer.

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I guess the typical 60s. I figure close to another 20 left

 

[Husker86]

My new company allows up to 25k a year to be added into your 401k as after tax, and you can have it auto distribute to your Roth 401k every quarter. I never knew this was allowed, but I guess it's just not offered by many companies.

 

[tokkun]

My new company allows up to 25k a year to be added into your 401k as after tax, and you can have it auto distribute to your Roth 401k every quarter. I never knew this was allowed, but I guess it's just not offered by many companies.

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It's only been legally allowed for about 4 years now. Honestly, I'm pretty surprised it survived the tax legislation. I thought it would be one of the first things on the chopping block, along with the vanilla backdoor Roth.

 

[Deleted member 11822]

I know this is not 100% related to the topic but I wanted to ask:

Who is the best person to talk to about taxes / deductions / making sure we are doing things correctly [sorry to be so vague]. My wife and I did out taxes today and we are going to owe again.
We both contribute to 401k, we both pay extra into our taxes each paycheck, we both do not declare dependents, and we live in a state with no income tax.

For 2018 we are going to be making a combined pre-tax income of $205,000. We are obviously doing something wrong because this year we are going to owe $4000.00

I'm just looking for advice or resources I can look up to make sure we are sheltering ourselves as much as possible,

again, sorry this is not 100% on topic.

 

[Walter White Walker]

I know this is not 100% related to the topic but I wanted to ask:

Who is the best person to talk to about taxes / deductions / making sure we are doing things correctly [sorry to be so vague]. My wife and I did out taxes today and we are going to owe again.
We both contribute to 401k, we both pay extra into our taxes each paycheck, we both do not declare dependents, and we live in a state with no income tax.

For 2018 we are going to be making a combined pre-tax income of $205,000. We are obviously doing something wrong because this year we are going to owe $4000.00

I'm just looking for advice or resources I can look up to make sure we are sheltering ourselves as much as possible,

again, sorry this is not 100% on topic.

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I would imagine a Certified Public Accountant who specializes in federal income taxes.

 

[TarpitCarnivore]

Curious if I can get some insight on my funds available to me in my 401. I put most of my deductions into a target, but am trying to diversify it out more with the following:
FCNTX, OIEJX, VINIX, GSSIX, HMDYX, HSLYX, FLMVX, VEXAX, INVIGT, LZEMX, TIDDX, FTFGX, VTIAX, IGREX, LSSIX, PTTRX, VBTLX, METGEN

I'm currently split between my Target Fund, VINIX, VEXAX, VTIAX and VBTLX. All fees on them are pretty good, nothing out of the ordinary. I'm also considering just pulling back to the employee match (6%) and putting the extra 4% into a VTI, but I likely be able to auto-buy the VTI

I also still have my 401K at my previous job, but I've just been lazy to roll it over, but I should probably jump on that soon.

 

[tokkun]

I know this is not 100% related to the topic but I wanted to ask:

Who is the best person to talk to about taxes / deductions / making sure we are doing things correctly [sorry to be so vague]. My wife and I did out taxes today and we are going to owe again.
We both contribute to 401k, we both pay extra into our taxes each paycheck, we both do not declare dependents, and we live in a state with no income tax.

For 2018 we are going to be making a combined pre-tax income of $205,000. We are obviously doing something wrong because this year we are going to owe $4000.00

I'm just looking for advice or resources I can look up to make sure we are sheltering ourselves as much as possible,

again, sorry this is not 100% on topic.

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If you owe money on your taxes, it's usually one of these things:

- You made a mistake filling out your W4. For example, not including the fact that you are married or you work multiple jobs and didn't account for it.
- You are getting compensation that is subject to the supplementary withholding rate, such as bonuses or RSUs.
- You have significant income that is subject to any withholding, such as interest, dividends, capital gains, or tips.
- You changed jobs, got a raise, etc.

As a side note, the supplementary withholding rate is going from 25% to 22% this year. I had to increase my withholding a lot to compensate for it.

 

[TheTrinity]

Curious if I can get some insight on my funds available to me in my 401. I put most of my deductions into a target, but am trying to diversify it out more with the following:
FCNTX, OIEJX, VINIX, GSSIX, HMDYX, HSLYX, FLMVX, VEXAX, INVIGT, LZEMX, TIDDX, FTFGX, VTIAX, IGREX, LSSIX, PTTRX, VBTLX, METGEN

I'm currently split between my Target Fund, VINIX, VEXAX, VTIAX and VBTLX. All fees on them are pretty good, nothing out of the ordinary. I'm also considering just pulling back to the employee match (6%) and putting the extra 4% into a VTI, but I likely be able to auto-buy the VTI

I also still have my 401K at my previous job, but I've just been lazy to roll it over, but I should probably jump on that soon.

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VINIX - S&P 500
VEXAX - Mid and Small, combined with VINIX gives total US market
VTIAX - Global Ex-US
VBTLX - Total US Bond Market

First off, it's kind of weird to be in a target fund and then also in all these other things, although I don't know what target it is. The point of the target fund is to be hands-off, but then you must be hands-on on all these other ones right? So it's a bit of conflict there.
Second, you can see that I've listed what you have there and it already covers the entire global market so I don't know how you would diversify more. I haven't checked out all those other ones, but they appear to be somewhat higher expense managed funds and I don't see the purpose of them unless you're actively trying to tilt your holdings in some specific way.

I'm not quite clear on what you're talking about with VTI, but again you're already covered with those 4 funds that you already hold so there's definitely no need to buy anything else.
Since you're already into it, I'd say just keep doing what you're doing, and make sure you've set yourself an asset allocation with what you have.

 

[TarpitCarnivore]

First off, it's kind of weird to be in a target fund and then also in all these other things, although I don't know what target it is. The point of the target fund is to be hands-off, but then you must be hands-on on all these other ones right? So it's a bit of conflict there.
Second, you can see that I've listed what you have there and it already covers the entire global market so I don't know how you would diversify more. I haven't checked out all those other ones, but they appear to be somewhat higher expense managed funds and I don't see the purpose of them unless you're actively trying to tilt your holdings in some specific way.

I'm not quite clear on what you're talking about with VTI, but again you're already covered with those 4 funds that you already hold so there's definitely no need to buy anything else.
Since you're already into it, I'd say just keep doing what you're doing, and make sure you've set yourself an asset allocation with what you have.

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I started doing the other vanguards as a way to spread out some extra investments and possibly "earn more" than my target fund.

As for VTI, that would be for investments outside of my 401K. I don't qualify for RothIRA so I was thinking of how I can put money into more funds for further investment growth. I guess I could go a traditional IRA route.

 

[JEKKI]

Why don't you just wait and save money for the down-payment? How long will would you estimate that it will take based on your current savings rate?

Borrowing from your 401k just seems like a real bad idea to me.

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it'll take like 5 or 6 years to save up $30K, assuming I can diligently save. Not a very good idea for someone who wants a place now.

I mentioned this earlier but didnt bring it up again, the reason why I want my own place is coz my apartment has a 25lb weight limit on pets. If I want to be a dog owner I need to move, and condo is the smartest option since rent here in SoCal is ridiculous, and my own rent is going up come April :(

as bad as borrowing from 401K may seem, I was legit ready to just cash out my rollovers. I lose my investment potential, pay hella fees and taxes, but at least I'd have the money I need. Knowing I can borrow the money makes me much gladder that I won't entirely lose as much as I would have been willing to.

 

[Deleted member 2145]

so I want to start investing more beyond my 401k match and maxing out my roth ira each year

any tips? should I just do some more index funds outside of my roth ira? already have a vanguard account set up

 

[TarpitCarnivore]

so I want to start investing more beyond my 401k match and maxing out my roth ira each year

any tips? should I just do some more index funds outside of my roth ira? already have a vanguard account set up

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Index and Vanguards are always safe.

 

[TheTrinity]

Yep, just keep on keeping on with the standard methods.

Some people like to set aside a small amount for speculative single stock investments if that's your jam. Just as a sort of fun side thing.

 

[QuigleyMcShine]

I thought maxing out my Roth in January this year would let me forget about it and be less stressful, but it sucks seeing it have a lower balance three months later and not be able to get some cheap shares. Then again I'm 30, so I really need to stop looking.

 

[Ether_Snake]

For those in Canada, Vanguard now has some awesome all-in-one ETFs.
VRGO - 20% bonds / 80% stocks
VBAL - 40% bonds / 80% stocks
VCNS - 80% bonds / 20% stocks
Management fee is decent at 0.22%

http://canadiancouchpotato.com/2018/02/05/vanguards-one-fund-solution/

I highly recommend only buying those. I have reweighted almost everything to a mix of VGRO and VCNS.

Don't waste time stock picking or buying 8 funds to be balanced, the above is a really good offer.

 

[Smiley90]

For those in Canada, Vanguard now has some awesome all-in-one ETFs.
VRGO - 20% bonds / 80% stocks
VBAL - 40% bonds / 80% stocks
VCNS - 80% bonds / 20% stocks
Management fee is decent at 0.22%

http://canadiancouchpotato.com/2018/02/05/vanguards-one-fund-solution/

I highly recommend only buying those. I have reweighted almost everything to a mix of VGRO and VCNS.

Don't waste time stock picking or buying 8 funds to be balanced, the above is a really good offer.

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20% bonds is honestly too high for me. If they had a 100% diversified stocks amongst their own ETFs isI probably get that for most of my savings and some smaller ones to play with.

 

[Ether_Snake]

20% bonds is honestly too high for me. If they had a 100% diversified stocks amongst their own ETFs isI probably get that for most of my savings and some smaller ones to play with.

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20% bonds is not too high for anyone, you should have around the equivalent percentage as your age.
This is a "retirement" thread and you think going 100% stock is right?

They have 100% stock ETFs too, but that's not the right way to invest for retirement. Go here instead https://www.resetera.com/threads/in...ividends-no-tales-from-the-crypto-here.28604/

 

[Smiley90]

20% bonds is not too high for anyone, you should have around the equivalent percentage as your age.
This is a "retirement" thread and you think going 100% stock is right?

They have 100% stock ETFs too, but that's not the right way to invest for retirement. Go here instead https://www.resetera.com/threads/in...ividends-no-tales-from-the-crypto-here.28604/

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I'm 27 and not buying a house anytime soon. 100% stocks is perfectly fine for me. I'm perfectly aware of the risks and I'm not going to speculate on individual stocks or crypto, thanks.

 

[Husker86]

20% bonds is not too high for anyone, you should have around the equivalent percentage as your age.
This is a "retirement" thread and you think going 100% stock is right?

They have 100% stock ETFs too, but that's not the right way to invest for retirement. Go here instead https://www.resetera.com/threads/in...ividends-no-tales-from-the-crypto-here.28604/

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Why would I want bonds when I'm 30 years out from even thinking about withdrawing from my retirement accounts?

 

[Ether_Snake]

Why would I want bonds when I'm 30 years out from even thinking about withdrawing from my retirement accounts?

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https://www.investopedia.com/articles/stocks/07/100_equities.asp

 

[Smiley90]

https://www.investopedia.com/articles/stocks/07/100_equities.asp

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"The 100% equity prescription is still problematic because although stocks may outperform bonds and cash in the long run, you could go nearly broke in the short run.

Read more: Should You Invest Your Entire Portfolio In Stocks? https://www.investopedia.com/articles/stocks/07/100_equities.asp#ixzz5BRorj9Yx
Follow us: Investopedia on Facebook"

Sooooo exactly. Yeah in the short run you could go nearly broke. Sure. Who cares if you're 40 years from retirement? The article basically says 100% stocks is bad if you're planning to cash out early and /or will pull out when markets go down. Which we aren't. Not a very genuine argument when it relies on doing the 100% stocks strategy wrong.

 

[ArrogantBastard]

Mid 30's just starting, looking to invest 5k a year. Options for me are 403b through my school or IRA. Really don't want to manage it other than dropping money into it, honestly don't even want to look at it. What is the best option? Just want something that is easy.

 

[tokkun]

Mid 30's just starting, looking to invest 5k a year. Options for me are 403b through my school or IRA. Really don't want to manage it other than dropping money into it, honestly don't even want to look at it. What is the best option? Just want something that is easy.

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Open an IRA at Vanguard and buy the Target 2050 fund.

 

[ArrogantBastard]

Open an IRA at Vanguard and buy the Target 2050 fund.

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Any reason to go Vanguard over say Fidelity or Schwab?

 

[Ether_Snake]

Any reason to go Vanguard over say Fidelity or Schwab?

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Check the management fees.

 

[tokkun]

Any reason to go Vanguard over say Fidelity or Schwab?

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The main reason is trust. Vanguard was the first company to offer low cost index funds to the public. It is also a mutually owned company, meaning Vanguard is owned by its customers and is not beholden to some third party group of stock holders to generate profits.
https://www.barrons.com/articles/BL-FUNDSB-12134

For these reasons, I trust Vanguard to do the right thing more than other companies. Something I don't think many people realize is that the expense ratio on a mutual fund or ETF you buy has no long term guarantee to it. The fund manager is free to jack up the fees if they want to or if shareholders start demanding more profits. So the trust issue actually matters.

Now, if you happen to already have a 401K that is managed by one of those other companies and you would like to open an IRA with them so you can consolidate accounts, that's reasonable. I'm just saying that all other things being equal, I would go with Vanguard.

 

[TheTrinity]

"The 100% equity prescription is still problematic because although stocks may outperform bonds and cash in the long run, you could go nearly broke in the short run.

Read more: Should You Invest Your Entire Portfolio In Stocks? https://www.investopedia.com/articles/stocks/07/100_equities.asp#ixzz5BRorj9Yx
Follow us: Investopedia on Facebook"

Sooooo exactly. Yeah in the short run you could go nearly broke. Sure. Who cares if you're 40 years from retirement? The article basically says 100% stocks is bad if you're planning to cash out early and /or will pull out when markets go down. Which we aren't. Not a very genuine argument when it relies on doing the 100% stocks strategy wrong.

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Yes, generally this warning comes into play because it is indeed very mentally stressful to stay in 100% stocks throughout a large crash. However, all indications point to holding out being the correct move in a crash. It requires extreme fortitude to do such a thing and I don't think any guarantees can be made (even for myself) about what exactly we'll do if such a situation happens, but that is the ideal.
I think what is worth thinking about is what you would do if the crash coincided with a job loss (which is not an unlikely scenario). Would you have to withdraw from your retirement portfolio in order to survive? In those cases it can be very good to have a stash of bonds to draw on to keep you going. It's something to consider as I believe our recent experiences with a very long-running bull market have tended to make us overly optimistic.
Carefully consider what your personal situation is and what you can handle.

 

[ArrogantBastard]

The main reason is trust. Vanguard was the first company to offer low cost index funds to the public. It is also a mutually owned company, meaning Vanguard is owned by its customers and is not beholden to some third party group of stock holders to generate profits.
https://www.barrons.com/articles/BL-FUNDSB-12134

For these reasons, I trust Vanguard to do the right thing more than other companies. Something I don't think many people realize is that the expense ratio on a mutual fund or ETF you buy has no long term guarantee to it. The fund manager is free to jack up the fees if they want to or if shareholders start demanding more profits. So the trust issue actually matters.

Now, if you happen to already have a 401K that is managed by one of those other companies and you would like to open an IRA with them so you can consolidate accounts, that's reasonable. I'm just saying that all other things being equal, I would go with Vanguard.

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Really appreciate it man, we know we need to do this and for us it is just something that I don't want to have to think about. It causes an enormous amount of anxiety for us so the really shitty solution has just been to keep dumping money into savings. We know this is dumb so we are pushing to make a change this year. Gonna talk to my wife about opening an account with Vanguard tonight. Thanks again.

 

[Ether_Snake]

Really appreciate it man, we know we need to do this and for us it is just something that I don't want to have to think about. It causes an enormous amount of anxiety for us so the really shitty solution has just been to keep dumping money into savings. We know this is dumb so we are pushing to make a change this year. Gonna talk to my wife about opening an account with Vanguard tonight. Thanks again.

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It's really simple to do, there's no hassle really, if people knew how simple it is a lot more people would be investing.
You can buy Vanguard's ETFs through any investment account. I do so through my bank's.

 

[Ashhong]

I'm sorry that this isn't 100% related, but I didn't want to make a new thread and you all seem very smart with finance stuff.

I received a 1099-K from Google because I use their Google Wallet to send and receive money. Everything from dinners, gifts, and rent (I collect rent from my 2 housemates and then pay the landlord with a check). I received over 23k this form says. Now does anybody know if I need to report this and how? I dont have a business nor is a single dime of this money "income". I found the page on my Credit Karma tax form to enter this info but that page requires information of my business lol.

If someone knows a better thread for this please direct me over, thanks!

 

[Mr.Mike]

Not really about retirement but I think it's interesting. The TMX website will show you the last 25 trades for whatever security, VGRO for instance. I can see my recent purchase of 1 unit, and who specifically I bought it from. Questrade shows up a lot probably because they offer commission free ETF purchases. Also I guess National Bank, BMO and Scotiabank are the market makers for Vanguards ETFs.

 

[faint]

Just looking for a bit of advice since finance isn't really my forte and I'm not sure I'm doing this correctly...

I'm currently investing $5,500 a year into a Roth IRA with Vanguard. My portfolio is 50/50 into VFINX (Vanguard 500 Index Fund Investor Shares) and VTTSX (Vanguard Target Retirement 2060 Fund Investor Shares). I'm in my mid-20s hence the 2060 plan. Additionally, I contribute to my company's 403b plan which is also an age based plan and has a breakdown of 86% equity, 9% real estate, and 5% guaranteed (whatever that means).

I suppose what I'm wondering is: given my age, am I on a decent to good track of having a "diverse" portfolio? I realize that there's no single solution for everyone, but I worry that I have two many eggs in one basket, and don't know if there's something I can do to diversify it a bit more. Also, if any of you folks have a better recommendation for my Vanguard funds, do let me know. I don't fully understand the difference between VFINX and VINIX (Vanguard Institutional Index Fund Institutional Shares), for example, and I picked the VTTSX fund solely because it seemed to make sense as it incorporates little effort as its breakdown is directly related to my retirement age.

Thanks to any and all that can help.

 

[Bumrush]

The main reason is trust. Vanguard was the first company to offer low cost index funds to the public. It is also a mutually owned company, meaning Vanguard is owned by its customers and is not beholden to some third party group of stock holders to generate profits.
https://www.barrons.com/articles/BL-FUNDSB-12134

For these reasons, I trust Vanguard to do the right thing more than other companies. Something I don't think many people realize is that the expense ratio on a mutual fund or ETF you buy has no long term guarantee to it. The fund manager is free to jack up the fees if they want to or if shareholders start demanding more profits. So the trust issue actually matters.

Now, if you happen to already have a 401K that is managed by one of those other companies and you would like to open an IRA with them so you can consolidate accounts, that's reasonable. I'm just saying that all other things being equal, I would go with Vanguard.

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Your responses are always awesome, tokkun. I have my Vanguard account for very similar reasons but you always lay it out so clearly.

 

[tokkun]

Just looking for a bit of advice since finance isn't really my forte and I'm not sure I'm doing this correctly...

I'm currently investing $5,500 a year into a Roth IRA with Vanguard. My portfolio is 50/50 into VFINX (Vanguard 500 Index Fund Investor Shares) and VTTSX (Vanguard Target Retirement 2060 Fund Investor Shares). I'm in my mid-20s hence the 2060 plan. Additionally, I contribute to my company's 403b plan which is also an age based plan and has a breakdown of 86% equity, 9% real estate, and 5% guaranteed (whatever that means).

I suppose what I'm wondering is: given my age, am I on a decent to good track of having a "diverse" portfolio? I realize that there's no single solution for everyone, but I worry that I have two many eggs in one basket, and don't know if there's something I can do to diversify it a bit more. Also, if any of you folks have a better recommendation for my Vanguard funds, do let me know. I don't fully understand the difference between VFINX and VINIX (Vanguard Institutional Index Fund Institutional Shares), for example, and I picked the VTTSX fund solely because it seemed to make sense as it incorporates little effort as its breakdown is directly related to my retirement age.

Thanks to any and all that can help.

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VFINX and VINIX are both S&P 500 index trackers, so their holdings will be nearly identical. Companies often have several "classes" of the same fund available. VFINX is the investor class, which is available to everyone. VINIX is the institutional class, which most people can only get access to via a 401K. If you have the choice, VINIX is superior, because it has lower fees.

The question about diversification is more complicated, because there is no single correct answer.

Short recommendation: I would drop VFINX and go 100% in VTTSX.

Long answer:

A lot of people have a misconception that owning more funds makes them more diversified. That is not true. You have to look at the contents of each fund and its correlation to the contents of the other funds.

So for example, I would argue that your 50:50 split of VFINX and VTTSX is actually less diversified than if you were 100% VTTSX. VTTSX is roughly speaking:

- 60 : 40 split of US vs international assets
- 90 : 10 split of stocks (total market) vs bonds

It is pretty diversified on its own. On the other hand, VTTSX is only large cap US stocks, not very diversified. It also does not add anything that is not already in VTTSX, since VTTSX includes the total US stock market. Instead it just increases your weighting to large US companies, and decreases your weighting to small & mid-sized US stocks, International stocks, and bonds.

Now like I said, there is no exact answer on what the weights of these things should be in a portfolio. However, since large caps make up 80% of the US total market index, even if you only held VTTSX, you would already have 40%+ of your assets in US large caps. By splitting your money with VFINX you increase that to 70%. That seems like a lot to me, especially given that the US large caps are pretty heavily weighted toward tech at present.

Your responses are always awesome, tokkun. I have my Vanguard account for very similar reasons but you always lay it out so clearly.

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Thanks for the kind words.

 

[faint]

VFINX and VINIX are both S&P 500 index trackers, so their holdings will be nearly identical. Companies often have several "classes" of the same fund available. VFINX is the investor class, which is available to everyone. VINIX is the institutional class, which most people can only get access to via a 401K. If you have the choice, VINIX is superior, because it has lower fees.

The question about diversification is more complicated, because there is no single correct answer.

Short recommendation: I would drop VFINX and go 100% in VTTSX.

Long answer:

A lot of people have a misconception that owning more funds makes them more diversified. That is not true. You have to look at the contents of each fund and its correlation to the contents of the other funds.

So for example, I would argue that your 50:50 split of VFINX and VTTSX is actually less diversified than if you were 100% VTTSX. VTTSX is roughly speaking:

- 60 : 40 split of US vs international assets
- 90 : 10 split of stocks (total market) vs bonds

It is pretty diversified on its own. On the other hand, VTTSX is only large cap US stocks, not very diversified. It also does not add anything that is not already in VTTSX, since VTTSX includes the total US stock market. Instead it just increases your weighting to large US companies, and decreases your weighting to small & mid-sized US stocks, International stocks, and bonds.

Now like I said, there is no exact answer on what the weights of these things should be in a portfolio. However, since large caps make up 80% of the US total market index, even if you only held VTTSX, you would already have 40%+ of your assets in US large caps. By splitting your money with VFINX you increase that to 70%. That seems like a lot to me, especially given that the US large caps are pretty heavily weighted toward tech at present.



Thanks for the kind words.

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Thank you so much for your detailed response. Given what you've said, would it make more sense to have something like an 80:20 portfolio of VTTSX (80) and a reliable small/mid-size cap fund (20) or full 100% VTTSX like you originally mentioned?

Lastly, and this may be a really stupid question, but I find every month I have a few extra $'s in my Vanguard Federal Money Market Fund (Settlement fund). Where exactly is this money coming from? It's nothing substantial; just over $100, but I have automatic payments going into my Roth and I consistently see this number slowly increase. Am I free to do what I want with this, or is this something fee related? Thanks again for your advice!

 

[TarpitCarnivore]

Thank you so much for your detailed response. Given what you've said, would it make more sense to have something like an 80:20 portfolio of VTTSX (80) and a reliable small/mid-size cap fund (20) or full 100% VTTSX like you originally mentioned?

Lastly, and this may be a really stupid question, but I find every month I have a few extra $'s in my Vanguard Federal Money Market Fund (Settlement fund). Where exactly is this money coming from? It's nothing substantial; just over $100, but I have automatic payments going into my Roth and I consistently see this number slowly increase. Am I free to do what I want with this, or is this something fee related? Thanks again for your advice!

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Interest & dividends maybe? I know with Schwab I can have it auto-invest that back into the fund.

 

[TarpitCarnivore]

What's the general rule of thumb on 401K roll overs? I have a decent chunk in a past company account, but it's been ~2 years and I still haven't rolled it over. Mostly to do with the annoyance of it all than anything else. Last I checked the fees on keeping it there were negligible.

 

[TheTrinity]

For those like me that like Mint.com and such, there is finally a Canadian equivalent of Personal Capital available. I think it's actually been around for a bit now, just hadn't looked until this week.
https://wealthica.com/

I can't say how useful it will be until a couple weeks go by, but I just like looking at graphs so that's good enough for me.
It's also not properly logging in to one of my accounts so we'll see if that gets sorted out.

 

[tokkun]

Thank you so much for your detailed response. Given what you've said, would it make more sense to have something like an 80:20 portfolio of VTTSX (80) and a reliable small/mid-size cap fund (20) or full 100% VTTSX like you originally mentioned?

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There is really no single right answer on this one. I personally think that simplicity is a virtue, so I like the single fund approach. I am 100% in Target 2045 in my own 401K. However, there are many people who choose to create a tilt toward small caps, and do something similar to the split you suggested.

Lastly, and this may be a really stupid question, but I find every month I have a few extra $'s in my Vanguard Federal Money Market Fund (Settlement fund). Where exactly is this money coming from? It's nothing substantial; just over $100, but I have automatic payments going into my Roth and I consistently see this number slowly increase. Am I free to do what I want with this, or is this something fee related? Thanks again for your advice!

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If you don't have your account set up to automatically reinvest dividends, they are deposited in your settlement fund.