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Message
Vanguard three fund question
Posted on 12/28/16 at 2:22 pm
Posted on 12/28/16 at 2:22 pm
Hi all. I've invested $11k in the Vanguard 2055 TDF (Roth) over the past two years. I'm in my mid-20s.
I've been doing a lot of reading, and I'm thinking about starting a three-fund portfolio with 65% VTSMX, 20% VBMFX, and 15% VGTSX (assuming all three of these funds are possible for me to buy into). I'm not sure whether it would be smarter to take my contributions out of the target date fund and use them to start this three fund portfolio, or if it would be smarter to start the portfolio from scratch.
The pros that I can figure from leaving my TDF alone is it can continue to grow, and it's done pretty well. The con is simply that I would have to accumulate the capital from scratch to start the three fund portfolio.
I guess in simple terms, what I'm really looking for is someone to further explain this to me so I can make a more informed decision. I'm an investing novice, so I'm sorry if any of this is stupid. I'm also open to any other "better" ideas, should someone with more knowledge have any input. Thanks
I've been doing a lot of reading, and I'm thinking about starting a three-fund portfolio with 65% VTSMX, 20% VBMFX, and 15% VGTSX (assuming all three of these funds are possible for me to buy into). I'm not sure whether it would be smarter to take my contributions out of the target date fund and use them to start this three fund portfolio, or if it would be smarter to start the portfolio from scratch.
The pros that I can figure from leaving my TDF alone is it can continue to grow, and it's done pretty well. The con is simply that I would have to accumulate the capital from scratch to start the three fund portfolio.
I guess in simple terms, what I'm really looking for is someone to further explain this to me so I can make a more informed decision. I'm an investing novice, so I'm sorry if any of this is stupid. I'm also open to any other "better" ideas, should someone with more knowledge have any input. Thanks
4
Posted on 12/28/16 at 3:36 pm to atom1505
I'm sort of in this same situation. I initially started a TDF then bought into a couple more funds and also an Energy ETF. I am now wanting to diversify more into other funds and ETF's but dont have enough cash on hand to buy into these funds directly. So not sure if I should sell some of the TDF and buy into these other ones, or put money into a Money Market until I reach the minimum to buy in (but this will cause loss of time in the market). Or keep contributing to my other funds until I can covert them into Admiral shares.
Posted on 12/28/16 at 6:19 pm to atom1505
I wouldn't split the Target Date Fund 2055 into the other 3 until you have enough to put at least $10,000 in each of the three. Each of the 3 has a $10,000 minimum for Admiral Shares which gets you a lower expense ratio. Or, move the $11,000 to the VTSMX which has an expense ratio for Admiral Shares of 0.06% compared to 0.16% for the TDF 2055 and, when its value reaches $20,000 move half of it to the VBMFX.
You are in your mid 20's and don't need to have much of your Roth in a bond fund. I would load up on the VTSMX until you get much older, 50 years old for example. I wouldn't put any in the Total International stock fund (VGTSX) because many of the companies in the Total Stock Market (VTSMX) have international exposure. The 1, 3, 5, and 10 year return for the VGTSX are not as good as the VTSMX.
Congratulations on starting a Roth and for checking on your options. You are probably ahead of most people your age.
You are in your mid 20's and don't need to have much of your Roth in a bond fund. I would load up on the VTSMX until you get much older, 50 years old for example. I wouldn't put any in the Total International stock fund (VGTSX) because many of the companies in the Total Stock Market (VTSMX) have international exposure. The 1, 3, 5, and 10 year return for the VGTSX are not as good as the VTSMX.
Congratulations on starting a Roth and for checking on your options. You are probably ahead of most people your age.
Posted on 12/28/16 at 6:49 pm to atom1505
congrats on the early start. the main thing here is you are saving and that you are using a low cost brokerage. You have to decide what allocation is best for you. Over the years I seem to keep coming back to a 60/40 stock/bond split roughly and no international. This may be my lifelong comfort level. the bond percentage should probably be mostly in the tax advantaged type accounts so you don't pay too much interest tax. read bogleheads guide to investing and remember, saving is more important than investing.
Posted on 12/28/16 at 7:16 pm to stonerolledaway
I'm probably doing it all wrong but this is what I did. I actually just did a 3 fund account.
I have had a target date retirement fund in a Roth IRA. Have been maxing that every year.
Just opened another account. Taxable account for general savings. Did total stock, total bond, and international stock.
Each required 3k initial to open. I figure I'll tweak the allocations as I continue to contribute.
I know the bond fund would be better in a Roth but I kind of like keeping my target date completely separate and fully contributed
Weird I know
I have had a target date retirement fund in a Roth IRA. Have been maxing that every year.
Just opened another account. Taxable account for general savings. Did total stock, total bond, and international stock.
Each required 3k initial to open. I figure I'll tweak the allocations as I continue to contribute.
I know the bond fund would be better in a Roth but I kind of like keeping my target date completely separate and fully contributed
Weird I know
Posted on 12/28/16 at 7:51 pm to HailToTheChiz
I believe the allocation argument for efficiency is to put your international index in your taxable so you can collect the foreign tax credit or whatever.
Bonds in tax advantaged of course.
I think some of this gets butchered when you start bringing other real life issues into it. For example, if you are a total return investor and you want current income, you would generate it by selling the index (instead of collecting dividends as the income). If you were to practice this tax efficiency plan, you might end up selling a lot of International index all the time if US was in tax advantaged accounts.
Bonds in tax advantaged of course.
I think some of this gets butchered when you start bringing other real life issues into it. For example, if you are a total return investor and you want current income, you would generate it by selling the index (instead of collecting dividends as the income). If you were to practice this tax efficiency plan, you might end up selling a lot of International index all the time if US was in tax advantaged accounts.
Posted on 12/28/16 at 8:10 pm to Teddy Ruxpin
So bottom line is you are saving money but that there are various ways, some better than others, to save
Posted on 12/28/16 at 8:56 pm to HailToTheChiz
quote:Please give me your thoughts on this. I have my bond funds in a traditional IRA and as much as possible my stock funds in my Roth. My reasoning is that over a long period of time my stock funds theoretically should grow more than my bond funds. By having the stocks in the Roth I can withdraw tax free from a larger pool of money.
I know the bond fund would be better in a Roth
Posted on 12/28/16 at 10:52 pm to PlanoPrivateer
I can't explain so let me just paste what I read
quote:
An asset's tax efficiency (the impact of taxes on an investment) is affected by both its expected return and the tax rate on such return.
Some fund types, like total market stock index funds, are extremely tax-efficient, because they produce low dividends (that are mostly qualified) and capital gains. By contrast, bond funds can be extremely tax-inefficient, because the interest they produce every year is taxed at your full marginal tax rate. Other tax-inefficient investments are REITs, small value funds, and actively managed funds that frequently churn their holdings. Put tax-inefficient funds into tax-advantaged accounts to the extent possible
Posted on 12/28/16 at 10:56 pm to PlanoPrivateer
Full disclosure. I literally just started my 3 fund after doing some reading.
Someone else can explain how big of a difference there is in the taxable or non taxable when it comes to bonds
I've never been through tax season with a taxable account. I did set my dividends to reinvest.
Someone else can explain how big of a difference there is in the taxable or non taxable when it comes to bonds
I've never been through tax season with a taxable account. I did set my dividends to reinvest.
Posted on 12/29/16 at 8:55 am to PlanoPrivateer
quote:
I wouldn't split the Target Date Fund 2055 into the other 3 until you have enough to put at least $10,000 in each of the three. Each of the 3 has a $10,000 minimum for Admiral Shares which gets you a lower expense ratio. Or, move the $11,000 to the VTSMX which has an expense ratio for Admiral Shares of 0.06% compared to 0.16% for the TDF 2055 and, when its value reaches $20,000 move half of it to the VBMFX.
You are in your mid 20's and don't need to have much of your Roth in a bond fund. I would load up on the VTSMX until you get much older, 50 years old for example. I wouldn't put any in the Total International stock fund (VGTSX) because many of the companies in the Total Stock Market (VTSMX) have international exposure. The 1, 3, 5, and 10 year return for the VGTSX are not as good as the VTSMX.
Congratulations on starting a Roth and for checking on your options. You are probably ahead of most people your age.
Thanks for the advice! I obviously don't have enough to put $10k in each of the three funds right now, but is there really that big of a difference between Admiral shares and Investor shares? Like would I be doing myself a disservice by buying into the funds even though I don't have the capital for Admiral?
Based on what you've told me, maybe I'll just do a two fund portfolio and keep my 2055 Target Date Roth. 80/20 or 90/10 VTSMX/Bond fund. That would leave me with my work Roth 401k (Blackrock), Vanguard 2055 TDF in a Roth, and the two fund portfolio.
Would you recommend doing the two fund portfolio through Roth or a Traditional IRA?
So according to this:
quote:
Some fund types, like total market stock index funds, are extremely tax-efficient, because they produce low dividends (that are mostly qualified) and capital gains. By contrast, bond funds can be extremely tax-inefficient, because the interest they produce every year is taxed at your full marginal tax rate. Other tax-inefficient investments are REITs, small value funds, and actively managed funds that frequently churn their holdings. Put tax-inefficient funds into tax-advantaged accounts to the extent possible
it would be better to keep the bonds in a Roth, and keep the VTSMX in a traditional. Correct?
Also, for what it's worth, I have things in the 2055 TDF just because of allocation (stock heavy). I plan to retire before then. For whatever it's worth.
This post was edited on 12/29/16 at 9:03 am
Posted on 12/29/16 at 10:04 am to atom1505
Why not just open with minimum amounts, then once you get $10,000 in each you can upgrade to Admiral shares?
Posted on 12/29/16 at 10:12 am to HailToTheChiz
That was really the question I'd intended to ask in the first part of the post above. Would I really be disservicing myself by opening an account with investor shares instead of admiral? Especially considering if I just do VTSMX and a bond fund, I'd really only need $6k instead of $9k.
The other question remains though. Bonds in Roth, and stocks in traditional?
The other question remains though. Bonds in Roth, and stocks in traditional?
Posted on 12/29/16 at 10:22 am to atom1505
Most things I have seen are Bonds are better in a tax advantaged account - Roth .
I plan on upgrading to Admiral shares when possible.
You could always put $3k in right now, another 3k later, etc. Once the 3k is in to open it up, you can contribute as you see fit.
I plan on upgrading to Admiral shares when possible.
You could always put $3k in right now, another 3k later, etc. Once the 3k is in to open it up, you can contribute as you see fit.
Posted on 12/29/16 at 10:48 am to atom1505
quote:
That was really the question I'd intended to ask in the first part of the post above. Would I really be disservicing myself by opening an account with investor shares instead of admiral? Especially considering if I just do VTSMX and a bond fund, I'd really only need $6k instead of $9k.
I started with investor shares and kept plugging away each month until I had the cash in each to upgrade to admiral. I think it is a fine approach, especially with such a long investing time frame in front of you
Posted on 12/29/16 at 10:51 am to HailToTheChiz
quote:
You could always put $3k in right now, another 3k later, etc. Once the 3k is in to open it up, you can contribute as you see fit.
It's $3k per account though, right? So I'd have to have $3k for the roth for the bonds, then another $3k for the traditional for the VTSMX.
Posted on 12/29/16 at 10:54 am to atom1505
I think a decent allocation is more important than saving .10% on a single fund.
Posted on 12/29/16 at 11:12 am to Janky
Could you elaborate on what you mean by that?
Posted on 12/29/16 at 11:17 am to atom1505
quote:
t's $3k per account though, right? So I'd have to have $3k for the roth for the bonds, then another $3k for the traditional for the VTSMX.
Yes. So for all 3 funds you would need 9k if you wanted to open them all at once.
Posted on 12/29/16 at 12:59 pm to atom1505
quote:
Could you elaborate on what you mean by that?
What I am saying is I think it is more important to put $10k into three different funds to achieve some allocation and pay .16% (or whatever the expense is) rather than put it all in one fund and only pay .06% expense. This assumes the one fund is not some sort of asset allocation fund.
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