About to start investing in Vanguard.
Should I buy VFINX or VTSMX?
There's a lot of conflicting information about which one is better overall, but most say they're essentially the same.
Gonna start with the 3k and then add 2k in every month for the rest of the year.
Also, the REIT fund really interests me. Is it worth deviating into other funds, such as small cap, international, and the REIT, or should I just go all in on the S&P 500?
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I bought the REIT in August and it's been a fucking pain in my ass ever since. My investment is down a lot.
Decide how you want your basket of funds to be made up: what exposures you want, what risks you want.
Do you want to be exposed to a global market? Vanguard's Developed World Equity Fund is a good place to go.
Want to possibly capture the increased return of developing nations but with more risk? Vanguard's Emerging Markets Fund is good.
Want to capture greater returns and risk from smaller companies? Vanguard's Small-cap Equity Fund is good.
Want the diversification of government bonds and corporate bonds? A Vanguard Treasury Fund or Corporate Bond fund (long or short term bonds?) would be appropriate.
Decide how you want your portfolio made up: mine is 70% shares and 30% funds, and of the funds my main one is the developed world equity fund, followed by small-cap and emerging markets.
It seems like it's too expensive if you don't buy the admiral shares from the get go.
I run my trade business full time and manage my rental properties, so all I really care about are the returns on my money, not necessarily where they're at.
I'm just 31 and have plenty saved as an emergency fund, so I would ideally like my Vanguard funds to be as aggressive as possible.
Total Market is always superior to Large Cap (S&P500) in a long-term portfolio. Small and mid-cap stocks have a historic record of outperforming large-caps. And while they add a bit of volatility, this is completely smoothed out in a long-term portfolio. Consequently, the the Total Market will be expected to outperform without adding additional risk. This is the finance equivalent of free money.
Admittedly, the difference is not substantial because Total Market is a cap-weighted fund. The large-caps substantially dominate the Total Market fund in terms of dollars. Only 19% of the fund is mid-caps, and only 9% is small-caps. That leaves 72% of the fund in large-caps, resulting in performance very similar to a dedicated large-cap fund like a S&P 500 index. But the difference is there, and over enough years, it adds up to a small but but noticeable difference.
As for the remainder of your question, yes the REIT fund is a nice addition when you're building a portfolio. However, it is a lesser priority than international equities, which you are missing. You should also consider a bond allocation consistent with your goals and risk tolerances. REIT exposure is usually the fourth fund that I recommend to people after they have the core three funds in place.
Lastly, since you seem like an intelligent and thoughtful beginning investor, don't ignore the ubiquitous advice to establish and maintain an appropriately sized emergency fund. It's one of the most important things you can do to help keep you on track to achieving your wealth-building goals.
Thank you very much for actually taking the time to help me.
I wanted to have several funds as I get my feet wet and over the fear of letting other people manage my money.
I was also looking at the mid cap fund, small cap fund, international fund, REIT fund, and healthcare fund. My research so far is telling me that the bulk of my funds should be in either VFIAX or VTSAX.
Since VTSAX is ~75-80% VFIAX, is it redundant to own both? Does VFIAX complement VTSAX or would mid/small cap funds like VIMAX and VSMAX better complement it?
Or am I over thinking this too much and should just stick to the "three fund" portfolio?
I'll convert to admiral funds as soon as I get the hang of this. I spent the entire day just clicking around on the control panel of site to get a feel for how it works and all of the options it gives me.
Planning to max out my 401k and Roth and then put another ~200k over the course of this year. Kind of getting tired of rental properties, which is becoming a second full time job and would like to have a more "passive" approach to investing.
And my emergency fund is fully funded at ~60k. Half for my personal and half for my business, which is overkill, considering that my house is paid for and I'm single with no kids, and I have no business debt.
>Since VTSAX is ~75-80% VFIAX, is it redundant to own both?
Yes. This is one of the common mistake I see people on this board make all the time. They buy VFIAX/VOO because they vaguely understand the benefits of indexing and think that means "S&P500" fund. But they're missing out on the entire range of mid and small-caps. They should have simply bought VTSAX/VTI in the first place, and they wouldn't have a problem to fix down the road.
>Does VFIAX complement VTSAX or would mid/small cap funds like VIMAX and VSMAX better complement it?
If you felt strongly that you wanted the ability to fine-tune the allocations of your U.S. stocks, then you could split your money into VFIAX/VIMAX/VSMAX buckets. It's not unreasonable to do so, but its unnecessary for most people and it does force you to rebalance periodically (not a major deal, but rebalancing does have tax consequences). By contrast, VTSAX is rebalanced internally, so you never have to do it manually yourself. Also, using VTSAX makes it easier to qualify for Admiral Class shares, as compared to splitting your money into three funds.
>Or am I over thinking this too much and should just stick to the "three fund" portfolio?
No, and yes. Don't beat yourself up for asking questions. One of the best ways to stay disciplined and committed to a long-term diversified investment strategy like the one we're discussing it to understand and be confident in WHY it works. So ask questions, especially when you have intelligent people answering them.
But yes, the "three-fund" is the best place to start. It's highly-diversified, proven, and easy to modify going forward as your goals, needs, and financial education progress. You should consider Vanguard's Target Retirement funds as an all-in-one starter pack for three fund (actually four fund, which is even better) investors.
>And my emergency fund is fully funded
I saw this after I first posted. Good job. I knew you were a smart guy.
Thank you again so much for your help.
I'm literally making my way down the list of every fund and doing searches on each fund to find out what it is and what it offers and how well it complements VTSAX.
Most of the searches lead back to either the Bogleheads forums, moneymustasche forum, or investopedia, in which people tend to say just buy VTSAX instead of messing with the lower funds.
>Vanguard's Target Retirement funds
Thank you for this recommendation. I had skipped over most of these simply because the other funds on the list seemed more interesting at the time I started researching.
What is your opinion of having your 401k/IRA accounts being the exact same as your other funds versus having the tax advantaged funds in the target retirement and then buying VTSAX with the money you currently have that are not eligible for your tax advantaged accounts?
I apologize if this last question doesn't make sense. I don't quite understand what I'm asking either, and this vaguely seems to make sense to me.
>it does force you to rebalance periodically
The purpose of rebalancing is to specifically done to keep a specific proportion of funds, correct?
If I have money automatically drafted each month to purchase each fund, say 1k every month into each fund, are they really going to get that much out of proportion with each other?
What is a realistic time frame between rebalancing for a typical fund?
Hey user, if you don't mind, could you take a look at this site and let me know what you believe an acceptable weighting for a balanced long term retirement portfolio would be? I live in NZ so this is the only ETF vehicle available to me.
smartshares.co.nz
My portfolio is currently 55% S&P 500, 29% NZX Top 50, and 15% Global Bond Fund
>Thank you again so much for your help.
You're very welcome. I enjoy helping people with intelligent questions, which are often in short supply on this board. In fact I stopped coming here for a long time because there was so little mature discussion. Fortunately, when I decided to pop in today, your post picture caught my eye because I'm known as a bit of an expert on Vanguard.
>Most of the searches lead back to either the Bogleheads forums
Confirming this a great of information and assistance. The bogleheads wiki does an excellent job with everything from beginners questions to advanced strategies.
>What is your opinion of having your 401k/IRA accounts being the exact same as your other funds
Tax efficiency is a very important topic for people with both a tax-advantaged and taxable account. You should always be thinking strategically about not just WHAT to own, but also WHERE to hold it for maximum benefit.
Most of the funds we've discussed in this thread are already fairly tax-efficient, and are suitable for either account. The exceptions would be the REIT fund and the healthcare fund you mentioned earlier (both of which I own, btw). They each tend to throw off fairly decent levels of distributions, and would be better suited inside your tax-advantaged account.
Here's how to tell. When looking at the find information page on Vanguard, go to the "Price & Performance" tab and scroll down to "After-tax Returns" chart (see pic). This shows you, historically, how much of the fund's performance is eaten away by taxes. The attached pic is the REIT fund, and you can see that taxes take well over 2.0% of the return. Compare that to VTSAX, for example, where less than 0.5% goes to taxes. This is how you know which funds are likely to be more or less tax efficient. Note that any fund, especially any actively managed fund, can have outlier years, but this is still the best way to do efficient planning.
I know I've said it twice already, but thank you again
I'm going to just keep buying VTSAX until I get used to the interface and learn the terminology for everything.
Googling every acronym on the fund description page takes a lot of time, but it is enjoyable to be learning what I'm doing instead of just blindly buying and crossing my fingers.
I'm in the process of setting up the tax advantaged accounts.
Does the money that goes into the IRA account need to come directly out of my business account or can I just simply purchase it from my personal account with money I pay myself?
>The purpose of rebalancing is to specifically done to keep a specific proportion of funds, correct?
Correct.
>If I have money automatically drafted each month to purchase each fund, say 1k every month into each fund, are they really going to get that much out of proportion with each other?
Yes, over time. Every investment category you own will grow at different rates, sometimes because its expected (stocks tend to grow faster than bonds) and sometimes because different things have good and bad years. Take the last 12 months for example, which has been a really good time to be invested. The S&P 500 is up 19.71% (which is terrific). But if you owned a small-cap value fund, on average, your up 39.63% in the same time period (which is very terrific). So after twelve months, your relative percentage allocation of small-cap value stocks has probably grown higher than your target allocation because they grew at such an amazing rate.
Now maybe you're thinking that's ok because who doesn't like a 39% growth rate. But that was 2016. In 2015 small-cap value was the WORST performing sector in the market, with a performance in the range of NEGATIVE 7%, while the S&P 500 was a standout in an otherwise challenging year, returning a modest positive gain.
Not to mention, you choose your allocations to meet your risk profile. However much risk you're willing to take, that should be reflected in your portfolio. When allocations change (as described above) your portfolio suddenly becomes more risky (or less risky) than your plan. Unless you your plan has changed, you need to rebalance in order to assure that your investments continue to reflect your appetite for risk.
>What is a realistic time frame between rebalancing for a typical fund?
Once a year is more than sufficient for most people. Unless the market is crazy volatile, anything more often just increase the tax consequences.
I will be the first to confess that I'm not an expert on non-U.S. investing strategies. The choices you folks have are a bit different, as are the fees, account types, and importantly, tax laws.
The best I can do in good conscious is direct you to the bogleheads.org disucssion forum. There are a lot of very intelligent non-U.S. investors there who are pursuing the same intelligent long-term low-cost strategies that I recommend. They would be a better source than me for specific recommendations for an international investor.
I hate to duck your question, but I'd rather point you to a place where you can get good advice rather than bullshit my way through an answer.
>Does the money that goes into the IRA account need to come directly out of my business account or can I just simply purchase it from my personal account with money I pay myself?
You can make IRA contributions from any source, as long as you have the earned income to qualify for the contribution.
Are you self-employed? I hate to make things more complicated for you, but if yes, there are some additional options you should look into. A SEP-IRA has much higher contribution limits than an IRA, but functions like a traditional IRA, not a Roth. It might be beneficial depending on your income and savings rate. Also, an individual 401k might be useful to lower your businesses taxes.
These are advanced topics and shouldn't delay you from making plans now, but they might worth looking into if you do indeed have self-employment income going forward.
reit get put under pressure by rising interest rates due to the fact that other methods of less risky investments become more appealing. That isn't to say you shouldn't have something in a Reit, but most people recommend something like 7-13% at most of your portfolio in Reit, unless you know exactly what you are doing. Some reit are also a little more resistant to interest rates, but usually only if the establishments they hold are something that doesn't have changes in behavior in bear or bull climates
I am self employed with a small successful trade business. I like it because I make very good money for only having to work about 25-30 hours a week at most.
I have a huge list of questions that I have written down, and the ones relating to the retirement accounts are at the top. I won't annoy you with them though, but mostly because I do want to take the time to look them all up on my own.
I've put the sep on my list. I didn't even know this was an option.
This tells me that I need to do a lot more reading, because this is three times in this one thread that has shown me that I have better alternatives than what I had in mind.
>This tells me that I need to do a lot more reading, because this is three times in this one thread that has shown me that I have better alternatives than what I had in mind.
Glad I could provide some guidance. You've got a great attitude (willingness to learn) and I respect your desire to do the research. This stuff doesn't always come easily, and I fully admit it's taken me many years to feel sufficiently knowledgeable to give advice to others. Even today I'm still learning new strategies and new tweaks to get the most out of my investments. Keep doing what you're doing, keep reading, and keep asking questions. The payoff is worth the effort.
You're doing the Lord's work, user
bump