I have been getting interested in doing investing on my own. I've just read the Bogleheads Book on investing, but still have questions and am a rookie.
I opened a Vanguard account (taxable) and currently have 10k sitting in a money market account. After reading the book, it mentions using index funds over mutual funds and actively managed funds, etc. It makes sense and all. However, it is the allocation and tax ramifications that are a big boggling
A few minutes ago I was reviewing the three index fund portfolio concept. (http://www.bogleheads.org/wiki/Three-fund_portfolio
Seems pretty straight forward, however I posted a message about a week ago and folks were iffy on the bonds in a taxable account due to uncle sam! So I'm a bit lost on how to allocate.
Welcome to the forum. Don't overthink your situation and might I suggest starting at minimum with a read of this post
to deal with some of your questions, followed by this wiki entry
. It might seem basic, but given your questions giving those a read this as well as the post on tax efficiency
mmicha wrote:Vanguard has: Vanguard LifeStrategy Moderate Growth Fund (VSMGX), which seems to be this same 3 index allocation. 60/40, domestic, international, and bonds.
I guess questions are:
1. how do I protect myself if bonds are bad in a taxable account...
2. is a fund like VSMGX a better fit, or is buying the 3 index funds individually better?
I've got other money being "managed" at a bank that I'm surely paying lots extra for... So I wanted to take this 10k and learn/understand. Than possibly move that money into this setup for myself. I'm already moving my Roth IRA at this time to Vanguard.
Thanks in advance for the help!
Might I suggest at the minimum that you focus on the fundamentals (although having your dollars in Vanguard products is a very good start):
-Get your Emergency Fund
-Maximize your tax deferred space (401k, IRA, HSA, etc) before you start filling up your taxable accounts.
-Avoid paying anyone to "manage" you investments especially a bank as they are in the business of selling you what's profitable over what's in your best interest (although this is very different from paying for direct finacial advice on a fee-only basis); get your money away from your bank as soon as possible. To avoid potential tax issues you can transfer the actual investments (i.e. funds, stocks, bonds) without selling the underlying securities to your Vanguard accounts and go from there. Give Vanguard a call and they can help you with the details.
-No need to overthink your bond situation. If taxes are a concern substitute the equivalent VG tax-exempt bond fund and you're done (assuming you've run out of room in your tax-advantaged space for bonds). The VG funds are high-quality and low-fee making them the best bet for someone in your situation (if you had 500k+ to invest in taxable bonds it might be a different story)
-Simplicity is your friend; given your tax concerns I'd recommend a three fund portfolio subsituting tax-exempt for total bond market if your tax-advantaged space is full of bonds and the target retirement funds don't make sense.
NOTE: all of this is said with very little by way of details; if you post more specifics (actual investments, tax brackets (fed and state), etc.) more specific advice can be given.