Switching Funds to Vanguard

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Switching Funds to Vanguard

Postby maidius » Fri Mar 15, 2013 7:31 pm

I have accumulated a small amount of money in some retirement funds from putting some money in a Roth IRA and a previous employers 401k. I will be bringing both of these accounts to Vanguard to develop a retirement portfolio for myself which will work for me. Currently, I don't know much about the fees of the current companies who are holding my money as I never quite looked into it. However I'm working aboard now, and have no opportunity from my employer to build a retirement plan so I must do it myself.

I was looking for some advice on what funds I should be placing my money into with Vanguard. I was looking into the Vanguard 2050 Retirement Fund since it is self-balancing, and it includes 3 sets of index funds, which is the way that I would like to go. However, is it smart of me to buy into a fund that is self balancing? I know that the current moment I've just started to understand what I can do with my finances, and I think maybe it is better to place my money in this type of fund so I don't do anything 'stupid' for the time being.

My question is when I transfer my 401k into a Rollover IRA, and my Roth IRA into a Roth IRA should I have both buy into the 2050 Retirement Fund or should I be thinking about a different approach?

Emergency funds: Almost all my money is in cash (in RMB, but I do have about $30,000 in case of emergency)
Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: Federal 15%, State 6.45% (However all my income currently is excluded)
State of Residence:NY
Age: 26
Desired Asset allocation: Mostly stocks as I'm young in my investing strategy.
Desired International allocation: I do believe International funds are important. But these would be managed under the Retirement fund
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Re: Switching Funds to Vanguard

Postby Duckie » Fri Mar 15, 2013 9:49 pm

maidius wrote:[W]hen I transfer my 401k into a Rollover IRA, and my Roth IRA into a Roth IRA should I have both buy into the 2050 Retirement Fund or should I be thinking about a different approach?

If you like the AA in TR 2050 then it will be fine in both the Rollover and the Roth IRAs. Especially if you have a "small amount".

Emergency funds: Almost all my money is in cash (in RMB, but I do have about $30,000 in case of emergency)

What is "RMB"? Are you in China?
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Re: Switching Funds to Vanguard

Postby Random Musings » Fri Mar 15, 2013 10:43 pm

The TR funds will in the near future add intl bonds to the mix, the current bond position in TBM will be changed to 80/20 TBM/intl bond.

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Re: Switching Funds to Vanguard

Postby JW Nearly Retired » Fri Mar 15, 2013 10:56 pm

I think a target retirement fund like Vanguard 2050 (VFIFX) is fine as long as the stock bond AA is you want. If you goggle VFIFX and choose yahoo and then "holdings" in the menu, you can see that VG TR 2050 has 63% total stock mkt, 27% total international stock mkt, and 10% total bond mkt/cash. VG TR 2040 (VFORX) has almost exactly the same thing. You have to get to VG TR 2030 (VTHRX) to get more bonds (55% total stock mkt, 24% total international stock mkt, and 21% bonds/cash). Pick what you want. There is no reason for you to pick any particular date and also nothing to keep you from changing funds as often as you like.

When you get to where you have a fairly large portfolio it is probably worth it to make your own TR fund out of the 3 individual funds to save yourself 0.1% on the expense ratio. The TR combined funds are about 0.1% higher ER. Very little work to rebalance every couple of years.
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Re: Switching Funds to Vanguard

Postby rickmerrill » Fri Mar 15, 2013 11:25 pm

Although many, mostly younger investors, do allocate 90/10 there is some evidence that 80/20 gives almost the same growth with a lot less risk. There is also Bernstein's advice to never go above or below 75% stocks or bonds. Finally, Rick Ferri has a glide path approach which helps keep young investors from being too aggressive and selling when markets get nasty http://www.bogleheads.org/forum/viewtopic.php?f=10&t=104934. Just a thought...
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Re: Switching Funds to Vanguard

Postby maidius » Sat Mar 16, 2013 12:00 am

Duckie wrote:If you like the AA in TR 2050 then it will be fine in both the Rollover and the Roth IRAs. Especially if you have a "small amount".

Emergency funds: Almost all my money is in cash (in RMB, but I do have about $30,000 in case of emergency)

What is "RMB"? Are you in China?

Currently I do have a "small amount" but I hope to increase this slowly and surely. I am currently living in China and my wife is investing in Chinese financial products with the national banks at about a rate of 5-6%.

JW Nearly Retired wrote:I think a target retirement fund like Vanguard 2050 (VFIFX) is fine as long as the stock bond AA is you want. If you goggle VFIFX and choose yahoo and then "holdings" in the menu, you can see that VG TR 2050 has 63% total stock mkt, 27% total international stock mkt, and 10% total bond mkt/cash. VG TR 2040 (VFORX) has almost exactly the same thing. You have to get to VG TR 2030 (VTHRX) to get more bonds (55% total stock mkt, 24% total international stock mkt, and 21% bonds/cash). Pick what you want. There is no reason for you to pick any particular date and also nothing to keep you from changing funds as often as you like.

When you get to where you have a fairly large portfolio it is probably worth it to make your own TR fund out of the 3 individual funds to save yourself 0.1% on the expense ratio. The TR combined funds are about 0.1% higher ER. Very little work to rebalance every couple of years.
JW


I didn't realise the TR funds were higher... I guess I didn't do as much homework as I thought. I have no problem mimicking a particular fund especially if it will save me some money in the long run, I just need to learn how to manage the account once the funds enter the Vanguard account. I'll be calling Vanguard about my funds switching over and then speak with them over the phone about how to walk me through the process. I've setup my account to be a 2050 Fund account, but after reading your comments, I do feel it might be a better idea to play it slightly safer with my funds.
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Re: Switching Funds to Vanguard

Postby tj » Sat Mar 16, 2013 12:11 am

rickmerrill wrote:Although many, mostly younger investors, do allocate 90/10 there is some evidence that 80/20 gives almost the same growth with a lot less risk. There is also Bernstein's advice to never go above or below 75% stocks or bonds. Finally, Rick Ferri has a glide path approach which helps keep young investors from being too aggressive and selling when markets get nasty http://www.bogleheads.org/forum/viewtopic.php?f=10&t=104934. Just a thought...



Rick Ferri also has the advice to load up on as much equity index funds as you can in your 20s and 30s :D viewtopic.php?f=10&t=26284
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Re: Switching Funds to Vanguard

Postby Default User BR » Sat Mar 16, 2013 1:25 am

One thing to be aware of, Vanguard won't allow you to open accounts with an address outside of the US. So don't try to open any that way. If that's your situation, say so and people can suggest other options.


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Re: Switching Funds to Vanguard

Postby maidius » Sat Mar 16, 2013 2:49 am

Default User BR wrote:One thing to be aware of, Vanguard won't allow you to open accounts with an address outside of the US. So don't try to open any that way. If that's your situation, say so and people can suggest other options.


Brian

Appreciate this comment! I already knew that and will be signing up under my parents permanent address, and when I move back to the US I will switch it to wheve ever I move to.

tj wrote:
rickmerrill wrote:Although many, mostly younger investors, do allocate 90/10 there is some evidence that 80/20 gives almost the same growth with a lot less risk. There is also Bernstein's advice to never go above or below 75% stocks or bonds. Finally, Rick Ferri has a glide path approach which helps keep young investors from being too aggressive and selling when markets get nasty http://www.bogleheads.org/forum/viewtopic.php?f=10&t=104934. Just a thought...



Rick Ferri also has the advice to load up on as much equity index funds as you can in your 20s and 30s :D viewtopic.php?f=10&t=26284


Well I'll have to make a decision for my self. At the time, all my funds are very small (about $1,000 in my Roth and over $3,000 in my 401k which I'll switch to be a rollover ira). So for this small amount having a lot of equities wouldn't be much of a problem, and I'm also in it for the long haul. However, I am interested in keeping my risk fairly low and will be looking into the difference between say a 90/10 and a 80/20 situation. My wife doesn't believe in long term investments (she is the one doing the short term investments in China for about 5-6%, similar to a CD) so maybe doing the 80/20 might make her feel more comfortable.
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Re: Switching Funds to Vanguard

Postby maidius » Sat Mar 16, 2013 2:56 am

While I'm on the topic of Funds, I should ask about some other funds I have.

I have some money in Apple Stock from an Employee Purchase Program, and I also have some other stocks in another brokerage account. In total, these equal about (at current market value) ~ $16,000. Now I don't know much about stocks, but I do know I've made some money on these stocks already (shame I didn't sell them when Apple was around $700) but I'm not sure how I should invest it, if I should sell the stock as is and invest it in some more index funds, or use this money to fund my IRA's.

The ESPP stock, I've owned for about two years now (since I left the company) so I believe I can sell it and will have some tax relief since I'm over the two year mark (which I believe there was a penalty for selling within the two years after leaving). If I do sell it, then I would imagine I would have to set up some Tax advantaged accounts and some taxable accounts. From my understanding I should keep bonds inside the Tax advantaged accounts and index funds in the taxable accounts. Is there any particular kind of account or invest that would be better when doing taxable investments? I would prefer to stick to index funds or should I keep the stock and count it into my overall portfolio for the total % of stocks and bonds? I would just be worried that if the stock did go down even more, that it would further hurt my portfolio.
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Re: Switching Funds to Vanguard

Postby maidius » Sat Mar 16, 2013 3:42 am

JW Nearly Retired wrote:When you get to where you have a fairly large portfolio it is probably worth it to make your own TR fund out of the 3 individual funds to save yourself 0.1% on the expense ratio. The TR combined funds are about 0.1% higher ER. Very little work to rebalance every couple of years.
JW


When you say the TR combined funs are about 0.1% higher ER can you be a bit more clear so I understand? From what I see on the website I see the following, and maybe I'm reading it improperly:

-Total Stock Market Index Fund (VTSMX)
Minimum: $3,000
Expenses: Total Stock Mkt Idx Inv: 0.18%
-Total International Stock Index Fund (VGTSX)
Minimum: $3,000
Expenses: Total Intl Stock Ix Inv: 0.22%
-Total Bond Market Index Fund (VBMFX)
Minimum: $3,000
Expenses: Total Bond Mkt Index Inv: 0.22%

VS.

-Vanguard Target Retirement 2050 Fund (VFIFX)
Minimum: $1,000
Expenses: 0.18%

-Vanguard Target Retirement 2030 Fund (VTHRX)
Minimum: $1,000
Expenses: 0.17%

So it looks to me that the expenses are about the same if not more in the individual funds. Am I missing something here?
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Re: Switching Funds to Vanguard

Postby kitteh » Sat Mar 16, 2013 5:17 am

Default User BR wrote:One thing to be aware of, Vanguard won't allow you to open accounts with an address outside of the US. So don't try to open any that way. If that's your situation, say so and people can suggest other options.


Brian


Curious as to why that is? Anyone know?
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Re: Switching Funds to Vanguard

Postby user5027 » Sat Mar 16, 2013 5:53 am

kitteh wrote:
Default User BR wrote:One thing to be aware of, Vanguard won't allow you to open accounts with an address outside of the US. So don't try to open any that way. If that's your situation, say so and people can suggest other options.


Brian


Curious as to why that is? Anyone know?


My understanding is Vanguard does not want the burden of complying with the multitude of laws/rules/regulations in foreign countries. More burden = higher cost, for all of us.
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Re: Switching Funds to Vanguard

Postby JW Nearly Retired » Sat Mar 16, 2013 10:52 am

maidius wrote:
JW Nearly Retired wrote:When you get to where you have a fairly large portfolio it is probably worth it to make your own TR fund out of the 3 individual funds to save yourself 0.1% on the expense ratio. The TR combined funds are about 0.1% higher ER. Very little work to rebalance every couple of years.
JW


When you say the TR combined funs are about 0.1% higher ER can you be a bit more clear so I understand? From what I see on the website I see the following, and maybe I'm reading it improperly:

-Total Stock Market Index Fund (VTSMX)
Minimum: $3,000
Expenses: Total Stock Mkt Idx Inv: 0.18%
-Total International Stock Index Fund (VGTSX)
Minimum: $3,000
Expenses: Total Intl Stock Ix Inv: 0.22%
-Total Bond Market Index Fund (VBMFX)
Minimum: $3,000
Expenses: Total Bond Mkt Index Inv: 0.22%

VS.

-Vanguard Target Retirement 2050 Fund (VFIFX)
Minimum: $1,000
Expenses: 0.18%

-Vanguard Target Retirement 2030 Fund (VTHRX)
Minimum: $1,000
Expenses: 0.17%

So it looks to me that the expenses are about the same if not more in the individual funds. Am I missing something here?

Good research. All you are missing is that you have to have a larger amount of money than the $3000 miminums to get the lower ER, typically $10,000 per fund but more in some cases. When those staple funds above exceed $10,000 they will qualify for "admiral shares." VTSAX (ER=0.07) instead of VGTSX (ER=0.18), VBTLX (ER=0.10%) instead of VBMFX (ER=0.22%), and VTIAX(ER=0.16%) instead of VTSMX(ER=0.22%), for example. There are no admiral funds in the TR fund category so once you meet the $10,000 per fund threshold for the above 3 funds, you will beat the TR fund by about 0.1%.

If you start in the lower minimum investment funds and continue adding to them, when you reach the $10,000 threshold VG will automatically promote you to the admiral fund status. You don't need to take any action yourself.
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Re: Switching Funds to Vanguard

Postby JW Nearly Retired » Sat Mar 16, 2013 10:54 am

maidius wrote:
JW Nearly Retired wrote:When you get to where you have a fairly large portfolio it is probably worth it to make your own TR fund out of the 3 individual funds to save yourself 0.1% on the expense ratio. The TR combined funds are about 0.1% higher ER. Very little work to rebalance every couple of years.
JW


When you say the TR combined funs are about 0.1% higher ER can you be a bit more clear so I understand? From what I see on the website I see the following, and maybe I'm reading it improperly:

-Total Stock Market Index Fund (VTSMX)
Minimum: $3,000
Expenses: Total Stock Mkt Idx Inv: 0.18%
-Total International Stock Index Fund (VGTSX)
Minimum: $3,000
Expenses: Total Intl Stock Ix Inv: 0.22%
-Total Bond Market Index Fund (VBMFX)
Minimum: $3,000
Expenses: Total Bond Mkt Index Inv: 0.22%

VS.

-Vanguard Target Retirement 2050 Fund (VFIFX)
Minimum: $1,000
Expenses: 0.18%

-Vanguard Target Retirement 2030 Fund (VTHRX)
Minimum: $1,000
Expenses: 0.17%

So it looks to me that the expenses are about the same if not more in the individual funds. Am I missing something here?

Good research. All you are missing is that you have to have a larger amount of money than the $3000 miminums to get the lower ER, typically $10,000 per fund but more in some cases. When those staple funds above exceed $10,000 they will qualify for "admiral shares." VTSAX (ER=0.07) instead of VGTSX (ER=0.18), VBTLX (ER=0.10%) instead of VBMFX (ER=0.22%), and VTIAX(ER=0.16%) instead of VTSMX(ER=0.22%), for example. There are no admiral funds in the TR fund category so once you meet the $10,000 per fund threshold for the above 3 funds, you will beat the TR fund by about 0.1%.

If you start in the lower minimum investment funds and continue adding to them, when you reach the $10,000 threshold VG will automatically promote you to the admiral fund status. You don't need to take any action yourself.
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Re: Switching Funds to Vanguard

Postby maidius » Sun Mar 17, 2013 8:24 am

JW Nearly Retired wrote:Good research. All you are missing is that you have to have a larger amount of money than the $3000 miminums to get the lower ER, typically $10,000 per fund but more in some cases. When those staple funds above exceed $10,000 they will qualify for "admiral shares." VTSAX (ER=0.07) instead of VGTSX (ER=0.18), VBTLX (ER=0.10%) instead of VBMFX (ER=0.22%), and VTIAX(ER=0.16%) instead of VTSMX(ER=0.22%), for example. There are no admiral funds in the TR fund category so once you meet the $10,000 per fund threshold for the above 3 funds, you will beat the TR fund by about 0.1%.

If you start in the lower minimum investment funds and continue adding to them, when you reach the $10,000 threshold VG will automatically promote you to the admiral fund status. You don't need to take any action yourself.
JW

Thanks I did see the Admiral Shares and wasn't 100% sure about how they worked. I think I have a better understanding of how to set up my portfolio. Thank you everyone for your help.

Now I need to figure out some tax issues! But it looks like my accountant in the US isn't familiar with Expats taxes so time to find someone else.
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