best place for indexed funds for the novice

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mickeymag
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best place for indexed funds for the novice

Post by mickeymag »

I already have retirement accounts and cash savings, but I also have a 14K lump I’d like to move into a mixture between stock and bond funds, with the idea of pulling it back out in 5-10 years.

I’m trying to minimize fees and trading costs, and I’m not very knowledgeable at all about different kinds of accounts, beyond my sense that for this money I’m looking for indexed funds with very low fees.

With all this in mind I’m thinking of going with Vanguard, open an account and take their suggestions for what where to put the money…ha, that last part sounds shakey even to me. But I do need to keep this simple or I’ll not have the time to get it done and the dough will languish in a checking out…or worse, get spent!

Any reason why I should look elsewhere besides Vanguard? Any reason why I should be wary of their suggestions about indexed funds?
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Taylor Larimore
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Target fund in a Roth IRA.

Post by Taylor Larimore »

Mickey:

Based on the information in your post, you may be a good candidate for a suitable Target Retirement Fund in a Roth IRA (you can take-out contributions any time without tax or penalty). You could contribute $5,500 for 2013 prior to April 15 and another $5,500 now for 2014 ($6,500/year if age 50 or older). Use this link for more information:

https://investor.vanguard.com/mutual-fu ... etirement/#/
Any reason why I should be wary of their suggestions about indexed funds?
Listen carefully to their suggestions about index funds. You will be glad you did.

Vanguard's Target Funds use index funds exclusively. Morningstar gives Vanguard Target Funds (as a group) their highest rating.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Johm221122
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Re: best place for indexed funds for the novice

Post by Johm221122 »

Do you plan on pulling it all out in 5+ years? You do know there is no guarantee that a portfolio of stocks and bonds will have a gain in this time period and could have a loss
John
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mickeymag
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about the loss

Post by mickeymag »

Thanks for reminding me, John. Yes, I do know that I could suffer a loss, though of course the novice investor's mind tends to imagine gains, gains, gains. The more likely time for pulling it out would be closer to ten years, but even then, as you point out, I could experience a loss. I had planned on changing the risk ratio as time went on, aware of the risks for a loss.

About the Target Retirement Fund Roth, I guess I've always thought those were probably associated with higher fees and sluggish returns, but since I don't know where I got that impression, perhaps I just made it up.

Yes, I'm over 50, so that sounds like maybe the way to go.

Thanks.
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ruralavalon
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Re: best place for indexed funds for the novice

Post by ruralavalon »

mickeymag wrote:I already have retirement accounts and cash savings, but I also have a 14K lump I’d like to move into a mixture between stock and bond funds, with the idea of pulling it back out in 5-10 years.

I’m trying to minimize fees and trading costs, and I’m not very knowledgeable at all about different kinds of accounts, beyond my sense that for this money I’m looking for indexed funds with very low fees.

With all this in mind I’m thinking of going with Vanguard, open an account and take their suggestions for what where to put the money…ha, that last part sounds shakey even to me. . . . . .
I think you are wise to look for index funds with very low fees, and Vanguard is a good place to look. Vanguard has by far the largest selection of low expense index funds. Take their suggestions seriously.

Since you "already have retirement accounts and cash savings" in addition to this $14k lump sum, be sure to mention the details to them, so that your total portfolio is well integrated, and don't just concentrate on the new Vanguard account in isolation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
pkcrafter
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Re: best place for indexed funds for the novice

Post by pkcrafter »

If you are talking about a taxable account, then you have to also consider your tax bracket. If you in a higher bracket, you need to use tax efficient funds. The recommendations for money used in 5 years would be zero stocks; for 10 years you could handle some equity, but it's limited by how much loss in the total you are willing to tolerate for the hope of a little better gain. If you are in a low tax bracket and you don't mind taking a chance of ending up with something a bit less than you counted on, you might try something like this:

50% lifestrategy income (20% stock) or target retirement income (30% stock) and 50% cash/CDs. Review in 5 years. If you've got some gain, cut back, if you hit a pot hole, keep it invested.
About the Target Retirement Fund Roth, I guess I've always thought those were probably associated with higher fees and sluggish returns
No, Vanguard's TR funds are not higher cost and the returns are the result of the asset allocation in each fund and the returns of the asset classes they are invested in.

You can look at Vanguard funds here:

https://investor.vanguard.com/mutual-fu ... uard-funds

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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mickeymag
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Re: best place for indexed funds for the novice

Post by mickeymag »

Thanks. You've all been very helpful. Investment novice that I am, I'm no stranger to the joys of Excel, I so regularly use a sprdsht to make sure my investments are balanced where I want them across their various locations. (The only thing I never no how to calculate in that is my state teachers retirement pension; read Jonathan Pond and he wanted me to count that as a bond and load up on equities to balance, but I wasn't convinced enough to go all the way, though I've gone heavier in equities than I might otherwise. A pension makes you a bit gutsy, I guess, as it probably should.)
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mickeymag
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Re: best place for indexed funds for the novice

Post by mickeymag »

Maybe somebody can tell me why I shouldn't do this: given a fact that I haven't mentioned yet, that there's a reasonable chance I won't even need this money in ten years, I have this urge to go really heavy, even 100% in equities for one year, gambling, I know, and then plan to ease into more secure funds. I'm feeling torn between kind of wacky, risky, entertaining, perhaps profitable notions like this, and just dumping it in a planned account and forgetting about it.

To me, an advantage of the former, beyond any potential gain, there is a sense that I will be educating myself and maintaining a hands on feel that seems wise. On the downside, if I take a hit, I'll have plenty of other resources to allow me to cover.

Thoughts?
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ruralavalon
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Re: best place for indexed funds for the novice

Post by ruralavalon »

mickeymag wrote: . . . but I wasn't convinced enough to go all the way, though I've gone heavier in equities than I might otherwise. A pension makes you a bit gutsy, I guess, as it probably should.)
In my opinion thats a a sensible approach, having the pension increases the risk tolerance but not to the point of eliminating bonds entirely.

mickeymag wrote:Maybe somebody can tell me why I shouldn't do this: given a fact that I haven't mentioned yet, that there's a reasonable chance I won't even need this money in ten years, I have this urge to go really heavy, even 100% in equities for one year, gambling, . . . .

To me, an advantage of the former, beyond any potential gain, there is a sense that I will be educating myself and maintaining a hands on feel that seems wise. On the downside, if I take a hit, I'll have plenty of other resources to allow me to cover.
You can educate yourself just as well by using a reasonable stock/bond allocation, thus avoiding huge losses if there is another crash (and there will br sometime). And then watching others 100% in stocks cry when they take huge losses, bail out of the stock market, and then years later after a big recovery ask whether its now a good time to get back in.

Its far better to learn from someone else's mistakes, rather than make the mistake yourself.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Angelus359
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Re: best place for indexed funds for the novice

Post by Angelus359 »

I'd go for a life strategy fund
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deikel
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Re: best place for indexed funds for the novice

Post by deikel »

My understanding is that this money is not part of your retirment per se, but rather an investment which you want to do in about 10yrs time.

Unfortunatly you missed the rally from last year - so from here on out one can only guesstimate a normal market behaviour

The Target funds (or their many iterations) are a marketing tool to motivate people to invest into retirment accounts, since you intend to invest I find them unsuitable for your needs.

I would go with a mixture of 1/3 each of heath care fund, technology fund and small cap fund - since Vanguard is not the strongest on sector funds I would go with Fidelity - both offer low fee funds nowerdays - but on your time horizon and investment sum, thats a minor agument IMO.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.
Topic Author
mickeymag
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VSMGX, #57 out of 250, C+

Post by mickeymag »

When I use Vanguard’s online tools to recommend a fund for my situation, it suggested Vanguard LifeStrategy Moderate Growth Fund (VSMGX).

But when I ran this fund by the US News & World Report site the fund came in at #57 out of 250 they sampled. Not terrible, but they’re claiming there are 56 better choices in that class.

Furthermore, the USNWR also shows ratings from Morningstar (3/5 stars) the Street (C+) and others that are less than stellar.

So naturally, that has me wondering about that fund. Am I misinterpreting or misunderstanding something?
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ruralavalon
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Re: VSMGX, #57 out of 250, C+

Post by ruralavalon »

mickeymag wrote:When I use Vanguard’s online tools to recommend a fund for my situation, it suggested Vanguard LifeStrategy Moderate Growth Fund (VSMGX).

But when I ran this fund by the US News & World Report site the fund came in at #57 out of 250 they sampled. Not terrible, but they’re claiming there are 56 better choices in that class.

Furthermore, the USNWR also shows ratings from Morningstar (3/5 stars) the Street (C+) and others that are less than stellar.

So naturally, that has me wondering about that fund. Am I misinterpreting or misunderstanding something?
Yes.

I don't know how they rank funds at USN&WR or at The Street, but at Morningstar they give Vanguard LifeStrategy Moderate Growth Fund (VSMGX) a "Gold Medal" analyst rating: VSMGX @ Morningstar. At Morningstar the stars are a record of past performance. Since Vanguard LifeStrategy Moderate Growth Fund (VSMGX) is composed of index funds, and index funds deliver average gross returns before expenses, it naturally has a three stars.

In any given year some actively managed moderate allocation funds will beat the average, but none will do so consistently year after year for decades on end. So don't expect the funds that did better last year or the last decade to do better next year or the next ten years.

You might want to read this paper: "The case for index-fund investing". "After costs: (1) the average actively managed fund has underperformed various benchmarks; (2) reported performance statistics can deteriorate markedly once “survivorship bias” is accounted for (that is, once the results of funds that were removed from the public record are included); and (3) persistence of performance among past winners is no more predictable than a flip of a coin."
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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