What vehicle to use for 50 year inventment

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johnubc
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What vehicle to use for 50 year inventment

Post by johnubc » Sat Jan 05, 2013 8:41 am

My young child has earned income this year, and she is going to put some money into a Roth IRA - what is the best fund for a 50 year time horizon investment? Should it be S&P 500 or TSM or other?

thanks.
Last edited by johnubc on Sat Jan 05, 2013 9:32 am, edited 1 time in total.

FillorKill
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Re: What vehicle to use for 50 year inventment

Post by FillorKill » Sat Jan 05, 2013 8:43 am

Should it be S&P 500 or TSM?
Just those 2 options?

What is the goal? Maximum end-point wealth?

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Liquid
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Re: What vehicle to use for 50 year inventment

Post by Liquid » Sat Jan 05, 2013 9:13 am

Globally diversified small-cap value.

livesoft
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Re: What vehicle to use for 50 year inventment

Post by livesoft » Sat Jan 05, 2013 9:15 am

So you are asking us to prediction the future 50 years from now? Very interesting.

There is no best fund. The investment will have to change over the next 50 years. That said, one can start with a Target Retirement fund. But if one is allowed to change the investment in the next 10 years, I would say: Start with a Target Retirement fund. :)

And did anybody else think this thread was about a car purchase? What car is gonna last 50 years? I'd say purchase a bicycle because current bike tire sizes have been around more than 50 years.
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johnubc
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Re: What vehicle to use for 50 year inventment

Post by johnubc » Sat Jan 05, 2013 9:36 am

BBL wrote:
Should it be S&P 500 or TSM?
Just those 2 options?

What is the goal? Maximum end-point wealth?
I edited the options - I was not meaning to limit the answer, more of posing a question.

Yes, I would think the goal is Maximum end-point wealth.

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Re: What vehicle to use for 50 year inventment

Post by pkcrafter » Sat Jan 05, 2013 10:07 am

Yes, I would think the goal is Maximum end-point wealth.
There is no best fund.
The best fund is unknown, so we don't know what portfolio will produce the maximum end-point wealth. Knowing this, diversification is the best choice. My vote goes to LifeStrategy Growth.

Paul
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Re: What vehicle to use for 50 year inventment

Post by bpp » Sat Jan 05, 2013 10:11 am

50 years? Would have to suggest VT (Vanguard Total World Stock Index).
She can add bonds later.

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Re: What vehicle to use for 50 year inventment

Post by steve r » Sat Jan 05, 2013 10:18 am

livesoft wrote:... one can start with a Target Retirement fund. ....
+1
Target Retirement 2060 ... it diversifies internationally, has some small value, involves no thought, appropriately increases bond holdings with age (starts at 10%). In 2013, if I had to invest in one fund for the rest of a teens life it would be this fund. Adding to it over time would almost never be a bad idea.
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NYBoglehead
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Re: What vehicle to use for 50 year inventment

Post by NYBoglehead » Sat Jan 05, 2013 11:08 am

bpp wrote:50 years? Would have to suggest VT (Vanguard Total World Stock Index).
She can add bonds later.
+1

With a 50 year horizon, I wouldn't be a bond buyer right now. Call it market timing if you'd like, but there is ample time to purchase bonds over going forward and the yields are just awful right now.

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Sheepdog
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Re: What vehicle to use for 50 year inventment

Post by Sheepdog » Sat Jan 05, 2013 11:10 am

For a child with smaller amounts to invest, ($1000 to $3000) I would and have suggested Vanguard Star. More, in later years, is another story
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tc101
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Re: What vehicle to use for 50 year inventment

Post by tc101 » Sat Jan 05, 2013 11:24 am

If you only will use one fund, I suggest Target Retirement 2060, for the reasons stated above.
If you can add a second or third fund or ETF, add some small value and/or international small cap.
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Re: What vehicle to use for 50 year inventment

Post by dbr » Sat Jan 05, 2013 11:31 am

johnubc wrote: I edited the options - I was not meaning to limit the answer, more of posing a question.

Yes, I would think the goal is Maximum end-point wealth.
In that case you should look at the example here and decide how you want to judge the likelihood of greater end-point wealth compared to the spread in the possibilities of what will actually happen:

http://www.norstad.org/finance/risk-and-time.html

In that context the suggestion to invest in small cap value was appropriate because most of the outcomes for a high return, high risk investment will be higher than most of the outcomes for lower risk, lower returning investments. There is an additional risk, however, that the estimates of risk and return by asset class are also erroneous as predictions of the future.

A better practical approach would probably be to invest in a blend of stocks and bonds and monitor the situation as time goes on. A target retirement fund would be one example of that.

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Re: What vehicle to use for 50 year inventment

Post by letsgobobby » Sat Jan 05, 2013 3:45 pm

My kids ages 3 and 5 have taxable accounts and their life savings are invested in Vanguard 2060.

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Re: What vehicle to use for 50 year inventment

Post by nisiprius » Sat Jan 05, 2013 4:41 pm

I don't think it's a good question, but I will state my firm opinion that if the choice is between the Vanguard S&P 500 index fund--I am going to assume Admiral shares--VFIAX, or the corresponding ETF, VOO, and a total market fund, VTSAX (or VTI), the total market fund is preferable.

The reason is that I don't believe the 0.01% difference in expense ratio outweighs the logical consistency of choosing a total market fund.

I cannot think of any investing theory under which one would choose an S&P 500 fund other than availability and cost. There are theories under which one might wish to depart from the total market, but they would all dictate moving toward something OTHER than the S&P 500.

The reason for wanting an S&P 500 index fund is that it was traditionally considered to be a good proxy for the total market. I actually think it still is, that is I think the difference between the S&P 500 and the total market are much less than people make them out to be. Nevertheless, if the point is to hold the total market, the total market fund is, simply, a more faithful implementation of the desired goal. Now that it is easy and cheap to hold the smaller companies that aren't in the S&P and which collectively amount to 20% of the market, what is the reason not to?

Many people think that including the mid-cap and small-cap portions of the market, in proportion to their weight, is a small improvement. If, however, you personally hold some slightly out-of-the-mainstream investing theory under which you would like to systematically exclude small-caps and mid-caps, then surely you would want a large-cap index fund.

I don't think anyone believes that the S&P 500 committee which chooses 500 "leading companies in leading industries" is picking stocks that will outperform the appropriate index. And there's a weak case to be made that S&P 500 index funds incur a small drag due to the market being able to anticipate what will happen when companies are added or dropped from the index and the fund needs to reconstitute.
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Re: What vehicle to use for 50 year inventment

Post by dbr » Sat Jan 05, 2013 4:48 pm

It is still a question of what the objectives are in terms of final wealth compared to the range of possibilities as to what will actually be realized.

However, I don't think that context advocates in any way for an S&P500 fund as optimal.

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Re: What vehicle to use for 50 year inventment

Post by cfs » Sat Jan 05, 2013 5:24 pm

You are a very smart person!

Go with the SWAN portfolio.

Keep it SIMPLE with Vanguard Target Retirement 2060 Fund (VTTSX).

And whenever you are tempted to buy expensive toys, just add the money to the fund.

https://personal.vanguard.com/us/funds/ ... IntExt=INT

Good luck with this investment.

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steve r
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Re: What vehicle to use for 50 year inventment

Post by steve r » Sat Jan 05, 2013 5:45 pm

Target 2060 has Total Stock Market (with S&P500 being the lion share), and Total Internatinal Index and (only) 10% total bond index.

While it seems like there are a lot of choices - we are all basically saying the same things with different names. An index fund for sure. Some international for diversification. Total World Index suggested by some has over twice the expense a little more international and no bonds (but roughly similar).

Some differences:

- Adding small value - historically this section has outperformed and this has occurred outside the U.S. This leads some to believe it will outperform in the future. Others think markets are efficient thus more people will buy small value in the future and hurt performance of small value. I say "who knows?"

- Some suggest no bonds (only a stock index) It "use to be" the case that no one would even think about recommending an all stock position because of lack of diversification - small amounts of diversification help because when stocks go down bond holdings can be used to buy stocks cheap ... this "use to be the case" because with interest rates so low some think bonds are not worth bothering with or worse. I disagree, but again do not know.

In any case, any choice with a large market index fund will be fine / very good.
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