37-yr-old new investor with Vanguard

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37-yr-old new investor with Vanguard

Post by designduck »

Hi there,
My partner and I are both self employed and are starting our first IRAs (for 2016). I spoke with a financial advisor at our credit union, and while I was comfortable with his funds and recommendations, it seems simply smart to me to avoid his fee structure and DIY with vanguard. However, I am still very much learning and trying to understand funds and investing, so I would appreciate some input.

I am 37 and my husband is 41. We had planned to do 3-4 aggressive, growth-based mutual funds for his IRA and 3-4 aggressive growth dividend funds for mine. We would be doing an initial $5,500 each, then monthly contributions of around $450 each.

I am seeking advice on what vanguard funds (both etf and mutual, if relevant) would be good to mimic our plan of 2-3 growth funds for him and 2-3 growth, dividend funds for me, preferably with at least a 10-15-year history behind them.

Note my husband has an interest in investing in biotech, not as a purely sector-based investment but perhaps a possible fund that includes a decent percentage of that.

Thank you in advance.
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Re: 37-yr-old new investor with Vanguard

Post by mhalley »

Bogleheads do not generally recommend portfolios of growth or dividend funds. The go to recommendation here is the three fund portfolio, consisting of total stock market, total bond market and total international stock market. Some like to add Reits, and some like to "tilt" to small or value funds.
here are some other "lazy" portfolios:
Vanguard does have a health care fund, but aside from reits bogleheads steer clear of sector funds.
PS.,never invest at a credit union or bank, the fees are horrendous. If you were comfortable with his funds, you probably need to do a lot of reading.
https://www.bogleheads.org/wiki/Books:_ ... nd_reviews
As all vanguard funds (except target retirement and Star) have a 3k minimum investment, you won't be able to invest in 3-4 funds to start. You could go the ETF route if you are set on having more funds, but bogleheads love simplicity. I would recommend starting out with a target retirement fund, then in 3 years or so switch to the 3 fund portfolio.
Here is Vanguards white paper on total return investing:
The current low-yield environment is leading many
investors to focus on only one piece of their
portfolio’s total return, namely, the income return.
This focus may be encouraging investors to consider
strategies such as extending the duration of their
bond portfolios, tilting their bond holdings toward
high-yield bonds, or shifting their equity holdings
toward higher-dividend-paying stocks. Investors may
adopt one or more of these strategies in the belief
that they will be rewarded with a more certain return
and, therefore, less risk. What these investors may
fail to realize is that moving away from a broadly
diversified portfolio and concentrating on certain
sectors can potentially result in a less diversified
portfolio, increased risk, decreased tax-efficiency
(for taxable investors), and/or an increased chance
of falling short of long-term financial goals. On the
other hand, as discussed in this paper, a total-return
approach potentially offers a number of portfolio
benefits, including maintaining diversification,
enhancing the portfolio’s tax-efficiency, and
increasing the portfolio’s longevity."
Could you have great success by investing in Vanguard Growth and Vanguard Dividend funds? Certainly. Recently Growth has outperformed Value, so if you look at returns you will certainly think you would be stupid to invest in value funds. But these periods of outperformance are unpredictable. Dividends are also in favor right now. But bogleheads have decided that we do not want to be chasing the latest investing fad, and are content if we just match the market returns. You can do a google search and find many recommendations for the best vanguard growth fund or the best vanguard dividend fund. Unfortunately, this is not that site.
I was just re-reading the 150 portfolios better than yours post by wci: http://whitecoatinvestor.com/150-portfo ... han-yours/
No dividend funds, and only a couple mentions of growth funds. ( I take that back, some might call Wellesley a dividend fund, but technically it is a balanced fund)
Last edited by mhalley on Mon Feb 13, 2017 4:38 pm, edited 3 times in total.
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Re: 37-yr-old new investor with Vanguard

Post by WhiteMaxima »

For young investers, there is no reason not to invest in growth fund. Just make sure you don't over pay for growth. If you go index, there are mix of value and growth. For $450 a month, just go for Total Market Index, you won't out perform the market but you are going to have the market perform less cost.
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Re: 37-yr-old new investor with Vanguard

Post by kenner »

designduck wrote:Hi there,
My partner and I are both self employed and are starting our first IRAs (for 2016). I spoke with a financial advisor at our credit union, and while I was comfortable with his funds and recommendations ...
It might be helpful if you indicate what you liked about his/her funds and recommendations.

As pointed out above by mhalley, Bogleheads tend to believe in "highly diversified, low cost, total market funds".

This might be tailored to your specific investment desires if we had more specifics.
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Re: 37-yr-old new investor with Vanguard

Post by mhalley »

I just wanted to mention, if you are self employed there are several other ways to save for retirement in addition to IRAs if you desire to put more money away than the 5500 each.
http://whitecoatinvestor.com/small-busi ... ent-plans/
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Re: 37-yr-old new investor with Vanguard

Post by EngCapt1 »

I would suggest the following before committing to a FA or any specific funds/products:

Start Here: https://www.bogleheads.org/wiki/Getting_started

And read the 2 Bogleheads books found here: https://www.amazon.com/s/?search-alias= ... Bogleheads

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Re: 37-yr-old new investor with Vanguard

Post by ruralavalon »

Welcome to the forum :) .

I think that you are wise to consider doing it yourself. I suggest opening accounts at a low cost provider like Vanguard.

Will you be sole proprietors, or will you have co owners? Will you have employees? Since you will be self employed you have other possible account choices besides IRAs such as individual (solo) 401ks, SEP IRAs, SIMPLE IRAs. There are Bogleheads wiki pages about each of those possibilities. Please see "small business plans" on the Vanguard website. Fidelity also has these types of plans.

At the start you may need to use funds with a low initial minimum investment, such as a Target Retirement fund or the STAR Fund. Later expand to your 3-4 fund portfolio.

For three funds you could consider:
Vanguard Total Stock Market Index Fund;
Vanguard Total International Stock Index Fund; and
Vanguard Total Bond Market Index Fund.

For a biotech fund look at Vanguard Health Care Index Fund, but I don't suggest using sector funds because they are not broadly diversified.

I don't advise using "growth" funds, historically both blend and value funds have done better. Please see Larry Swedroe's article "the black hole of investing".

I suggest that you read one or two books on general investing, please see the wiki article "books: recommendations and reviews".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: 37-yr-old new investor with Vanguard

Post by designduck »

Thank you very much for your thoroughness, patience, and help.

Mhalley, thanks for the reading and research homework and background on bogleheads general philosophy. Re: self employed vehicles: for now, we are comfortable budget wise with the ~$5,500 year pp max on IRAs. As our capacity to invest more changes, I'd be looking to do an SEP 401k. We are sole,proprietors without employees. Currently changing our entity type (e.g. To s corp) isn't at the tipping point where the tax savings justifies it.

Kenner, you mentioned it might be helpful to state what I liked about his recommended funds. Sheepishly and mainly, performance over 10 years and lifetime. Specifically, and admittedly this is my limited knowledge, they were, for example:

Growth Fund of America, 10 years at 6.55%, lifetime at 13.36%, expense ratio .65
New Perspective Fund, 10 years at 6.87%, lifetime at 12.08, expense ratio .75

INcome fund of America, 10 years at 5.71%, lifetime at 10.88%, expense ratio .55

My understanding from him was the returns include the expense ratio already factored for. The financial advisor charges a couple ways, our choice. One way is a 5% flat fee upfront for every deposit. That seems ridiculous to me. My guess is the funds I have posted above are not telling me the whole story and this is part of why I am here--to learn.p

In an honest assessment of myself, I am willing to be assertive about understanding investing, but to a limit. Significantly I would like to be fairly passive after I make my initial choices, but am happy to rebalance 1-2x a year if that is a wise strategy. I am also happy to rebalance on a longer horizon...like 3-8 years. In other words, my philosophy is learn enough to empower myself but also focus on other things in life that require my time. Balanced awareness, I suppose. I am okay with the ebbs and flows of the market and believe in the power of money compounding over a long time horizon. I have beginner knowledge of dollar cost averaging and value investing.

Thank you EngCap1 for helping with what is probably something you have to post a lot for newbies.

Ruralavalon, in my paragraph above I talk about our tax structure. We are each separately self employed in different industries. Thank you for your specifics on funds with an initial low investment and the article recommendation.

we see market investing as one of several methods to grow money. In this case, for retirement. We additionally save cash (necessary as self employed) and have done well in real estate: when a good real estate deal comes, we have some cash ready to leverage that opportunity. (Though we are careful real estate investors). ULtimately, I see us needing approx. $30,000/year in today's dollars (so I know that changes with inflation) to live off in retirement. I do not see market investing leading to our only source of income in retirement but a decent chunk of it.
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