New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

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MotoTrojan
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New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 1:20 am

After a decent pay raise (new company) I have decided to finally getting into investing some earnings (never contributed to 401K, but paid taxes to acquire full quantity of some stock awards in past). Had a Betterment account for a few days before realizing I could handle this on my own. Also have a few classic investing books, and ETF how-to's, on the way.

Anyways, how does this look? All funds seem good but I am using a few different indexes intermixed, so please let me know if I am missing anything obvious to a more seasoned investor such as holes or unnecessary overlap of funds; I tried to balance median market size to prevent that.

25 years old
$105K/yr gross. Shooting for $15-20K/yr into market, and some for exercising options
~$65K post tax equity in a moderate risk private company (potential for 2-3X gains in 5-10 year timeline, infrequent buybacks at this valuation)
Equity stake in start-up with 7-figure potential, but high risk so very low strike price

Taxable account (currently $2K, just getting started):
35% Vanguard S&P 500 ETF VOO
20% Vanguard S&P Mid Cap ETF IVOO
8% Vanguard Small-cap Value ETF VBR
12% Vanguard Russell 2000 ETF VTWO
20% Vanguard Total Int. ETF VXUS
5% Vanguard Short-term Corporate Bond ETF VCSH

Roth IRA (~max'd out 2016 at $3700)
20% Vanguard Russell 1000 Value ETF VONV
10% Vanguard S&P 500 ETF VOO
20% Vanguard Mid-Cap ETF VO
10% Vanguard S&P Small-Cap 600 ETF VIOO
10% Vanguard Russell 2000 Value ETF VTWV
20% Vanguard Total Int. ETF VXUS
10% Vanguard REIT ETF VNQ

I considered for some time replacing the 10% S&P 500 ETF with a Vanguard Dividend Appreciation VIG, but came back to this. REIT in Roth seems to make sense with high-dividends. Bit more Value-tilt on the retirement fund (longer horizon). After research I feel my risk level and age makes the 30/20/20 split in Large/Mid/Small a better avenue than S&P 500 or Total Market. What am I missing? Best to catch now before the funds get any bigger.

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randomizer
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby randomizer » Thu Feb 16, 2017 1:24 am

Simplicity is a desirable attribute too. I probably would have gone for fewer funds.

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BL
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BL » Thu Feb 16, 2017 1:34 am

Low cost Vanguard funds are a good choice. You could do a simple 3-fund portfolio (see Wiki or a thread on this topic) such as is suggested in this great little free pdf Booklet:
https://www.etf.com/docs/IfYouCan.pdf

Total stock market and total international stock market would be very tax-efficient in taxable, giving off mostly qualified dividends and no capital gains to pay tax on annually. See Tax-Efficient funds in Wiki also.

Whakamole
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby Whakamole » Thu Feb 16, 2017 1:50 am

MotoTrojan wrote:After a decent pay raise (new company) I have decided to finally getting into investing some earnings (never contributed to 401K, but paid taxes to acquire full quantity of some stock awards in past). Had a Betterment account for a few days before realizing I could handle this on my own. Also have a few classic investing books, and ETF how-to's, on the way.

Anyways, how does this look? All funds seem good but I am using a few different indexes intermixed, so please let me know if I am missing anything obvious to a more seasoned investor such as holes or unnecessary overlap of funds; I tried to balance median market size to prevent that.

25 years old
$105K/yr gross. Shooting for $15-20K/yr into market, and some for exercising options
~$65K post tax equity in a moderate risk private company (potential for 2-3X gains in 5-10 year timeline, infrequent buybacks at this valuation)
Equity stake in start-up with 7-figure potential, but high risk so very low strike price

Taxable account (currently $2K, just getting started):
35% Vanguard S&P 500 ETF VOO
20% Vanguard S&P Mid Cap ETF IVOO
8% Vanguard Small-cap Value ETF VBR
12% Vanguard Russell 2000 ETF VTWO
20% Vanguard Total Int. ETF VXUS
5% Vanguard Short-term Corporate Bond ETF VCSH

Roth IRA (~max'd out 2016 at $3700)
20% Vanguard Russell 1000 Value ETF VONV
10% Vanguard S&P 500 ETF VOO
20% Vanguard Mid-Cap ETF VO
10% Vanguard S&P Small-Cap 600 ETF VIOO
10% Vanguard Russell 2000 Value ETF VTWV
20% Vanguard Total Int. ETF VXUS
10% Vanguard REIT ETF VNQ

I considered for some time replacing the 10% S&P 500 ETF with a Vanguard Dividend Appreciation VIG, but came back to this. REIT in Roth seems to make sense with high-dividends. Bit more Value-tilt on the retirement fund (longer horizon). After research I feel my risk level and age makes the 30/20/20 split in Large/Mid/Small a better avenue than S&P 500 or Total Market. What am I missing? Best to catch now before the funds get any bigger.


Welcome. It looks like you are trying to do a tilt towards small/mid cap and value? You have some duplication there (two small-cap value funds in VTWV and VBR, two small-cap funds in VIOO and VTWO, two mid-cap funds in IVOO and VO); that seems like a lot of complexity. You could probably get by with one in each category instead.

MotoTrojan
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 8:35 am

Thanks all! Yes you're correct I am looking to tilt small/mid cap and Value. In terms of complexity, is there something I am missing down the road documentations wise, because I really don't see myself having too much trouble keeping this tidy as-is; I put together a simple Excel sheet with desired allocations, an input for how much $ is in the account and what I'd like to add, and it spits out how many shares of each to buy.

As to the duplication of MId-cap, Small-cap and Small-cap Value funds, I suppose the intent there was to diversify the type of indexes a bit mainly with the purpose of helping me learn the differences and the behavior of the different funds. Not a ton went into it, but I did bias the Roth account towards smaller Small-cap companies since it has a longer horizon and can take more volatility (VBR in taxable for example has a higher median market cap).

Any thoughts on VCSH as my only Bond ETF? Don't really think I need many bonds right now but wanted to have a touch of them just to learn the in's-&-out's.

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jhfenton
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby jhfenton » Thu Feb 16, 2017 8:55 am

I slice and dice myself, but that's a bit too much complexity and overlap for my taste. I limit myself to one fund per asset class if at all possible.

I'd move all of the small value into the Roth because it's not as tax-efficient. Maybe the international too just to keep the taxable account simpler.

Down the road, you could consider VSS (Vanguard ex-US Small Cap) and VWO (Vanguard Emerging Markets), but I wouldn't mess with them starting out. The same goes for VOE (Vanguard Mid-Cap Value ETF) or VO. Mid-caps are not bad holdings, but they don't add much starting out that you don't get from large and small.

So you might look like this after simplifying:

Taxable
Vanguard Total Stock ETF
Vanguard Total International ?
Vanguard Short-Term Corp ETF ?

Roth
Vanguard Total Stock ETF
Vanguard Small-Cap Value ETF VBR
Vanguard Total International
Vanguard REIT ETF

MotoTrojan wrote:Taxable account (currently $2K, just getting started):
35% Vanguard S&P 500 ETF VOO
20% Vanguard S&P Mid Cap ETF IVOO
8% Vanguard Small-cap Value ETF VBR
12% Vanguard Russell 2000 ETF VTWO
20% Vanguard Total Int. ETF VXUS
5% Vanguard Short-term Corporate Bond ETF VCSH

Roth IRA (~max'd out 2016 at $3700)
20% Vanguard Russell 1000 Value ETF VONV
10% Vanguard S&P 500 ETF VOO
20% Vanguard Mid-Cap ETF VO
10% Vanguard S&P Small-Cap 600 ETF VIOO
10% Vanguard Russell 2000 Value ETF VTWV
20% Vanguard Total Int. ETF VXUS
10% Vanguard REIT ETF VNQ

MotoTrojan
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 1:33 pm

Alrighty, so if I tidy things up a bit and try to stay consistent with the funds, how does this summary table look (will pick exact funds for unlisted cap specifications)?

I thought it made sense to balance small-cap value and blend within each account since they have different horizons, but I wasn't thinking about tax implications so perhaps it makes more sense to push the value-tilt to the Roth small-cap (and 2/3's of the large-cap).

35% Vanguard S&P 500 ETF VOO
20% Mid-cap Blend ETF
20% Small-cap Blend (will leave the value for tax deferred account)
20% Vanguard Total Int. ETF VXUS
5% Vanguard Short-term Corporate Bond ETF VCSH

Roth IRA (~max'd out 2016 at $3700)
20% Vanguard Russell 1000 Value ETF VONV
10% Vanguard S&P 500 ETF VOO
20% Mid-cap Blend ETF (same as above)
20% Small-cap Value (potentially same as above small-cap, just value variation)
20% Vanguard Total Int. ETF VXUS
10% Vanguard REIT ETF VNQ

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jhfenton
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby jhfenton » Thu Feb 16, 2017 3:06 pm

MotoTrojan wrote:Alrighty, so if I tidy things up a bit and try to stay consistent with the funds, how does this summary table look (will pick exact funds for unlisted cap specifications)?

I thought it made sense to balance small-cap value and blend within each account since they have different horizons, but I wasn't thinking about tax implications so perhaps it makes more sense to push the value-tilt to the Roth small-cap (and 2/3's of the large-cap).

35% Vanguard S&P 500 ETF VOO
20% Mid-cap Blend ETF
20% Small-cap Blend (will leave the value for tax deferred account)
20% Vanguard Total Int. ETF VXUS
5% Vanguard Short-term Corporate Bond ETF VCSH

Roth IRA (~max'd out 2016 at $3700)
20% Vanguard Russell 1000 Value ETF VONV
10% Vanguard S&P 500 ETF VOO
20% Mid-cap Blend ETF (same as above)
20% Small-cap Value (potentially same as above small-cap, just value variation)
20% Vanguard Total Int. ETF VXUS
10% Vanguard REIT ETF VNQ

It's more funds than I would want to juggle for the modest tilts involved, especially starting out, but there's absolutely nothing crazy about the overall allocation. :beer

I also don't think it's necessary to duplicate so much of the allocation in both accounts. We have one taxable account, 2 Roth IRAs, 2 rollover IRAs, a 401(k) (usually 2), and an HSA. Our taxable has 2 equity funds. My rollover has 1 equity fund. My Roth has 4. My wife's Roth has 2. My 401(k) has 2. My HSA has 1. Only my wife's rollover IRA, our largest account, has all 6 equity funds represented, and I do most of our rebalancing in there.

In your case, I'd probably just have two equity funds in taxable, one U.S. and one international.

MotoTrojan
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 3:48 pm

That makes sense. You do call this a modest tilt though, and it was my understanding that this was a pretty substantial tilt towards Small-cap relative to the total market. Also as to allocation duplication, this was done with the understanding that I would probably pull some of the taxable funds out years before touching the Roth, so it would be easier to do that with each fund independently allocated well.

I'll poke around the tax-friendly wiki though, seems like that may be a good avenue to help understand which assets to put where.

Also while I only have one share, I am debating just removing the bonds from my portfolio all together, and starting to turn those on in 5-10 years.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby supertreat » Thu Feb 16, 2017 4:07 pm

Another thing to consider is using mutual funds instead of ETFs. With that many holdings you're going to be doing a lot of trading and ETFs will incur more costs over time the more trading you do vs mutual funds. Mutual funds are just a lot easier to trade as well. Something to think about.
Assets - Liabilities = Equity + (Income - Expenses)

MotoTrojan
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 4:09 pm

What type of costs? Free transactions through Vanguard, so until I have $10K per fund it is actually far cheaper than Mutual Funds I thought. Hasn't been difficult to do transactions thus far, but something to consider.

Also, where are the best resources to learn about evaluating funds? P/E ratios, info on finding details about fund internal allocations, etc...? Would be nice to make informed decisions on which funds to narrow down on.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby SheReadsHere719 » Thu Feb 16, 2017 5:11 pm

Roth IRA (~max'd out 2016 at $3700)


If your gross is $105,000, you can max out your Roth IRA for 2016 at $5,500. You have until April 2017 to contribute the remaining $1,800; just make sure to specify that it's for the 2016 tax year. Since you're approaching the $117,000 income limit phase-out, I would recommend maximizing this tax-advantaged space while you have it.

MotoTrojan
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 5:20 pm

$3600 was my calculated limit for 2016 income. Had some equity counted against it; $105K gross is moving forward.

Whakamole
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby Whakamole » Thu Feb 16, 2017 5:22 pm

MotoTrojan wrote:$3600 was my calculated limit for 2016 income. Had some equity counted against it; $105K gross is moving forward.


Just for future reference, you can use the backdoor Roth IRA to contribute the maximum (though there are caveats in place.)

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BrandonBogle
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Thu Feb 16, 2017 5:28 pm

I would move the bond fund to IRA instead of taxable.

While at it, I honestly would move everything but the S&P 500 ETF and/or Total International ETF to IRA.

MotoTrojan
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 5:45 pm

Thanks. The idea of tax efficiency with long-term held assets hadn't really crossed my mind as much. Is this as much of an issue with ETFs? Where exactly are these added tax costs realized in an ETF?

I think I'll scrap the bonds all together for now. I could simplify taxable with mostly S&P500, International, and maybe a little Small-cap "gambling money". But still would appreciate any resources or wisdom to help me understand how these tax-inefficient funds actual impact my net-gains.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 6:21 pm

Also, with asset classes split between the two accounts, what is the best way to handle allocation? For example, if I focus on large-cap in taxable, which will be a larger fund by ~3X (due to $5500 limit), would that mean my Roth IRA would slowly get dominated by Small/Mid-cap stocks, in order to maintain a global 20% allocation for each of them??

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BrandonBogle
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Thu Feb 16, 2017 8:11 pm

MotoTrojan wrote:Thanks. The idea of tax efficiency with long-term held assets hadn't really crossed my mind as much. Is this as much of an issue with ETFs? Where exactly are these added tax costs realized in an ETF?


https://www.bogleheads.org/wiki/Tax-eff ... _placement
The above reading will help you determine where to put it. Over the long term, the ETF will cause you three predominant tax costs and potentially two smaller ones.
  1. Long-term capital gains/losses for the difference in purchase price to sales price (taxed at preferential rates)
  2. Qualified Dividends (taxed at preferential rates)
  3. Non-qualified Dividends (taxed at nominal rates)
  4. Distributed Long-Term Capital Gains similar to dividend payouts, but b/c of the underlying holdings (i.e., without you doing anything to trigger them)
  5. Distributed Short-Term Capital Gains similar to dividend payouts, but again, b/c of the underlying holdings w/o you doing anything to trigger them

A bond fund's dividends will be non-qualified and a stock fund will be a mixture of the two, though hopefully mostly qualified. So holding a bond fund or a stock fund that does lots of non-qualified dividends and often distributes capital gains wastes money on taxes.

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BrandonBogle
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Thu Feb 16, 2017 8:17 pm

Honestly, while I am personally not a fan of a slice-and-dice portfolio, that is your decision to make. However, with just starting to save for retirement, I would start simple and add complexity once you have more $$$ and experience under your belt. Put your money in Total US Stock + Total US Bond until you have at least $10k in both and then consider tweaking.

Think of it this way. Even if slice-and-decide gives you a 10% better return over the next year (so lets say rather than 7% you get 7.7% return), at $19k (just under my suggestion above), that is only $133 greater (19,000 * 7.7% - 19,000 * 7% = 1,463 - 1,330 = 133) for FAR greater complexity when you are early in the process. So don't worry about maybe getting that extra $133, focus on saving, and in the meantime do reading (on this forum, books, elsewhere) to figure out exactly what you want and how to best manage it in the long term. Then once your account has grown a bit and you've done that reading, slice-and-dice to your hearts content.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Thu Feb 16, 2017 11:44 pm

Thanks Brandon. All great info. I still want to go a step above the 3-fund portfolio, but I have definitely taken this all to heart and will make some big changes/cuts to trim both portfolios down big-time. I will also setup my fund spreadsheet to use a global allocation rather than separate for each fund, and use some clever fund choices to make it conducive to easy allocation balancing, given that my taxable account will grow more quickly, while still leaving it more tax efficient than what I have listed now.

I have the following on the way as well and look forward to reading each one!
The Bogleheads Guide to Investing
The ETF Book
A Random Walk Down Wallstreet
Thinking, Fast and Slow
Common Sense on Mutual Funds

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BrandonBogle
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 12:00 am

Good. You have to ultimately pick something you feel comfortable with and something you won't change on a whim. Do the research up front, figure out what is reasonable/worthwhile while letting you sleep at night and doesn't have undue risk, and then stay the course! :)

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby supertreat » Fri Feb 17, 2017 11:04 am

MotoTrojan wrote:What type of costs? Free transactions through Vanguard, so until I have $10K per fund it is actually far cheaper than Mutual Funds I thought. Hasn't been difficult to do transactions thus far, but something to consider.

Also, where are the best resources to learn about evaluating funds? P/E ratios, info on finding details about fund internal allocations, etc...? Would be nice to make informed decisions on which funds to narrow down on.


Bid-ask spreads, and also fluctuations from NAV due to market makers are all costs associated w/ trading ETFs
Assets - Liabilities = Equity + (Income - Expenses)

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby David Jay » Fri Feb 17, 2017 11:30 am

BrandonBogle wrote:Good. You have to ultimately pick something you feel comfortable with and something you won't change on a whim.


This is so important. Changing your portfolio to follow the latest trend will kill your portfolio performance.

For instance, Small Value could under-perform 10 years in a row. You have to believe in your fund selections enough to convince yourself to stay the course when various sectors underperform.
"Prediction is very difficult, especially about the future" Niels Bohr

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BrandonBogle
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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 11:48 am

supertreat wrote:Bid-ask spreads, and also fluctuations from NAV due to market makers are all costs associated w/ trading ETFs


One should not discount how much this may play a role. B/c of these spreads and fluctuations, I always submit my trades with a limit order. But then my emotions come in and I put my buys closer to the bid rather than the ask (so typically lower than last trade price) and thus sometimes the market moves up rather than down and my trade doesn't execute. The emotional component of "not getting a bad deal" interfered with the long-term plan. When trading in mutual funds, the price at the end of the day is the only price that matters and the price everyone will get. So that emotional component of trying to buy while the holding is on an intra-day dip won't apply to a MF and may play a big role in your trading.

That said, for me, I still use the ETFs for the most part b/c of trading restrictions when I am rebalancing and that I can use specific identification on ETF trades but must use a "selection preference" when trading in MF on WellsTrade's platform (I have both a Vanguard and WellsTrade account and all my holdings are in Vanguard funds).

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 11:59 am

Thanks all, this is great! I had tried to post a reply but looks like it didn't take.

With my risk tolerance, I still like the idea of tilting towards smalls and some values, and am confident that once I am locked in (lots of funds, or any losses) I will be able to stay the course. Tossing together a global allocation now, which I think I'll be able to split with my Roth and my Taxable account (should grow 2-3X as fast as Roth). This will obviously adjust a bit if/when I work somewhere with a 401K.

Thinking I can eliminate mid-cap as a separate asset class by replacing S&P500 with Total Market. Something like this:

Total Market 40% (Taxable)
Large-cap Value 10% (Roth)
Small-cap 15% (Taxable, Roth over-flow #1)
Small-cap Value 10% (Roth)
International 20% (Taxable, Roth over-flow #2)
REIT 5% (Roth)

Bonds are out for now. Will play around with this on Morningstar X-ray once I pick specific funds for each category, but I think its roughly what I had in mind and will balance well between the two accounts.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 12:08 pm

MotoTrojan wrote:Bonds are out for now. Will play around with this on Morningstar X-ray once I pick specific funds for each category, but I think its roughly what I had in mind and will balance well between the two accounts.


When would you add bonds to your plan?

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 12:39 pm

BrandonBogle wrote:
MotoTrojan wrote:Bonds are out for now. Will play around with this on Morningstar X-ray once I pick specific funds for each category, but I think its roughly what I had in mind and will balance well between the two accounts.


When would you add bonds to your plan?


This would be something I would begin researching as soon as now to look for a good answer, and to better understand the markets impact to bonds, what type to invest in, etc... Until I start planning to take on some higher spending risk (equity in property, etc...) there is minimal real risk in needing to draw from my investments. All ears if anyone thinks this is a poor decision at 25 yrs old to keep bonds out. Given the lower risk, and my low age, I think the compound growth of equities is more attractive for now.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 1:03 pm

In terms of re-allocating my account and not having any major IRS implications... I am safe as long as I sell assets for a gain, correct? Since I'll be down-selecting specific funds for asset classes, I of course want to avoid a wash-sale. If so, I'll start moving things around with limit sales to ensure it is a gain.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 1:51 pm

MotoTrojan wrote:
BrandonBogle wrote:
MotoTrojan wrote:Bonds are out for now. Will play around with this on Morningstar X-ray once I pick specific funds for each category, but I think its roughly what I had in mind and will balance well between the two accounts.


When would you add bonds to your plan?


This would be something I would begin researching as soon as now to look for a good answer, and to better understand the markets impact to bonds, what type to invest in, etc... Until I start planning to take on some higher spending risk (equity in property, etc...) there is minimal real risk in needing to draw from my investments. All ears if anyone thinks this is a poor decision at 25 yrs old to keep bonds out. Given the lower risk, and my low age, I think the compound growth of equities is more attractive for now.


I would personally put a stake in the ground of 20% Total US Bonds unless/until you feel differently from your understanding. At today's stage, it won't make a difference, but it helps establish a good habit. You would have to answer for yourself, but would you emotionally be ok with finding the right combination of stock funds and start slugging away at it, then suddenly have to "pull back" to put some money in bonds? If that wouldn't bother you, then ignore this. But if you think you might have some angst about suddenly decreasing how much you put into your slicing-and-dicing to get some bonds, then I would suggest getting something in there right from the start.

As you may have picked up in my posts on this thread, much of what I talk about is NOT "is this a good idea or bad idea" in your allocation, but rather, making sure you think about "how will my emotions get in the way of my plans" as you lay this groundwork. Many, many, many people either change their mind on a whim, or let their emotions make illogical decisions and it's best to make an investing plan that accounts for your behavioral biases.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 2:07 pm

20% seems like a fairly substantial allocation difference for just establishing a habit, but I see your point. I don't foresee a situation where I would pull back on any of my equity purchases, but more so would start incrementally adding bonds as I get older. Say I deposit $1500/month in the portfolio. If I decided it was time to get into bonds, I could go 50/50 or so on bonds until I get up to my allocation (say 5-10% at-first) then continue adding at that allocation monthly until I decide to up my bonds again. As long as I have clear-cut decision points for how/when to adjust my allocation, this still is sticking to a fairly rigid process, while still reaping the early benefits of stocks at the early stage.

Behavioral concept is well received though. Once I find that balance, I'll start putting it in writing on my portfolio spreadsheet and perhaps even add specific years/allocation-update schedules for the next 10-20 years or so.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 2:48 pm

Good. :)

If it matters, I'm less than 10 years older than you, make less than you do, and didn't have bonds for many years until my retirement accounts grew to a decent size (except for some CDs when I was a teenager, but I didn't know about stock investing back then - 100% stocks when I learned about that). But I knew that I would have no problem putting some in bonds when the time came and currently hold 25% in bonds.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 3:18 pm

Very cool. I'm having a blast picking up knowledge from online resources and helpful people like yourself, so it is much appreciated. Piecing together my revised excel document with the global allocations and reduced fund quantity, and ready to get to work filling it up $! Final step is a little research on which funds to go with for each class, but I'll try not to overthink it too much (good reputation, low cost).

I have never been very good at saving, but even without returns, getting into this has drastically increased my awareness of what I spend, and how much I am putting away. It is much more enjoyable to place it somewhere with purpose, rather than to just watch a number grow on WellsFargo.com.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby camillus » Fri Feb 17, 2017 3:33 pm

Has anyone asked about OP's tax situation?

MotoTrojan, if you are in the 25% tax bracket you are paying at least $1100 in taxes for the privilege of maxing out your Roth IRA. What's the status of your tax deferred accounts?

Edit: I checked and there's no discussion about of any tax-deferred account. IMHO, tax management is of greater importance than the fine tuning above.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 3:43 pm

Wow, totally missed that. A key question would be if a 401k is offered by the Op's current employer?

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 4:07 pm

No 401K offered at current gig. With that info, does a Roth not make sense?

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby aristotelian » Fri Feb 17, 2017 4:16 pm

MotoTrojan wrote:No 401K offered at current gig. With that info, does a Roth not make sense?


Since you are young and it is a safe assumption that your income will be going up, I would say Roth still makes sense but it's not a slam dunk. It would be good to have some of both.

It is odd that you make 100k but your company does not have a retirement plan. By any chance are you paid as an independent contractor? If you can count yourself as self-employed you could set up a solo 401k and then contribute $18k tax deferred, plus a Roth on the side.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 4:30 pm

aristotelian wrote:
MotoTrojan wrote:No 401K offered at current gig. With that info, does a Roth not make sense?


Since you are young and it is a safe assumption that your income will be going up, I would say Roth still makes sense but it's not a slam dunk. It would be good to have some of both.

It is odd that you make 100k but your company does not have a retirement plan. By any chance are you paid as an independent contractor? If you can count yourself as self-employed you could set up a solo 401k and then contribute $18k tax deferred, plus a Roth on the side.


Series-A start-up at the moment, and was not bright enough to take advantage of my 401K for my first 2 years of full-time employment at a larger company (did use income for taxes on stock awards which have grown).

I'm thinking I should get the Roth while I can, as I would expect my gross to go up (if not in cash, hopefully in taxable income on option grants). Then I can get tax-deferred retirement savings going with a 401K down the road, assuming we get one or I am at another/larger company.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 4:36 pm

MotoTrojan wrote:I'm thinking I should get the Roth while I can, as I would expect my gross to go up (if not in cash, hopefully in taxable income on option grants). Then I can get tax-deferred retirement savings going with a 401K down the road, assuming we get one or I am at another/larger company.


Could you even get a deductible Traditional IRA at that income level? I thought $104k would put you over the phaseout and thus, it would be a non-deductible traditional to convert to an IRA. If you are simply talking taxable vs. Roth, then fill up the Roth definitely.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 4:45 pm

BrandonBogle wrote:
MotoTrojan wrote:I'm thinking I should get the Roth while I can, as I would expect my gross to go up (if not in cash, hopefully in taxable income on option grants). Then I can get tax-deferred retirement savings going with a 401K down the road, assuming we get one or I am at another/larger company.


Could you even get a deductible Traditional IRA at that income level? I thought $104k would put you over the phaseout and thus, it would be a non-deductible traditional to convert to an IRA. If you are simply talking taxable vs. Roth, then fill up the Roth definitely.


Just meant for now I'd go Roth IRA and fill it up rather than a Traditional IRA (there is a limit for those?) or a split between Traditional and Roth. And eventually I presume I'll be somewhere with a 401K plan so I can contribute to that, as well as Roth.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby camillus » Fri Feb 17, 2017 4:51 pm

A maxed 401(k) would save you $4500 in taxes. It's like retirement savings at 25% off!

The deferred vs Roth debate has some complexity, but deferred is almost always better, with rare exception, especially in the 25% bracket.

100% deferred. Talk to your HR guy about a 401(k).

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 5:18 pm

MotoTrojan wrote:
BrandonBogle wrote:
MotoTrojan wrote:I'm thinking I should get the Roth while I can, as I would expect my gross to go up (if not in cash, hopefully in taxable income on option grants). Then I can get tax-deferred retirement savings going with a 401K down the road, assuming we get one or I am at another/larger company.


Could you even get a deductible Traditional IRA at that income level? I thought $104k would put you over the phaseout and thus, it would be a non-deductible traditional to convert to an IRA. If you are simply talking taxable vs. Roth, then fill up the Roth definitely.


Just meant for now I'd go Roth IRA and fill it up rather than a Traditional IRA (there is a limit for those?) or a split between Traditional and Roth. And eventually I presume I'll be somewhere with a 401K plan so I can contribute to that, as well as Roth.


I cannot deduct a Traditional IRA b/c I make more than 60k or so. But I have a 401k. The limits are different if you don't have (or rather, cannot participate in) a 401k, but I don't know those since every employer I've had since high school has offered a 401k.

If you are eligible to contribute $5,500 to a deductible Traditional IRA, then you need to keep in mind a couple points:
- You save on State taxes now, potentially pay State taxes later. But if you live in a state that doesn't charge income tax when you retire, you pocketed that difference.
- You save on Fed taxes now, but you potentially pay Fed taxes later. There are threads (particularly from livesoft) on how to organize large amounts of withdrawals tax-free in retirement. Thus, you could pocket that difference. ** Please note, this means early-retirement or being in a low paying job before retirement age so you don't "fill up" the lower tax brackets with earned income
- If you eventually have a 401k, having some Roth IRA, Traditional 401k, and some Taxable investments gives you lots of flexibility in where to pull funds form in retirement to minimize taxes
- You need to compare the tax rate you expect to pay in retirement to what you definitely will pay now to see if deferring taxes is worthwhile. Note that this may not be as simple as looking at the marginal rates b/c of various ways to manage the tax burden and how our tax system is structured, but it's a starting place. Also remember that the tax rates and avenues to manage its burden are likely to change between now and your retirement.
- A nod to Roth, you can withdraw your contributions after 5 years in the event of a dire emergency (like extended unemployment)

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Fri Feb 17, 2017 6:35 pm

BrandonBogle wrote:
MotoTrojan wrote:
BrandonBogle wrote:
MotoTrojan wrote:I'm thinking I should get the Roth while I can, as I would expect my gross to go up (if not in cash, hopefully in taxable income on option grants). Then I can get tax-deferred retirement savings going with a 401K down the road, assuming we get one or I am at another/larger company.


Could you even get a deductible Traditional IRA at that income level? I thought $104k would put you over the phaseout and thus, it would be a non-deductible traditional to convert to an IRA. If you are simply talking taxable vs. Roth, then fill up the Roth definitely.


Just meant for now I'd go Roth IRA and fill it up rather than a Traditional IRA (there is a limit for those?) or a split between Traditional and Roth. And eventually I presume I'll be somewhere with a 401K plan so I can contribute to that, as well as Roth.


I cannot deduct a Traditional IRA b/c I make more than 60k or so. But I have a 401k. The limits are different if you don't have (or rather, cannot participate in) a 401k, but I don't know those since every employer I've had since high school has offered a 401k.

If you are eligible to contribute $5,500 to a deductible Traditional IRA, then you need to keep in mind a couple points:
- You save on State taxes now, potentially pay State taxes later. But if you live in a state that doesn't charge income tax when you retire, you pocketed that difference.
- You save on Fed taxes now, but you potentially pay Fed taxes later. There are threads (particularly from livesoft) on how to organize large amounts of withdrawals tax-free in retirement. Thus, you could pocket that difference. ** Please note, this means early-retirement or being in a low paying job before retirement age so you don't "fill up" the lower tax brackets with earned income
- If you eventually have a 401k, having some Roth IRA, Traditional 401k, and some Taxable investments gives you lots of flexibility in where to pull funds form in retirement to minimize taxes
- You need to compare the tax rate you expect to pay in retirement to what you definitely will pay now to see if deferring taxes is worthwhile. Note that this may not be as simple as looking at the marginal rates b/c of various ways to manage the tax burden and how our tax system is structured, but it's a starting place. Also remember that the tax rates and avenues to manage its burden are likely to change between now and your retirement.
- A nod to Roth, you can withdraw your contributions after 5 years in the event of a dire emergency (like extended unemployment)


I thought you could pull from a Roth no matter what as long as it is only contributions? Hadn't heard of a 5 year limit. Not that I plan to.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Fri Feb 17, 2017 6:57 pm

MotoTrojan wrote:I thought you could pull from a Roth no matter what as long as it is only contributions? Hadn't heard of a 5 year limit. Not that I plan to.


You are indeed correct on that. Sorry about that. I was working on a Roth conversion easier this week and had the 5 year rule b/c of that stuck in my head. :oops:

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Sat Feb 18, 2017 3:44 pm

Thanks all. After a bit more digging, this is what I am thinking:

Taxable:
40% VTI Total Market
20% VXUS Total Int. (includes small-caps, dig that)

Roth:
10% VTV Large-cap Value
10% VB Small-cap Blend (low expense, some mids)
15% VIOV Small-cap Value (higher expense but I like the smaller median)
5% VNG REIT

One question: It would help with allocation balancing if I picked one of the Roth indexes and also added it to my Taxable. Which would be most tax efficient? I assume it would be VB-VTV-VIOV in decreasing order of tax efficiency, but I did read that VIOV is a good bit more efficient than VBR so I am not sure.

Thanks all, bit more manageable and overall has a more clear direction/reasoning (broad coverage of US with a tilt towards Small/Value, some good broad coverage of International, and then some REIT's thrown in for fun/diversification.
Last edited by MotoTrojan on Sun Feb 19, 2017 10:18 am, edited 1 time in total.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Sat Feb 18, 2017 9:27 pm

Are you planning to allow automatic reinvestment of dividends, or are you going to have it paid out in cash and manually buy whatever is appropriate to buy at that time?

If the former and you ever sell something, you need to make sure an automatic reinvestment in the IRA doesn't not trigger a wash sale in your taxable account.

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"If You Can"

Postby Taylor Larimore » Sat Feb 18, 2017 10:37 pm

BL wrote:Low cost Vanguard funds are a good choice. You could do a simple 3-fund portfolio (see Wiki or a thread on this topic) such as is suggested in this great little free pdf Booklet:
https://www.etf.com/docs/IfYouCan.pdf

Total stock market and total international stock market would be very tax-efficient in taxable, giving off mostly qualified dividends and no capital gains to pay tax on annually. See Tax-Efficient funds in Wiki also.

MotoTrojan:

Please read If You Can recommended by BL. It could have been written especially for you.

"The enemy of a good plan is the dream of a perfect plan." -- John Bogle

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BL » Sun Feb 19, 2017 12:40 am

Do you have a 401k available? If so, you could save a lot on taxes by contributing to that instead of taxable.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Sun Feb 19, 2017 12:49 am

BL wrote:Do you have a 401k available? If so, you could save a lot on taxes by contributing to that instead of taxable.

MotoTrojan wrote:No 401K offered at current gig. With that info, does a Roth not make sense?


It was buried a good bit down the conversation.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby MotoTrojan » Mon Feb 20, 2017 2:06 pm

BrandonBogle wrote:Are you planning to allow automatic reinvestment of dividends, or are you going to have it paid out in cash and manually buy whatever is appropriate to buy at that time?

If the former and you ever sell something, you need to make sure an automatic reinvestment in the IRA doesn't not trigger a wash sale in your taxable account.


Currently I was planning to give it a shot. I plan to add funds ~monthly so re-balancing will happen naturally in that regard. Thus, I figured the drag of the delay would hurt me more than just having them automatically reinvested. I am not as familiar with how automatic reinvestment works with Vanguard ETFs but I believe I have read they will credit partial shares for this purpose.

Please correct me if I am mistaken, but I believe this setting can be toggled on-off as I please, so I would probably just manually switch to cash-out if I were to sell something for TLH or other purposes. I'll have to look more into this to make sure the switch would take immediate effect, if it were to be turned off around distribution time.

Half way through The Boglehead's Guide to Investing, great read/summary! 4 more books sitting on the shelf for when this is done.

Going to put the finishing touches on this initial allocation (canning Large-cap Value for now, researching REITs more, contemplating small bond allocation) and then set things in stone with some re-allocations next week.

Appreciate all the help, definitely pushed me to do some house-keeping before I start to grow this more and get into auto-pilot mode.

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Re: New to investing (25 yr/old). Diverse Vanguard Portfolio? Overlaps I am missing?

Postby BrandonBogle » Mon Feb 20, 2017 2:10 pm

BrandonBogle wrote:Are you planning to allow automatic reinvestment of dividends, or are you going to have it paid out in cash and manually buy whatever is appropriate to buy at that time?

If the former and you ever sell something, you need to make sure an automatic reinvestment in the IRA doesn't not trigger a wash sale in your taxable account.

MotoTrojan wrote:I am not as familiar with how automatic reinvestment works with Vanguard ETFs but I believe I have read they will credit partial shares for this purpose.

Correct.

MotoTrojan wrote:Please correct me if I am mistaken, but I believe this setting can be toggled on-off as I please, so I would probably just manually switch to cash-out if I were to sell something for TLH or other purposes. I'll have to look more into this to make sure the switch would take immediate effect, if it were to be turned off around distribution time.

Depends on your brokerage where you are holding these ETFs. For my Vanguard account (holding Vanguard mutual funds, but same difference), it is a simple online process on their website to change automatic reinvestment (and to which holding the reinvestment goes -- doesn't have to be the same holding), paid out in cash to the account, sent to a bank account via ACH, etc. For my WellsTrade account (holding Vanguard mutual funds and ETFs), it is relatively simple, but not DIY. I must call them and request they change my reinvestment settings.


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