WWYD in this case: buy more of the same or start diversifying?

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zayd13
Posts: 44
Joined: Sun May 31, 2015 2:17 pm

WWYD in this case: buy more of the same or start diversifying?

Post by zayd13 » Thu Mar 02, 2017 8:58 am

Context:
• No debt.
• Emergency fund established.
• Roth IRA maxed the past two years since getting out of grad school and will do it this year as well.
• Getting full match with company (pre-tax) pension (OPERS).
• I plan to buy a home a few years down the road, and currently have about 25% of that down payment socked away in a CD so that the money isn't sitting in a MMA but still relatively liquid.
• I have a taxable account with 3.6k invested all into VTSMX. I have this since I’m maxing my Roth and want to generally have my money work more for me. I do not plan on using the funds in my taxable account for a specific goal anytime soon other than to grow my net worth.

Here’s my question:

My Roth consists of only VFFVX (2055 target date fund), while my taxable consists of only VTSMX. I just turned 28 years old and do not have children so I am comfortable with risk (i.e., high securities to bonds ratio). I will be coming up on about just 1k in tax returns and want to know whether it would make more sense to put it towards buying more shares of VTSMX, or diversifying my taxable account and perhaps getting some tax-efficient ETF’s (i.e., VOE, int’l stock ETF’s, etc.). I know 1k isn't much but I'd still rather be strategic with the little money I do have :happy

What are your general thoughts? Again, I do not have specific goal with my taxable account other than to generally grow my net worth over time, so I'm taking a "buy and hold" approach with it. I also want tax efficiency for any ETF's I do get (for obvious reasons).

Are there any pros/cons to getting more VTSMX vs. getting some ETF’s?

Are there any Vanguard ETF’s you’d recommend that would complement VTSMX if you do in fact think this would be the better way to go?

Thank you all so much in advance for all of your help and insight!!

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pennstater2005
Posts: 2310
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Re: WWYD in this case: buy more of the same or start diversifying?

Post by pennstater2005 » Thu Mar 02, 2017 8:14 pm

zayd13 wrote:Context:
• No debt. Well done
• Emergency fund established. Good
• Roth IRA maxed the past two years since getting out of grad school and will do it this year as well. You're on a roll!
• Getting full match with company (pre-tax) pension (OPERS). Excellent
• I plan to buy a home a few years down the road, and currently have about 25% of that down payment socked away in a CD so that the money isn't sitting in a MMA but still relatively liquid. Good
• I have a taxable account with 3.6k invested all into VTSMX. I have this since I’m maxing my Roth and want to generally have my money work more for me. I do not plan on using the funds in my taxable account for a specific goal anytime soon other than to grow my net worth.

Here’s my question:

My Roth consists of only VFFVX (2055 target date fund), while my taxable consists of only VTSMX. I just turned 28 years old and do not have children so I am comfortable with risk (i.e., high securities to bonds ratio). I will be coming up on about just 1k in tax returns and want to know whether it would make more sense to put it towards buying more shares of VTSMX, or diversifying my taxable account and perhaps getting some tax-efficient ETF’s (i.e., VOE, int’l stock ETF’s, etc.). I know 1k isn't much but I'd still rather be strategic with the little money I do have :happy

What are your general thoughts? Again, I do not have specific goal with my taxable account other than to generally grow my net worth over time, so I'm taking a "buy and hold" approach with it. I also want tax efficiency for any ETF's I do get (for obvious reasons).

Are there any pros/cons to getting more VTSMX vs. getting some ETF’s?

Are there any Vanguard ETF’s you’d recommend that would complement VTSMX if you do in fact think this would be the better way to go?

Thank you all so much in advance for all of your help and insight!!


Everything above looks good. Established EF, maxed Roth, pension. Putting the extra 1k into VTSMX in your taxable account seems perfectly fine. As to ETFs vs VTSMX and finding something to complement the latter I'm not sure what you are asking. Complement it how? You have some bonds through your target date fund and overall it's highly diversified (US stock, international stock, bonds, international bonds) as is VTSMX (3592 stocks). I would think ETFs if you were planning on being able to trade during the day to catch fluctuations in the market.
“Life is short, Break the Rules, Forgive quickly, Kiss slowly, Love truly, Laugh uncontrollably, And never regret anything that made you smile" - Unknown

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JDCarpenter
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Re: WWYD in this case: buy more of the same or start diversifying?

Post by JDCarpenter » Thu Mar 02, 2017 11:06 pm

Your Roths are diversified very well already, and your overall portfolio is well diversified ( you appear to have an international allocation that is smack dab in the middle of the 0-50% "consensus" on this forum).

If you go to ETFs in the taxable account, why not go solely total US stock index, which is quite tax efficient? Otherwise, it seems you are looking either to tilt or to join those of us who are on the far end of international on this forum.

IF the latter, what is your rationale? Tilts are commonly to small/value. More international is oft-seen as tin-foil hat wearing conspiracy theorists. (I kid/exaggerate, as I am in this group, as well as the small/value tilt cadre.)

Basically, as pennstater2005 indicates, you are doing well regardless; we are only talking about changes on the margins here. If you decide to go beyond the target date fund and total stock market, make sure that you have well-reasoned rationale and are going to stick with it.
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zayd13
Posts: 44
Joined: Sun May 31, 2015 2:17 pm

Re: WWYD in this case: buy more of the same or start diversifying?

Post by zayd13 » Fri Mar 03, 2017 10:02 am

Great advice guys, I really appreciate your points and observations.

I know my Roth is well-diversified, I guess I was just trying to see if my taxable account could use some diversification as well - seeing that I won't touch my Roth for another 39 years. ETF's was the first thing that came to mind because I don't meet the minimums yet for other tax efficient index funds. If continuing to grow VTSMX makes the most sense then I guess I will do just that. I guess my only fear was that I could be missing out on certain industries or opportunities by only having a US stock index fund in my taxable.

autopeep
Posts: 120
Joined: Fri Jan 01, 2016 6:30 pm

Re: WWYD in this case: buy more of the same or start diversifying?

Post by autopeep » Fri Mar 03, 2017 10:20 am

You shouldn't think of diversification as relating to individual taxable and tax-advantaged accounts but rather to your portfolio as a whole. Individual accounts don't matter (aside from tax efficiency). For instance, the fact that my taxable is 100% equity and my wife's 403b is 70% fixed income doesn't mean that these accounts in isolation are underdiversified.

zayd13
Posts: 44
Joined: Sun May 31, 2015 2:17 pm

Re: WWYD in this case: buy more of the same or start diversifying?

Post by zayd13 » Fri Mar 03, 2017 10:27 am

autopeep wrote:You shouldn't think of diversification as relating to individual taxable and tax-advantaged accounts but rather to your portfolio as a whole. Individual accounts don't matter (aside from tax efficiency). For instance, the fact that my taxable is 100% equity and my wife's 403b is 70% fixed income doesn't mean that these accounts in isolation are underdiversified.


I see, I see. I understand the concept of looking at your overall portfolio, I guess since my taxable might actually be used (i.e., I may sell shares in the future for whatever reasons - future kids' college expenses, etc.) as opposed to my Roth which is strictly retirement, I look at them differently. Are you saying that even if I might use the two accounts for completely different purposes I should still look at diversification in terms of all accounts combined and not individually?

Also, what about the idea that since VTSMX is already a holding of VFFVX that maybe growing a different index fund in my taxable account instead of VTSMX as making more sense?

Jack FFR1846
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Re: WWYD in this case: buy more of the same or start diversifying?

Post by Jack FFR1846 » Fri Mar 03, 2017 10:30 am

You don't ever have to be diversified in a specific account. Out of about 8 accounts between myself and my wife, we have exactly one with more than one fund. It's the biggest one and that's where I rebalance. ETFs are a good way to get lower ER and in some holders (TDAmeritrade is about the only one I'm aware of), ETFs are cheaper to buy than equivalent mutual funds. As Nisiprius says, ETF or mutual fund is getting a beer in a can or a bottle. It doesn't matter as the same beer is inside. If the can (etf) has a lower cost or you can't meet a minimum in a mutual fund, then just get the ETF.
Bogle: Smart Beta is stupid

autopeep
Posts: 120
Joined: Fri Jan 01, 2016 6:30 pm

Re: WWYD in this case: buy more of the same or start diversifying?

Post by autopeep » Fri Mar 03, 2017 10:39 am

zayd13 wrote:
autopeep wrote:You shouldn't think of diversification as relating to individual taxable and tax-advantaged accounts but rather to your portfolio as a whole. Individual accounts don't matter (aside from tax efficiency). For instance, the fact that my taxable is 100% equity and my wife's 403b is 70% fixed income doesn't mean that these accounts in isolation are underdiversified.


I see, I see. I understand the concept of looking at your overall portfolio, I guess since my taxable might actually be used (i.e., I may sell shares in the future for whatever reasons - future kids' college expenses, etc.) as opposed to my Roth which is strictly retirement, I look at them differently. Are you saying that even if I might use the two accounts for completely different purposes I should still look at diversification in terms of all accounts combined and not individually?

Also, what about the idea that since VTSMX is already a holding of VFFVX that maybe growing a different index fund in my taxable account instead of VTSMX as making more sense?


The question you are asking here is not "should my taxable be more diversified?" but "should I match my investments to my investing time frame?" The answer to this question is yes. For instance, if you thought you might need to spend your taxable money in 3 years, you probably shouldn't have it invested in equities. However, you do not have a clear time frame for using your taxable account.

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