Opinion of Total Stock Market Index

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Yogastar8210
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Opinion of Total Stock Market Index

Post by Yogastar8210 » Mon Nov 13, 2017 10:42 pm

Just switched my taxable account for Vanguard from the Target Retirement 2040 to Vanguard Total Stock Market Index. Investing for the long haul and even though it's 100% stocks I feel as if I can ride the waves of the market. I am curious from Bogleheads who are experienced their opinion of this fund. It is the admiral shares. With an expense ratio of .04 and its total annual return after taxes and sale of fund shares since it's creation in 2000 with 5.21%. Another reason I did this was for the qualified quarterly dividends will be taxed at 15% instead of the TR which would have been taxed at 25%.

aristotelian
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Re: Opinion of Total Stock Market Index

Post by aristotelian » Mon Nov 13, 2017 10:46 pm

It is a much beloved fund discussed in numerous threads. It is a key component of the three fund portfolio, complemented by Total International Stock Market Index and Total Bond Market Index, depending on your tolerance for risk.

https://www.bogleheads.org/wiki/Three-fund_portfolio

AlohaJoe
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Re: Opinion of Total Stock Market Index

Post by AlohaJoe » Mon Nov 13, 2017 10:49 pm

TR 2040 has qualified dividends, too, so I'm not sure what you mean by that.

123
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Re: Opinion of Total Stock Market Index

Post by 123 » Mon Nov 13, 2017 10:50 pm

It's a great fund I use it as a core holding in a number of accounts.
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Yogastar8210
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Re: Opinion of Total Stock Market Index

Post by Yogastar8210 » Mon Nov 13, 2017 10:50 pm

Is it okay to put 100% just in the total stock index fund or should I spread into international and bond indexes? Im okay with short term risk for long term greater returns. Not touching that money until my 60s anyways.

3funder
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Re: Opinion of Total Stock Market Index

Post by 3funder » Tue Nov 14, 2017 11:54 am

I do the latter of the two, but it's your decision.

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Re: Opinion of Total Stock Market Index

Post by bloom2708 » Tue Nov 14, 2017 12:01 pm

Total US Stock index is a very good fund.

You did some unintended (maybe) things with your move. You went from ~90% stocks to 100% stocks (at least in taxable).

You went from a fund with US stocks, international stocks, US bonds, international bonds and cash to a fund with only US stocks. You got un-diversified very quickly.

Did you mean to do those things?

Adding 20-40% of the Total International stock index would be good diversification. Do you have a good broad based US bond option in your 401k or Roth?

I would do 15 to 20% bonds (in 401k or Roth) as a floor at any age. Investing is behavioral and seeing wild swings when the market drops has unknown/unintended consequences.
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michael11
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Re: Opinion of Total Stock Market Index

Post by michael11 » Tue Nov 14, 2017 1:31 pm

I am in the same boat as you. I feel with a 40+ year time horizon, that I can handle the waves of a 100% stock allocation (especially if it is diversified across all geographies, market caps, and factors. The total stock market index is a cheap way of getting this accomplished. Warning: this might be naive but I do believe it has the right risk characteristics for my situation.

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Re: Opinion of Total Stock Market Index

Post by bogglesquared » Tue Nov 14, 2017 5:12 pm

michael11 wrote:
Tue Nov 14, 2017 1:31 pm
I am in the same boat as you. I feel with a 40+ year time horizon, that I can handle the waves of a 100% stock allocation (especially if it is diversified across all geographies, market caps, and factors. The total stock market index is a cheap way of getting this accomplished. Warning: this might be naive but I do believe it has the right risk characteristics for my situation.
I am in a similar boat, 40+ year time horizon. So you figure you can handle the waves of 100% stock allocation right? But for how long? When do you start to diversify? Let's say the stock market crashes tomorrow, yes you will be able to recover. What if it crashes in 10 years? Yes you will still be able to recover. What about in 20 years? You will still probably be able to recover, though it is not guaranteed. What if it crashes in 20 years and at the same time you have an unexpected expense come up which causes you to take out a 10% of your portfolio though? Then you have really been hurt by the market crash with only 20 years left to recover. What if the market crashes if 30 years and you are still 100% exposed? You might not have time to recover all the way.

The point I'm trying to make is that you probably will be able to recover given 10-15 years of exposure but that is not guaranteed. So look at target date funds, they put you in cash and bonds slowly over time as you approach retirement an then start to heavily accelerate the bond allocation as you near and push past retirement. This is the process which Vanguard, Fidelity and others have determined is the most reasonable way to expose yourself heavily to the market, while minimizing your chances of getting totally [messed up] by a crash. I tend to trust their math and reasoning over my own desire to get greedy and make an extra .5% per year in the market

dbr
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Re: Opinion of Total Stock Market Index

Post by dbr » Tue Nov 14, 2017 5:54 pm

This is a good fund with a diversified selection of equities in the US market and low costs.

However, you should not be investing by picking funds because they are good but because you have the right asset allocation for your needs, have the diversity you want, and have minimal costs.

I have no idea if 100% stocks is better for you than whatever TR2040 is in. I guess one comment is that TR funds also have an allocation to international stocks, which is an aspect of diversification you now don't have.

It is true that TR funds are less tax efficient due to interest on the bonds, but it doesn't sound right that the entire dividend is taxed as ordinary income. Don't TR funds separate qualified and not-qualified portion of the dividend?

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Re: Opinion of Total Stock Market Index

Post by oldcomputerguy » Tue Nov 14, 2017 6:06 pm

dbr wrote:
Tue Nov 14, 2017 5:54 pm
It is true that TR funds are less tax efficient due to interest on the bonds, but it doesn't sound right that the entire dividend is taxed as ordinary income. Don't TR funds separate qualified and not-qualified portion of the dividend?
As a side note, for what it's worth, VTSAX does not always pay 100% qualified dividends. Approximately 7.25% of VTSAX's dividends last year were non-qualified.
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arcticpineapplecorp.
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Re: Opinion of Total Stock Market Index

Post by arcticpineapplecorp. » Tue Nov 14, 2017 6:14 pm

1. Since this is in a taxable account, didn't you trigger capital gains by selling a fund (Target Date) to buy a different fund (VTSAX)?
2. Since this is a taxable account wouldn't you want to have international stocks (at least the same proportion as you did with Target Date) as a fund because the dividends on the international fund could provide you a foreign tax credit (assuming you're a U.S. investor).

Have you considered the implications of these?
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ruralavalon
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Re: Opinion of Total Stock Market Index

Post by ruralavalon » Tue Nov 14, 2017 8:13 pm

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04% is a very diversified domestic stock fund with a low expense ratio, which is very tax-efficient in a taxable account.

Please be sure that your overall portfolio is very diversified, including a good intermediate-term bond fund and a good well diversified international stock fund in your other accounts.

. . . . .

More information would be helpful.

What is your age? What is your tax bracket, both federal and state?

Do you also have some kind of IRA? If so what funds are you using there?

Do you also have a work-based account, like a 401k, 403b, 457, TSP? If so what funds are you using there? What other funds are offered in your work-based plan?

Please give fund names, tickers and expense ratios. You can simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
Last edited by ruralavalon on Tue Nov 14, 2017 8:25 pm, edited 1 time in total.
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White Coat Investor
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Re: Opinion of Total Stock Market Index

Post by White Coat Investor » Tue Nov 14, 2017 8:22 pm

It's my favorite fund and Jack Bogle's too. Most Bogleheads think pretty highly of it. I'm less thrilled with it as the only investment in my portfolio though. It makes up 25% of my portfolio.
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Lindawilliams1960
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Re: Opinion of Total Stock Market Index

Post by Lindawilliams1960 » Tue Nov 14, 2017 8:25 pm

Do not count in recovering in 10 years. Recent hI story may not repeat itself. Stocks are very e pensive. It is possible that 10 years from now stocks may be lower.

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Kevin M
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Re: Opinion of Total Stock Market Index

Post by Kevin M » Tue Nov 14, 2017 8:33 pm

As others have said, I would first figure out the asset allocation that made sense for me, then select the fund(s) to construct the portfolio. If I decided that a 100% allocation to the total US stock market (basically US large blend) made sense for me, then the fund you have chosen would be the one I would prefer to use.

However, my inclination is to include international stocks in the stock portion of my portfolio, and I'm pretty happy with the 60/40 ratio of US stocks to international stocks that the Vanguard target retirement funds currently use. So from that perspective, if my only choice was between the two, I would use the TR fund. The small amount of bonds in the TR 2040 fund is not much of an issue, but the bond portion will increase over time, which could become an issue in terms of tax efficiency.

I think 100% stocks is fine for a young person with stable employment prospects who will not freak out and bail when stocks drop 30-50%, and I don't think there's enough difference between 90% and 100% in stocks to matter. One problem is that it's hard to know how you'll react when stocks tank, especially if you lose your job at the same time, and the news if full of doom and gloom. At least one highly respected Boglehead investing author advises to limit stocks to 50% of your portfolio until you've lived through a brutal bear market, since that's the only way you'll really know what your risk tolerance is.

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Re: Opinion of Total Stock Market Index

Post by Sandtrap » Tue Nov 14, 2017 8:59 pm

The accuracy of your responses as they apply to you depends on the comprehensive financial picture that you frame your question with.
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ThrustVectoring
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Re: Opinion of Total Stock Market Index

Post by ThrustVectoring » Tue Nov 14, 2017 9:05 pm

bogglesquared wrote:
Tue Nov 14, 2017 5:12 pm
I tend to trust their math and reasoning over my own desire to get greedy and make an extra .5% per year in the market
To be fair, an extra 0.5% per year is *huge* over the long run. Compounded over two decades it's an additional 10%.

ACJC
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Re: Opinion of Total Stock Market Index

Post by ACJC » Tue Nov 14, 2017 9:15 pm

I am by no means a expert but all the Choose FI blogs and podcasts are pushing this. It makes me want to do the same with my investments also since I am 38. I wish we had a crystal ball. Did you happen to read the book- The simple path to Wealth by JL Collins?

dbr
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Re: Opinion of Total Stock Market Index

Post by dbr » Tue Nov 14, 2017 9:16 pm

ThrustVectoring wrote:
Tue Nov 14, 2017 9:05 pm
bogglesquared wrote:
Tue Nov 14, 2017 5:12 pm
I tend to trust their math and reasoning over my own desire to get greedy and make an extra .5% per year in the market
To be fair, an extra 0.5% per year is *huge* over the long run. Compounded over two decades it's an additional 10%.
Your mathematical point is correct. I think it is more a matter of opinion whether 10% difference after 20 years is huge. There is enough uncertainty in the outcome that such a difference disappears in the noise.

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Taylor Larimore
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The Three-Fund Portfolio

Post by Taylor Larimore » Tue Nov 14, 2017 9:35 pm

Yogastar8210 wrote:
Mon Nov 13, 2017 10:42 pm
Just switched my taxable account for Vanguard from the Target Retirement 2040 to Vanguard Total Stock Market Index. Investing for the long haul and even though it's 100% stocks I feel as if I can ride the waves of the market. I am curious from Bogleheads who are experienced their opinion of this fund. It is the admiral shares. With an expense ratio of .04 and its total annual return after taxes and sale of fund shares since it's creation in 2000 with 5.21%. Another reason I did this was for the qualified quarterly dividends will be taxed at 15% instead of the TR which would have been taxed at 25%.
Yogastar8210:

You are correct that Vanguard Total Stock Market Index Fund is more tax-efficient in a taxable account than in a Target Retirement Account. However, you should look at your entire holdings as one portfolio and not be exclusively in one U.S. stock fund.

Perhaps The Three-Fund Portfolio is what you are looking for.

Best wishes.
Taylor
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Re: Opinion of Total Stock Market Index

Post by lostdog » Wed Nov 15, 2017 9:25 am

ACJC wrote:
Tue Nov 14, 2017 9:15 pm
I am by no means a expert but all the Choose FI blogs and podcasts are pushing this. It makes me want to do the same with my investments also since I am 38. I wish we had a crystal ball. Did you happen to read the book- The simple path to Wealth by JL Collins?
I have yes. I agree with him on most things but I disagree with him about international allocation. I follow his and Taylor's principles using the three fund portfolio. I am 50/50 domestic/international in equities.

I have noticed jl Collins blog buddies blindly just use VTSAX and that's it. In my opinion that is pure home country bias and speculation and not diversified
"Our life is frittered away by detail. Simplify, simplify." -Thoreau

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