New to Vanguard via rollover. Does this plan of action sound good for the current high market?

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Dawn1803
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New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Tue Dec 26, 2017 2:11 pm

Hi!
This past fall I was able to roll a 401k from a company I left into a Vanguard money market (VMMXX). I've been studying up, and I have created my plan of action, but would like some feedback on it.

Age: 31
Tax Rates: 25% federal, 3.46% state (OH). Single, no dependents
Desired Asset allocation: 65% stock / 35% bond (but I think I may want a safer ratio for now! Not sure. Help!)
Current retirement assets:
56K from 401k rolled over into Vanguard IRA (VMMXX temporarily)
4k in another traditional IRA I'm soon moving into Vanguard

Question
I'm comfortable with being fairly aggressive at my age, however, I'm nervous about buying in when the market is the highest it's ever been and that a crash could happen in the near future, so I do want to play a little safer right now. Taking that into account, does the proceeding plan sound good?

- Keep 25K in VMMXX until a crash occurs. Use it to buy when market drops low. I want to always keep a minimum 5% allocation in here.
*This leaves me with 35k to currently spread to the funds below (56k-25k = 31k + 4k). So I'll use $35k as a 100% figure.
- 35% Total US Bond, Admiral: VBTLX ($12,250)
- 45% Large Cap US Stock, Admiral: VTSAX ($15,750)
- 20% Total international stock: VGTSX ($7,000)
- After a crash, add $3000 from money market into new fund NAESX (small cap index) to create a tilt and/or an REIT fund

I'm still learning a lot about investing, and I'm open to any suggestions. I'm also struggling to understand if it worth tilting/fine tuning the total US stock market like below in #2 and #3? My personal purpose for considering doing this would be to have higher possible returns through over-weighting small cap. Thoughts?
1. VTSMX/VTSAX (total stock market/admiral), or
2. VFINX/VFIAX (S&P500/admiral) paired with VEXMX (small and mid caps), or
3. VFINX/VFIAX paired with mid-cap VIMSX and small cap index NAESX

Advice much appreciated. Thank you!!!!

pkcrafter
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by pkcrafter » Tue Dec 26, 2017 8:48 pm

Welcome Dawn, I'll give you a bump and add a few comments below.

Dawn1803 wrote:
Tue Dec 26, 2017 2:11 pm
Hi!
This past fall I was able to roll a 401k from a company I left into a Vanguard money market (VMMXX). I've been studying up, and I have created my plan of action, but would like some feedback on it.
For Bogleheads who are buy and hold, the recommendation would have been a straight across transfer and continuing with the same allocation.
Age: 31
Tax Rates: 25% federal, 3.46% state (OH). Single, no dependents
Desired Asset allocation: 65% stock / 35% bond (but I think I may want a safer ratio for now! Not sure. Help!)
This idea of "for now" will not work well. You should have an asset allocation you can stay with, even when it's uncomfortable.
Current retirement assets:
56K from 401k rolled over into Vanguard IRA (VMMXX temporarily)
4k in another traditional IRA I'm soon moving into Vanguard

Question
I'm comfortable with being fairly aggressive at my age, however, I'm nervous about buying in when the market is the highest it's ever been and that a crash could happen in the near future, so I do want to play a little safer right now. Taking that into account, does the proceeding plan sound good?
A crash could happen in the near future, or it could occur 2 years from now. Having been negative on your plan, I do understand that you are nervous under the current conditions because you probably have not experienced a serious fall. Also, you cannot be nervous and aggressive at the same time. :happy You won't be able to avoid all the market drops that will occur, so you have to find a balance between risk and potential returns you can stay with.
- Keep 25K in VMMXX until a crash occurs. Use it to buy when market drops low. I want to always keep a minimum 5% allocation in here.
*This leaves me with 35k to currently spread to the funds below (56k-25k = 31k + 4k). So I'll use $35k as a 100% figure.
- 35% Total US Bond, Admiral: VBTLX ($12,250)
- 45% Large Cap US Stock, Admiral: VTSAX ($15,750)
- 20% Total international stock: VGTSX ($7,000)
- After a crash, add $3000 from money market into new fund NAESX (small cap index) to create a tilt and/or an REIT fund
In light of your concerns about a market drop, holding higher risk asset classes doesn't fit your comfort level at this time.
I'm still learning a lot about investing, and I'm open to any suggestions. I'm also struggling to understand if it worth tilting/fine tuning the total US stock market like below in #2 and #3? My personal purpose for considering doing this would be to have higher possible returns through over-weighting small cap. Thoughts?
It isn't easy to hold small caps because they are go or no go. They can underperform large for stretches of 5-7 years. You have to be very committed to long term investing to be successful.

An AA of 65/35 is a bit lower than average for your age, but it's still a reasonable choice. If you're nervous maybe you could start with 50-60% equity until you have gotten used to the herky-jerky rhythm of the market.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Dawn1803
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Wed Dec 27, 2017 10:44 am

Thank you so much Paul!
pkcrafter wrote:
Tue Dec 26, 2017 8:48 pm
Dawn1803 wrote:
Tue Dec 26, 2017 2:11 pm
Hi!
This past fall I was able to roll a 401k from a company I left into a Vanguard money market (VMMXX). I've been studying up, and I have created my plan of action, but would like some feedback on it.
For Bogleheads who are buy and hold, the recommendation would have been a straight across transfer and continuing with the same allocation.
I do want to buy and hold for sure! :) I did a straight across transfer from a 401k I had (not at Vanguard) into a traditional IRA at Vanguard. The assets were automatically deposited into a Vanguard money market fund. My 401k options were terrible...no s&p, no total stock market fund, just low rated funds with high fees. I'm ready to start anew!
pkcrafter wrote:
Tue Dec 26, 2017 8:48 pm
Dawn1803 wrote:
Tue Dec 26, 2017 2:11 pm
Age: 31
Tax Rates: 25% federal, 3.46% state (OH). Single, no dependents
Desired Asset allocation: 65% stock / 35% bond (but I think I may want a safer ratio for now! Not sure. Help!)
This idea of "for now" will not work well. You should have an asset allocation you can stay with, even when it's uncomfortable.
So I can't allocate 35k of my 60k into a ratio of 60/40 now and when the market crashes use the 25k I left in the money market to bring it up to, say, 65/35 ratio? or even 70/30? I'm having trouble understanding why I should start with the 65/35 right now when that's just more to lose when the next market crash happens. Normally, I wouldn't be concerned, however, I feel like I'm entering in fairly close to the next crash. It'd sure suck to buy in at such high rates AND get hit with a crash within a 1 year or less after. Whereas if I allocate a little more conservatively up until the next crash, I could possibly save a reasonable amount of loses...no?
pkcrafter wrote:
Tue Dec 26, 2017 8:48 pm
A crash could happen in the near future, or it could occur 2 years from now. Having been negative on your plan, I do understand that you are nervous under the current conditions because you probably have not experienced a serious fall. Also, you cannot be nervous and aggressive at the same time. :happy You won't be able to avoid all the market drops that will occur, so you have to find a balance between risk and potential returns you can stay with.
I agree...it could happen now or in 2 years. Yes - I entered the 401k world in mid-2009 so I have not been through a bad crash. Only reason I'm being extra thoughtful about this now is because I'm buying in high with my entire retirement savings--not just a bi-monthly contribution or something small--and the market's never been so high...what goes up must come down. I thought there must be a different strategy for a circumstance like this.

Thank you again Paul!!

dbr
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by dbr » Wed Dec 27, 2017 10:53 am

No plan of action that contains the expression "good for the current high market" is a viable plan. The market is always risky and will crash more than once in your investing lifetime. We don't know of any confident credible formula for adjusting asset allocation to the highs and lows of the market.

Now if you delete all the references to what the market is or isn't and agree that you will commit yourself to maintain your plan, then it would seem you are on the right track.

Asset allocation should be based on how much return and associated risk you need to take to meet your objectives, how able you are to cope with things not materializing as expected, and on your willingness to tolerate downturns.
Last edited by dbr on Wed Dec 27, 2017 11:01 am, edited 1 time in total.

exigent
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by exigent » Wed Dec 27, 2017 10:57 am

If the money was previously in the market, why wouldn't you put it straight back in?

As a thought experiment (and assuming this money previously had market exposure)... If you had left it in place, would you have sold it all off and then tried to trickle/time it back into the market? If not, then why would you do so now? In other words, if you would have left it alone in the absence of the rollover, then the closest thing to that course of (in)action given the rollover would be to immediately reinvest it in the same mix as before.

Hope this helps.
Last edited by exigent on Wed Dec 27, 2017 10:57 am, edited 2 times in total.

Soon2BXProgrammer
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Soon2BXProgrammer » Wed Dec 27, 2017 10:57 am

the market is high? hmm didn't notice.

Dawn1803
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Wed Dec 27, 2017 1:38 pm

exigent wrote:
Wed Dec 27, 2017 10:57 am
If the money was previously in the market, why wouldn't you put it straight back in?

As a thought experiment (and assuming this money previously had market exposure)... If you had left it in place, would you have sold it all off and then tried to trickle/time it back into the market? If not, then why would you do so now? In other words, if you would have left it alone in the absence of the rollover, then the closest thing to that course of (in)action given the rollover would be to immediately reinvest it in the same mix as before.

Hope this helps.
Ohhh. interestinggg. Yes, the money was previously in the market when it was in my crappy 401k. And yes I would have left it alone in the absence of the rollover. When I rolled it straight over to a Vanguard traditional IRA, it got put into a Vanguard money market because I wasn't yet sure what Vanguard funds I wanted to put my money into. I wanted to take my time to do my due diligence. THAT was when I first noticed the market was high. In my 401k, I had about 15 actively managed fund options. You can't buy into those funds outside of the 401k plan...and I wouldn't want to anyways.

I think what's partially making me gun-shy to get back into the market is I'm use to getting slashed by huge fees from non-vanguard places. And with stock prices being high I kinda feel like I'm getting less bang for my buck, for lack of better words. It sounds like I have to mentally get past that. I don't want to time the market, I just thought instead of being greedy and getting all in now, maybe it's best to be conservative and patient and hold a good portion in the money market while also holding a more conservative allocation for now??
Please forgive if I'm misunderstanding anything. I've been trying to figure this stuff out on my own. I want to learn the right things to do! :happy

pkcrafter
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by pkcrafter » Wed Dec 27, 2017 1:55 pm

Dawn, we have mentioned what we would consider an error, now I'll offer some suggestions on how to proceed.
I'm comfortable with being fairly aggressive at my age, however, I'm nervous about buying in when the market
If you take a good look at this, you may see that is a conflicting statement. It seems clear that you are not comfortable, and it is important to be comfortable, at least to the point where you can stay with a chosen plan and asset allocation.
I do want to play a little safer right now.

OK, that's better than doing something you can't handle emotionally.
- Keep 25K in VMMXX until a crash occurs. Use it to buy when market drops low. I want to always keep a minimum 5% allocation in here.
*This leaves me with 35k to currently spread to the funds below (56k-25k = 31k + 4k). So I'll use $35k as a 100% figure.
I think it's better to look at the whole portfolio for what it is. 35k is not 100%, 60k is, so your asset allocation would be (rounded)

42% cash
20% bond
26% U.S. equity
12% international

AA is 38% stock/62% bond/cash

If you are comfortable with that now, then hold it.
- After a crash, add $3000 from money market into new fund NAESX (small cap index) to create a tilt and/or an REIT fund
I think your first priority should be to start moving the entire equity allocation back to target. I'm not sure a small tilt would fit your profile right now. One problem you will encounter in getting back in after the crash is knowing when the crash has hit it's low. This is not easy. Sometimes there is a double bottom. People has been out for years waiting for a clear sign, but they never appear.
I'm still learning a lot about investing, and I'm open to any suggestions. I'm also struggling to understand if it worth tilting/fine tuning the total US stock market like below in #2 and #3? My personal purpose for considering doing this would be to have higher possible returns through over-weighting small cap. Thoughts?
Right, you are young and still learning. The first thing you would want to do if you want higher returns is to increase your equity allocation while keeping the portfolio simple, but for now hold what have until you think it's time to get back to target AA. Tilting demands patience and experience. Hold off on that until you get your current portfolio back to where you want it.

You might consider ratcheting up your AA in increments over some set period of time. If you haven't yet written an investment policy statement, you need to do it.

https://www.bogleheads.org/wiki/Investm ... _statement

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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eye.surgeon
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by eye.surgeon » Wed Dec 27, 2017 2:00 pm

At your age where the market might be in relation to a correction is of little consequence. Get back in the market at an assett allocation you will be comfortable with for the next few years. Don't over complicate it with things like tilts until you know more about it, if ever. Studies have shown you're more likely to lose hesitating to get back in, trying to time a dip. If it drops the day after you buy back in, so what. You're 31.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

Dawn1803
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Wed Dec 27, 2017 3:05 pm

@pkcrafter and @eye.surgeon - and everyone who's been replying - thank you so so much. I am learning a lot today! I feel my thoughts and pre-conceived notions are straightening out and becoming unconfused! So grateful!

And yeesh, @pkcrafter when you wrote it out and i saw that my holdings would in fact be only 38% in stock when including that 25k money market into my total AA...i cringeddd. I definitely need to be more than 38% in stock, so I will rethink what I'm comfortable with! And I will keep things simple for a long while! Thank you folks. :D

pkcrafter
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by pkcrafter » Wed Dec 27, 2017 6:49 pm

Dawn1803 wrote:
Wed Dec 27, 2017 3:05 pm
@pkcrafter and @eye.surgeon - and everyone who's been replying - thank you so so much. I am learning a lot today! I feel my thoughts and pre-conceived notions are straightening out and becoming unconfused! So grateful!

And yeesh, @pkcrafter when you wrote it out and i saw that my holdings would in fact be only 38% in stock when including that 25k money market into my total AA...i cringeddd. I definitely need to be more than 38% in stock
Do you? I'm not being critical, just trying to help you get aligned so you don't get nervous and sell.

No. 1. Develop an allocation you can stay with, but yes, you may run into a market drop before too long, and you certainly will run into others. Maybe this perspective will help:

https://finpage.blog/2016/04/26/underst ... olatility/


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

delamer
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by delamer » Wed Dec 27, 2017 7:31 pm

The problem with “Use it to buy when market drops low” is the execution.

Do you buy when the market drops 5% or 10% or 25% or 50%? Once there is a drop to your target, will you be afraid to buy then because you think it will fall even further?

What if it takes 2 years to reach your target and the market goes up 20% in the meantime? You’ll have missed the run-up, including dividends.

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BL
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by BL » Wed Dec 27, 2017 8:06 pm

A 3-fund portfolio may be your best solution at this time. Most tilts have more risk and that doesn't seem like what you are looking for at this time. Perhaps Dr. Bill Bernstein's suggested AA will resonate with you: 1/3 each of Total US, Total International, and Total bond (or adjust fixed income to what you can handle).
Here is his free 16-page pdf (book available at Amazon.com):

https://www.etf.com/docs/IfYouCan.pdf

Dawn1803
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Thu Dec 28, 2017 11:02 am

pkcrafter wrote:
Wed Dec 27, 2017 6:49 pm
Dawn1803 wrote:
Wed Dec 27, 2017 3:05 pm
@pkcrafter and @eye.surgeon - and everyone who's been replying - thank you so so much. I am learning a lot today! I feel my thoughts and pre-conceived notions are straightening out and becoming unconfused! So grateful!

And yeesh, @pkcrafter when you wrote it out and i saw that my holdings would in fact be only 38% in stock when including that 25k money market into my total AA...i cringeddd. I definitely need to be more than 38% in stock
Do you? I'm not being critical, just trying to help you get aligned so you don't get nervous and sell.

No. 1. Develop an allocation you can stay with, but yes, you may run into a market drop before too long, and you certainly will run into others. Maybe this perspective will help:

https://finpage.blog/2016/04/26/underst ... olatility/

Paul
Yes, I do. Even my retired mother has a more aggressive stock holding than that. :mrgreen: My main concern is making the right choice starting out in this new account. Once I reach a confident decision, I'm sure I'll stay put because I'll know I had done the research and asked the questions to reach my final decision, so why question it more later on? I've read that people who pulled out when a crash happened and got back in later did worse recovering. So if things go south, I stay put. Thank you for that article too...my main takeaway from it was these three sentences:
"Volatility is a normal part of an investor’s life so don’t let it interfere with your goal. Downside volatility is not a threat as long as the time to needing the money is at least 8-10 years away. Upside volatility, or periods of low volatility don’t cause fear, but they are not a free ticket to safely increase risk."
For the next few days I'm going to thoughtfully consider how I feel about this AA. Upon writing, I am pretty darn comfy with it and even considering how I might shift allocations a tad more onto US stock:
25% cash ($15,000)
21% bond ($12,600)
36% U.S. equity ($21,600)
18% international ($10,800)
AA is 54% stock/46% bond/cash

Dawn1803
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Thu Dec 28, 2017 11:11 am

delamer wrote:
Wed Dec 27, 2017 7:31 pm
The problem with “Use it to buy when market drops low” is the execution.

Do you buy when the market drops 5% or 10% or 25% or 50%? Once there is a drop to your target, will you be afraid to buy then because you think it will fall even further?

What if it takes 2 years to reach your target and the market goes up 20% in the meantime? You’ll have missed the run-up, including dividends.
You make very good points...it's a gamble no matter what.
My original theory was to some use my cash reserves to buy more VTSAX after a considerable crash (like -25% drop in stocks or so), holding the understanding that it could drop even more, but knowing that since I'd buying and holding, it would eventually go back up and I bought it low. I thought that's what investors do. :confused

Dawn1803
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Thu Dec 28, 2017 11:24 am

BL wrote:
Wed Dec 27, 2017 8:06 pm
A 3-fund portfolio may be your best solution at this time. Most tilts have more risk and that doesn't seem like what you are looking for at this time. Perhaps Dr. Bill Bernstein's suggested AA will resonate with you: 1/3 each of Total US, Total International, and Total bond (or adjust fixed income to what you can handle).
Here is his free 16-page pdf (book available at Amazon.com):

https://www.etf.com/docs/IfYouCan.pdf
Thank you for the pdf...isn't that aka the lazy man's portfolio? A three fund portfolio is what I'm going for, at least for now. I would like to consider an REIT and international bonds at some point in the future.

GMT-8
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by GMT-8 » Thu Dec 28, 2017 11:35 am

My original theory was to some use my cash reserves to buy more VTSAX after a considerable crash (like -25% drop in stocks or so), holding the understanding that it could drop even more, but knowing that since I'd buying and holding, it would eventually go back up and I bought it low. I thought that's what investors do. :confused
I think what you mean to say is "that's what stock speculators do".

Unlike some of the seasoned investors here, I have "only" been in the market for about 40 years, but I certainly don't see how I could predict a considerable crash, and I don't have the energy to try.

I think Bogleheads tend to consider investing to be holding shares in companies or bonds that earn money, which rise or fall in market value and/or pay dividends and interest. We buy when we have cash, and sell when we need money, or to balance an asset allocation, or to pay taxes. Yes, it makes sense to consider some factors when you buy in, but not in the sense you are describing.

Congratulations on even thinking (and asking) about it.

GMT-8

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by pkcrafter » Thu Dec 28, 2017 11:39 am

Dawn1803 wrote:
Thu Dec 28, 2017 11:02 am
pkcrafter wrote:
Wed Dec 27, 2017 6:49 pm
Dawn1803 wrote:
Wed Dec 27, 2017 3:05 pm
@pkcrafter and @eye.surgeon - and everyone who's been replying - thank you so so much. I am learning a lot today! I feel my thoughts and pre-conceived notions are straightening out and becoming unconfused! So grateful!

And yeesh, @pkcrafter when you wrote it out and i saw that my holdings would in fact be only 38% in stock when including that 25k money market into my total AA...i cringeddd. I definitely need to be more than 38% in stock
Do you? I'm not being critical, just trying to help you get aligned so you don't get nervous and sell.

No. 1. Develop an allocation you can stay with, but yes, you may run into a market drop before too long, and you certainly will run into others. Maybe this perspective will help:

https://finpage.blog/2016/04/26/underst ... olatility/

Paul


Yes, I do. Even my retired mother has a more aggressive stock holding than that. :mrgreen: My main concern is making the right choice starting out in this new account. Once I reach a confident decision, I'm sure I'll stay put because I'll know I had done the research and asked the questions to reach my final decision, so why question it more later on? I've read that people who pulled out when a crash happened and got back in later did worse recovering. So if things go south, I stay put. Thank you for that article too...my main takeaway from it was these three sentences:
"Volatility is a normal part of an investor’s life so don’t let it interfere with your goal. Downside volatility is not a threat as long as the time to needing the money is at least 8-10 years away. Upside volatility, or periods of low volatility don’t cause fear, but they are not a free ticket to safely increase risk."
For the next few days I'm going to thoughtfully consider how I feel about this AA. Upon writing, I am pretty darn comfy with it and even considering how I might shift allocations a tad more onto US stock:
25% cash ($15,000)
21% bond ($12,600)
36% U.S. equity ($21,600)
18% international ($10,800)
AA is 54% stock/46% bond/cash
:thumbsup -------> :happy


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

SimplicityNow
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by SimplicityNow » Thu Dec 28, 2017 11:55 am

Hi Dawn and welcome to the forum. You have gotten some great advice from some of the veteran knowledgeable members of the forum.

I will add that the biggest issue you need to overcome before you do anything is your lack of investing knowledge. Please don't take this negatively as it is hard to be sure of anything with all the information out there and much of it isn't in your best interests like the info you get from most of the people who contribute here.

At your age you have a very long period of time before retirement. Probably 25-30 years at least. Time is your friend here.
Take the amount of time you need to understand some of the basic principles that are espoused here. One of them is w"hat counts is time in the market, not timing the market". Most attempts to evaluate where the market is (all time high) vs where it's going to be going (booms or crashes) fail.

Don't be led astray by the talking heads on TV and print media. They don't know what will happen either.

Might I suggest you read the getting started guide on the wiki and a few basic books on investing.

The Bogleheads Guide is an excellent one.

Taylor' Larimore's new book on the 3 fund portfolio is excellent I am sure.

A good book or two on asset allocation. Rick Ferri has a good one although there are many.

Maybe a book on behavioral finance like Jason Zweig's Your Money and Your Brain.

After a little education you will feel more confidant in picking an asset allocation appropriate for you and more importantly, one you can stick with whether the market goes up or down.

delamer
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by delamer » Thu Dec 28, 2017 12:31 pm

Dawn1803 wrote:
Thu Dec 28, 2017 11:11 am
delamer wrote:
Wed Dec 27, 2017 7:31 pm
The problem with “Use it to buy when market drops low” is the execution.

Do you buy when the market drops 5% or 10% or 25% or 50%? Once there is a drop to your target, will you be afraid to buy then because you think it will fall even further?

What if it takes 2 years to reach your target and the market goes up 20% in the meantime? You’ll have missed the run-up, including dividends.
You make very good points...it's a gamble no matter what.
My original theory was to some use my cash reserves to buy more VTSAX after a considerable crash (like -25% drop in stocks or so), holding the understanding that it could drop even more, but knowing that since I'd buying and holding, it would eventually go back up and I bought it low. I thought that's what investors do. :confused
Yes, that is what lots of investors do but that doesn’t mean it is a good system.

Today’s prices will at some point in the future be a low price, because even though the market will have short-term drops, over the long run th market will go up. And you’ll think today’s prices were cheap.

Read this: http://www.businessinsider.com/cost-of- ... 500-2014-3

Also, were you aware that about 1/3 of the total return of the S&P 500 is dividends? So when you are out of the market, you will never receive those dividends (this is reflected in the above chart).

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by BL » Thu Dec 28, 2017 2:49 pm

The more I think about it, the more I think you should strongly consider a single balanced fund, such as Vanguard's (LS) Life Strategy Moderate fund, 60% stock/40% bonds. This would let you buy and forget about it, no need to consider re-balancing or any other changes. In other words, it could be a lifetime fund. It is pretty much the 3-fund portfolio, with international bonds added. It could be paired with the Balanced Fund (60/40) which doesn't have the international, if you feel that % international is too much. If for some reason you wish to change in the future (think about change for at least 6 months so you don't just jump from one thing to the next), that can be done with no tax or other cost in a Vanguard IRA. For now, I think the simpler, the better.

You could do the 3-fund portfolio in your current 401k with no serious problem, or pick a target date fund if you choose, if no LS there.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Fri Dec 29, 2017 12:08 pm

BL wrote:
Thu Dec 28, 2017 2:49 pm
The more I think about it, the more I think you should strongly consider a single balanced fund, such as Vanguard's (LS) Life Strategy Moderate fund, 60% stock/40% bonds. This would let you buy and forget about it, no need to consider re-balancing or any other changes. In other words, it could be a lifetime fund. It is pretty much the 3-fund portfolio, with international bonds added. It could be paired with the Balanced Fund (60/40) which doesn't have the international, if you feel that % international is too much. If for some reason you wish to change in the future (think about change for at least 6 months so you don't just jump from one thing to the next), that can be done with no tax or other cost in a Vanguard IRA. For now, I think the simpler, the better.

You could do the 3-fund portfolio in your current 401k with no serious problem, or pick a target date fund if you choose, if no LS there.
I've looked into that fund, however, I would feel super weird having only 1 fund, even though it does encapsulate the 3-fund portfolio (plus intern'l bonds). Why does my brain want over-complication? :oops: Plus I'm not entirely sure I'd want to stay 60/40. What if I want to increase risk in the future as I develop more comfort? I realize I should at my age, or else I'll look back at age 65 and be upset I didn't take more risk. Do more people use that all-inclusive fund or a 3-fund portfolio?
I do know that whatever I end up doing, it will be a buy and hold and forget it, aside from re-balancing once a year.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by BL » Fri Dec 29, 2017 2:42 pm

You need to choose something you are comfortable with, and can stay with, whatever that may be.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Sat Dec 30, 2017 11:29 am

One last question folks. Would it be wise for me to open a Roth in 2018 for the international stock fund I wish to go into? Instead of housing all 18% of international stock allocations in my traditional IRA? I'm looking at either VWIGX or VGTSX. Or should I just deal with my traditional IRA? I'm currently in the 25% fed tax bracket. I should mention that to open the Roth, I'd use 3k from my savings, and 3k would obviously not = the 18% AA of foreign stock I desire.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by grabiner » Sat Dec 30, 2017 4:44 pm

Dawn1803 wrote:
Sat Dec 30, 2017 11:29 am
One last question folks. Would it be wise for me to open a Roth in 2018 for the international stock fund I wish to go into? Instead of housing all 18% of international stock allocations in my traditional IRA? I'm looking at either VWIGX or VGTSX. Or should I just deal with my traditional IRA? I'm currently in the 25% fed tax bracket. I should mention that to open the Roth, I'd use 3k from my savings, and 3k would obviously not = the 18% AA of foreign stock I desire.
All of your retirement accounts combined will provide your retirement income, so it doesn't hurt if you take a loss on international stock in one account and a gain on US stock in another account. This includes your IRAs, and a 401(k) if you have one with your new employer.

It's worth contributing to an IRA for this year whether you put a new fund in it or not, as it gives you tax-free growth. The right fund may depend on the options at your new employer. If your employer doesn't have a retirement plan, contributing to a deductible traditional IRA may be a better deal than a Roth IRA; if your employer does, you are probably over the limit for deducting traditional IRA contributions and should use a Roth IRA.
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by drk » Sat Dec 30, 2017 5:18 pm

delamer wrote:
Wed Dec 27, 2017 7:31 pm
The problem with “Use it to buy when market drops low” is the execution.

Do you buy when the market drops 5% or 10% or 25% or 50%? Once there is a drop to your target, will you be afraid to buy then because you think it will fall even further?

What if it takes 2 years to reach your target and the market goes up 20% in the meantime? You’ll have missed the run-up, including dividends.
Exactly. Someone who is uncomfortable with the market right now is unlikely to be comfortable pouring in money after seeing a 25+% drop. Rebalancing is one thing; having the gall to crack open the cache is quite another.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Sun Dec 31, 2017 4:41 pm

grabiner wrote:
Sat Dec 30, 2017 4:44 pm
Dawn1803 wrote:
Sat Dec 30, 2017 11:29 am
One last question folks. Would it be wise for me to open a Roth in 2018 for the international stock fund I wish to go into? Instead of housing all 18% of international stock allocations in my traditional IRA? I'm looking at either VWIGX or VGTSX. Or should I just deal with my traditional IRA? I'm currently in the 25% fed tax bracket. I should mention that to open the Roth, I'd use 3k from my savings, and 3k would obviously not = the 18% AA of foreign stock I desire.
All of your retirement accounts combined will provide your retirement income, so it doesn't hurt if you take a loss on international stock in one account and a gain on US stock in another account. This includes your IRAs, and a 401(k) if you have one with your new employer.

It's worth contributing to an IRA for this year whether you put a new fund in it or not, as it gives you tax-free growth. The right fund may depend on the options at your new employer. If your employer doesn't have a retirement plan, contributing to a deductible traditional IRA may be a better deal than a Roth IRA; if your employer does, you are probably over the limit for deducting traditional IRA contributions and should use a Roth IRA.
I do definitely plan to pick a foreign stock fund. Upon reading some articles about asset placement, I had initially wondered if with the higher volatility and often higher yearly returns in VWIGX and VGTSX, it may be better to open a Roth for the foreign stock fund, let it grow and not have to worry about tax on gains made when I take it out at retirement...However, I think I've answered my own question when I looked up the 10- and 15-year returns of both VWIGX and VGTSX and they were less than VTSMX. So please correct me if I'm wrong, but whether my foreign stock is in a roth or traditional must not matter much.

Yes - my new employer has a 401k but it will still be a couple of months before I'm allowed to have an account. I'm no where near the contribution limit this year. I do know my new employer matches 25% of up to 5% contributed. That's bad, isn't it? My last employer matched 100% of up to 4% contributed.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by grabiner » Sun Dec 31, 2017 6:54 pm

Dawn1803 wrote:
Sun Dec 31, 2017 4:41 pm
I do definitely plan to pick a foreign stock fund. Upon reading some articles about asset placement, I had initially wondered if with the higher volatility and often higher yearly returns in VWIGX and VGTSX, it may be better to open a Roth for the foreign stock fund, let it grow and not have to worry about tax on gains made when I take it out at retirement...However, I think I've answered my own question when I looked up the 10- and 15-year returns of both VWIGX and VGTSX and they were less than VTSMX. So please correct me if I'm wrong, but whether my foreign stock is in a roth or traditional must not matter much.
Foreign and US stock have about the same expected return. It doesn't matter much where you put your foreign stock, but your effective allocation to foreign stock will be higher if you have the same dollar amount in a Roth IRA, because the IRS owns part of your traditional IRA or 401(k); see Tax-adjusted asset allocation on the wiki.
Yes - my new employer has a 401k but it will still be a couple of months before I'm allowed to have an account. I'm no where near the contribution limit this year. I do know my new employer matches 25% of up to 5% contributed. That's bad, isn't it? My last employer matched 100% of up to 4% contributed.
This isn't a good match, but it's still worth taking; contribute at least 5% of your salary to get the full match in preference to contributing to any IRA. If the 401(k) options are good, you may prefer to contribute more to the 401(k) than the minimum.

While the match isn't good, it's really part of your compensation rather than a measure of the quality of the plan. As long as you contribute to the plan, the match is effectively a salary increase. If your employer offers a salary of $100K with your match, the employer is actually paying you $101,250, since you might contribute, say, $10,000 and have $90,000 in paid salary and $11,250 in the 401(k). An employer offering a 100% match on 5% would be paying you $105,000 for the same declared salary.
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by sergeant » Sun Dec 31, 2017 7:18 pm

Write an IPS and stick with it.
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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by FrugalInvestor » Sun Dec 31, 2017 7:30 pm

First of all, the market is high compared to where it has been and low compared to where it in all likelihood will be. In between any two of those points it's very bumpy but generally rising.

Three suggestions:
1. Read more here about developing a plan and do it.
2. Read more here about the 3-fund portfolio and invest accordingly.
3. Once your plan including asset allocation is set, invest your money all-at-once or evenly over 12 months, whichever makes you more comfortable. In the big picture it won't make much difference which you choose, especially given your age.

Most importantly, once you have developed your plan stick with it through thick and thin and don't try to time the market!
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Mon Jan 01, 2018 12:14 pm

sergeant wrote:
Sun Dec 31, 2017 7:18 pm
Write an IPS and stick with it.
I'm nearly done with it. Just need to work out a few final tweaks, and there's a couple more things I want to make sure I understand before I call it done.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by ThriftyPhD » Mon Jan 01, 2018 1:27 pm

Your reluctance to buy during a "high market" is not new. Here are a few forum threads:

Sitting on cash....Waiting for a crash
100% in bond to wait for market crash?
Bear Market, Move from Stocks to Bonds?
move to cash for upcoming bear market?
Decided to try timing the market. 100% short on 9/17/15
Investing when market is peaking

You can find many more if you search. In all of those threads, people had the same worry as you. In some, they took money out of the market before this year, and would have missed out on the large growth of 2017, ~ 20% for stocks.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by ThriftyPhD » Mon Jan 01, 2018 2:17 pm

At 31 with $60k in retirement savings, I would think about your situation like this:

The upside to your plan for market timing, even if it worked, would likely not have a huge impact on your retirement. Your future contributions, the rate that you contribute, and your ability to stick to a plan during market highs and lows will have a much bigger impact over the life of your portfolio.

The worry with your plan is that you try to market time, fail, and pull out of the market even more after getting burned. The advice you've received from many here is to set an AA, write it down in an IPS, and stick to it for the next 35 years. At your age and investment size, focusing on consistently contributing to savings, and maximizing the amount you can contribute, will have a huge impact. The less you focus on managing your portfolio, and the more you focus on how much you add to it, the better off you will be. The simpler your portfolio the easier this is. Choose a 3 fund portfolio, a Target Date fund, a Life Strategy fund, or whatever simple to manage portfolio that you will be able to stick to, and then just let it be.

Adding tilts, variable asset allocations, market timing triggers, or other complications will make it harder for you to manage.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Mon Jan 01, 2018 6:16 pm

ThriftyPhD wrote:
Mon Jan 01, 2018 2:17 pm
At 31 with $60k in retirement savings, I would think about your situation like this:

The upside to your plan for market timing, even if it worked, would likely not have a huge impact on your retirement. Your future contributions, the rate that you contribute, and your ability to stick to a plan during market highs and lows will have a much bigger impact over the life of your portfolio.

The worry with your plan is that you try to market time, fail, and pull out of the market even more after getting burned. The advice you've received from many here is to set an AA, write it down in an IPS, and stick to it for the next 35 years. At your age and investment size, focusing on consistently contributing to savings, and maximizing the amount you can contribute, will have a huge impact. The less you focus on managing your portfolio, and the more you focus on how much you add to it, the better off you will be. The simpler your portfolio the easier this is. Choose a 3 fund portfolio, a Target Date fund, a Life Strategy fund, or whatever simple to manage portfolio that you will be able to stick to, and then just let it be.

Adding tilts, variable asset allocations, market timing triggers, or other complications will make it harder for you to manage.
Sounds good! AA is almost set, and so is my IPS. Just one thing I'd like to clarify...I would not pull out of the market - that is not my plan. I'm currently in a money market because I rolled over a Fidelity-based 401k from a previous job into Vanguard and I did not know at the time of the rollover where I wanted to invest, so into a money market it went.

Is my current 60k not much for my age? I'm blown away by how many people in these forums have 401k and trad and roth and taxable acct. y'all are rich in my eyes. It's difficult for me to max out even just 1 of those options/year.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Mon Jan 01, 2018 6:23 pm

ThriftyPhD wrote:
Mon Jan 01, 2018 1:27 pm
Your reluctance to buy during a "high market" is not new. Here are a few forum threads:

Sitting on cash....Waiting for a crash
100% in bond to wait for market crash?
Bear Market, Move from Stocks to Bonds?
move to cash for upcoming bear market?
Decided to try timing the market. 100% short on 9/17/15
Investing when market is peaking

You can find many more if you search. In all of those threads, people had the same worry as you. In some, they took money out of the market before this year, and would have missed out on the large growth of 2017, ~ 20% for stocks.
Oh wow, thanks for this!!!! Started reading a few of them already...Ya know, this is taking away a lot of wrong presumptions I had about how the market works.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by pkcrafter » Mon Jan 01, 2018 10:04 pm

Dawn1803 wrote:
Mon Jan 01, 2018 6:23 pm

Sitting on cash....Waiting for a crash
100% in bond to wait for market crash?
Bear Market, Move from Stocks to Bonds?
move to cash for upcoming bear market?
Decided to try timing the market. 100% short on 9/17/15
Investing when market is peaking

Oh wow, thanks for this!!!! Started reading a few of them already...Ya know, this is taking away a lot of wrong presumptions I had about how the market works.
Dawn, I would be very interested in what your erroneous presumptions were about how the market works. What did you read that changed your perception?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by ThriftyPhD » Tue Jan 02, 2018 10:53 am

Dawn1803 wrote:
Mon Jan 01, 2018 6:16 pm
Is my current 60k not much for my age? I'm blown away by how many people in these forums have 401k and trad and roth and taxable acct. y'all are rich in my eyes. It's difficult for me to max out even just 1 of those options/year.
I did not mean to imply that $60k is not much. You have much more than I did at your age; I was still paying off debts from school and sporting a negative net worth.

Instead, I was trying to point out that at 31, your future contributions will likely dwarf what you've saved so far, simply because you have a lot more earning years ahead of you than behind you. And they will be much larger than the difference you would see from a complicated portfolio with market timing compared to a 3-fund or similar portfolio.

For example, you mentioned holding $25k in a money market until a crash (undefined), at which point you would buy back into the market. Lets say you're waiting for a 20% crash and then all $25k goes into equities.

Option 1, buy $25k equities now right.
Option 2, wait until a 20% crash, then buy $25k in equities.

Let's say a 20% crash happens next month, and you would be able to time that perfectly. Option 1 ends with you having $20k left (20% crash leaves you with 80% of $25k). Option 2 leaves you with $25k. Obviously $25k is better, but in dollar amounts it is $5k. You're likely investing more than that per year, given your current balance.

Now, factor in that the 20% crash might not come any time soon. If the market goes up 50% over the next few years, and then has a 20% crash, it will still be above today's value. Also keep in mind that crashes often mean people are afraid of the market. Someone who is risk adverse is going to be less likely to invest in the market during the chaos of a crash. On top of all of that, you also mentioned that you would keep a minimum 5% allocation to the MM fund, so you wouldn't be buying all in with the $25k, and even if you did would you necessarily put it all into stocks, thus greatly increasing you equity ratio? So that $5k from above would be much smaller.

If you are going to wait for a crash larger than 20%, lets say 50%, your upside from timing correctly would be greater, but the timeline and chance of that crash happening are also lower, and might not happen until years of growth have occurred, again leaving markets above where they are now.

If you instead go with a 3-fund type portfolio, and choose an asset allocation that corresponds to your risk level, if there is a crash in equities you would rebalance, selling bonds to buy equities at that lower value. Target date, life strategy, or similar all in one funds would take care of this for you, and all you would need to do is focus on contributing regularly. Those regular contributions over 30 years are likely going to be a big driver of your success, so the less you fiddle with your portfolio and the more you focus on contributions, the better your chance of success.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by Dawn1803 » Wed Jan 03, 2018 9:03 pm

ThriftyPhD wrote:
Tue Jan 02, 2018 10:53 am
Let's say a 20% crash happens next month, and you would be able to time that perfectly. Option 1 ends with you having $20k left (20% crash leaves you with 80% of $25k). Option 2 leaves you with $25k. Obviously $25k is better, but in dollar amounts it is $5k. You're likely investing more than that per year, given your current balance.
I've maybe come close to 5K a few years, but I've never invested greater than 5k per year into my 401k. I had a really nice 401k match for 8 years. That helped big time...my new employer match is terrible.

Thank you for that explanation. It's becoming clearer to me why you can't time the market and there is no good or bad time to get in, just get in!

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by MMMsentMe » Wed Jan 03, 2018 9:12 pm

Today’s high could be tomorrow’s low.

Since you are only 31, what does it matter if the market crashes tomorrow versus 1 year from now. Sure, I agree it would suck to invest money today and watch it crash tomorrow but you just don’t know for sure when a crash is going to happen.

There have been numerous people in the past year post on this forum that they have withheld from investing because they feared a crash and it’s done the exact opposite. Meanwhile their money was sitting idle as cash and they missed a years worth of growth.

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Re: New to Vanguard via rollover. Does this plan of action sound good for the current high market?

Post by David Jay » Wed Jan 03, 2018 11:05 pm

Dawn:

Here is a classic on market timing. "Bob" in this illustration invested each time immediately before the worst market drops in history. Check it out here: http://awealthofcommonsense.com/worlds- ... ket-timer/
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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