Basic (Dumb) Vanguard Question

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Englebert
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Joined: Thu Jan 11, 2018 2:42 pm

Basic (Dumb) Vanguard Question

Post by Englebert »

I'm completely new to investing and recently spoke to a financial adviser who is a friend of a friend. Super nice guy who gave me his time for free and suggested a Roth IRA split into two or three funds:

Vanguard Target Retirement Date Fund
Vanguard 500 Index Fund Investor Share
Vanguard Wellington Fund Investor Shares

Here's my dumb problem, I just can't figure out on the Vanguard site how I am to allocate my money to these funds. All this financial stuff is so alien to me but I am trying and I've searched around but not really figured it out. Can someone point me to some place that it is already laid out or let me know what to do?

Thanks!
lack_ey
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Re: Basic (Dumb) Vanguard Question

Post by lack_ey »

For an even dumber question (don't worry, we'll get this all sorted out :wink:), do you mean mechanically what the steps are to place buy orders for mutual funds in an account (or to open a Roth IRA in the first place), or are you asking a strategic question about relative allocations between different funds and how to decide how much to use of each?

By the way, all three funds mentioned are fine enough, but most probably wouldn't recommend mixing all three like that (not that it would be so bad, but it wouldn't seem to fit a coherent strategy), though this is potentially besides the point.
neilpilot
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Location: Memphis area

Re: Basic (Dumb) Vanguard Question

Post by neilpilot »

Englebert wrote: Thu Jan 11, 2018 2:58 pm I'm completely new to investing and recently spoke to a financial adviser who is a friend of a friend. Super nice guy who gave me his time for free and suggested a Roth IRA split into two or three funds:

Vanguard Target Retirement Date Fund
Vanguard 500 Index Fund Investor Share
Vanguard Wellington Fund Investor Shares

Here's my dumb problem, I just can't figure out on the Vanguard site how I am to allocate my money to these funds. All this financial stuff is so alien to me but I am trying and I've searched around but not really figured it out. Can someone point me to some place that it is already laid out or let me know what to do?

Thanks!
It seems odd that one of the 3 funds is Target Retirement Date. Why not consider investing all of your Roth in this fund, and then select the target date based on the degree of risk you prefer. You could select your appropriate date of retirement, or move that date up or down if you prefer to increase/decrease your overall equity exposure.
PFInterest
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Re: Basic (Dumb) Vanguard Question

Post by PFInterest »

neilpilot wrote: Thu Jan 11, 2018 3:29 pm
Englebert wrote: Thu Jan 11, 2018 2:58 pm I'm completely new to investing and recently spoke to a financial adviser who is a friend of a friend. Super nice guy who gave me his time for free and suggested a Roth IRA split into two or three funds:

Vanguard Target Retirement Date Fund
Vanguard 500 Index Fund Investor Share
Vanguard Wellington Fund Investor Shares

Here's my dumb problem, I just can't figure out on the Vanguard site how I am to allocate my money to these funds. All this financial stuff is so alien to me but I am trying and I've searched around but not really figured it out. Can someone point me to some place that it is already laid out or let me know what to do?

Thanks!
It seems odd that one of the 3 funds is Target Retirement Date. Why not consider investing all of your Roth in this fund, and then select the target date based on the degree of risk you prefer. You could select your appropriate date of retirement, or move that date up or down if you prefer to increase/decrease your overall equity exposure.
its odd because that person has no idea what they are doing.
neilpilot
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Location: Memphis area

Re: Basic (Dumb) Vanguard Question

Post by neilpilot »

PFInterest wrote: Thu Jan 11, 2018 3:33 pm
neilpilot wrote: Thu Jan 11, 2018 3:29 pm

It seems odd that one of the 3 funds is Target Retirement Date. Why not consider investing all of your Roth in this fund, and then select the target date based on the degree of risk you prefer. You could select your appropriate date of retirement, or move that date up or down if you prefer to increase/decrease your overall equity exposure.
its odd because that person has no idea what they are doing.
Can I assume that the "that person" you are referring to is the FA? I realize that the OP is inexperienced and asking for advice. You would think a FA would have the basics down.
PFInterest
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Re: Basic (Dumb) Vanguard Question

Post by PFInterest »

neilpilot wrote: Thu Jan 11, 2018 3:37 pm
PFInterest wrote: Thu Jan 11, 2018 3:33 pm
neilpilot wrote: Thu Jan 11, 2018 3:29 pm

It seems odd that one of the 3 funds is Target Retirement Date. Why not consider investing all of your Roth in this fund, and then select the target date based on the degree of risk you prefer. You could select your appropriate date of retirement, or move that date up or down if you prefer to increase/decrease your overall equity exposure.
its odd because that person has no idea what they are doing.
Can I assume that the "that person" you are referring to is the FA? I realize that the OP is inexperienced and asking for advice. You would think a FA would have the basics down.
of course. not the OPs fault.
Topic Author
Englebert
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Re: Basic (Dumb) Vanguard Question

Post by Englebert »

lack_ey wrote: Thu Jan 11, 2018 3:21 pm For an even dumber question (don't worry, we'll get this all sorted out :wink:), do you mean mechanically what the steps are to place buy orders for mutual funds in an account (or to open a Roth IRA in the first place), or are you asking a strategic question about relative allocations between different funds and how to decide how much to use of each?

By the way, all three funds mentioned are fine enough, but most probably wouldn't recommend mixing all three like that (not that it would be so bad, but it wouldn't seem to fit a coherent strategy), though this is potentially besides the point.
Yes, the steps required to buy the funds is where I have been having difficulties. I have already opened the Roth IRA and deposited some money into it (only $1k so far but I have more ready) but don't know how to put money into those funds. I realize there are minimum amounts for each fund so I need to deposit more but I want to know what it is I am doing before I take that step. As for the the second part of the question, I haven't really figured that out either, the amount I would allocate to each fund.

The FA had suggested the three because he thought a target date retirement fund is always a good idea, the Vanguard 500 is a relatively safe way to make good returns in stocks, and the Wellington is a low risk/low return but safe fund. Of the three the Wellington is the one I would most likely drop. I'm pretty sure the FA has the basics down, it's much more likely that any problem lies with me. ;-) I'm quite technically savvy, but when it comes to financial stuff I'm like a child that clearly needs hand holding!
livesoft
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Re: Basic (Dumb) Vanguard Question

Post by livesoft »

I don't think you can do what was suggested and here's the reason:

Each fund as an initial minimum purchase amount. That is, the first purchase in each fund MUST be at least the minimum amount. Couple that with the fact that Roth contribution is limited annually to $5500 or $6500 (if age 50 or older). So unless you are making more than a one year contribution, I don't think you can buy all the funds anyways.

Here's my suggestion: Put your Roth 100% in a Target Retirement Date fund. That fund will have EVERY stock in the Vanguard 500 index fund plus every stock and bond in the Vanguard Wellington fund, so you will not miss out on anything.

And now that I see you have contributed just $1,000 so far, then the only fund you can buy now is the Target Retirement fund which has an initial minimum of $1,000 all by itself.

Then read and learn about investing while you get some more money to put in your Roth later.
Wiki This signature message sponsored by sscritic: Learn to fish.
neilpilot
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Re: Basic (Dumb) Vanguard Question

Post by neilpilot »

While all of my investments are in Vanguard mutuals and ETFs, I don't use Vanguard so can't help you navigate a purchase on their site. However, you do realize that a significant percentage of a Target Retirement Date fund is i equity. As an example, 43% of the 2030 Target Date fund is in VG's Total Stock Market Index. So if you decide to also drop the 500 Index, you are not missing exposure to the equity market.

Edit: what Livesoft said; I was typing without seeing his earlier post
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TomatoTomahto
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Re: Basic (Dumb) Vanguard Question

Post by TomatoTomahto »

Englebert, welcome to the forum. My advice is to put it all into Target nnnn, where nnnn is approximately the year you will retire or need the money. If nnnn is a larger number, the allocation will be more aggressive than if it’s a smaller number.

Then, read the wiki or borrow/buy a copy of The Bogleheads Guide to Investing. Pretty soon you will know if you want to deviate from having it all in a Target Date Fund. Changing your mind in a tax-advantaged account is less expensive than changing your mind in a taxable account.

The mechanics can be solved by a phone call to Vanguard, or a little time exploring the web site. Opening and funding the account is more difficult than the steps remaining.

🍅🍅
I get the FI part but not the RE part of FIRE.
mega317
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Re: Basic (Dumb) Vanguard Question

Post by mega317 »

PFInterest wrote: Thu Jan 11, 2018 3:33 pm its odd because that person has no idea what they are doing.
Or they know exactly what they are doing which is creating unnecessary complexity to justify their existence. I may be off base but it's possible that this friend of a friend has larger motives in giving you something for free.

OP: I suggest you do a lot of reading before doing anything. You need to develop a plan. As in, your financial goals, your desired level of risk. Then you choose types of investments to meet that. Only then do you choose specific funds. My opinion is that by browsing this forum, reading the wiki, and one or two books, you can learn everything you need to know in a few weeks or less.
the Vanguard 500 is a relatively safe way to make good returns in stocks
I don't agree with this. It is a diversified way to invest in the US stock market, and I think it would be a good investment for most people. But safe isn't a word I'd use.
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CABob
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Re: Basic (Dumb) Vanguard Question

Post by CABob »

The three funds suggested I find interesting and I am wondering if the OP misunderstood. I think any one of the three would be a good possibility for an investment but not all three in any proportion.
The target date fund is the only one that you could buy with a $1000 investment. The others have higher minimum investments, The target date fund is good because it contains stocks, bonds, and international investments all in a single fund.
If one wanted a single stock fund the S&P 500 would be a good choice although I would prefer Vanguard's total stock market fund.
The Wellington fund also has both stocks and bonds and would be a reasonable single fund investment. It is a managed fund rather than an index fund.
Bob
dbr
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Re: Basic (Dumb) Vanguard Question

Post by dbr »

The recommendation of the FA is ridiculous in that one would not distribute money across all three. As pointed out it might have been advice to pick one of those.

The mechanics of buying funds once the money is in the account have to do with getting online and finding the correct links/windows to execute trades. I don't think I have seen any broker post a "How to use this website" guide, so I would be a little at a loss how to help. Someone who has a Roth IRA account at Vanguard could probably write a step-by-step. An alternative is to call someone as Vanguard that can answer to the function of web support and ask them for a step by step walkthrough. I have had to do that on certain websites when it just wasn't evident (to me) where some action or another was to be found.
mega317
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Re: Basic (Dumb) Vanguard Question

Post by mega317 »

dbr wrote: Thu Jan 11, 2018 4:28 pm Someone who has a Roth IRA account at Vanguard could probably write a step-by-step.
Good point.

When you log in, you should see a summary screen with a red banner of choices to click. Hover the mouse over "My Accounts" which will display more options. Click the lower left option "Buy and Sell".
Click the first choice in the left column "Buy Vanguard funds"

You'll see another screen "Where's the money going?". You'll have to click the name of the account if it's not already selected (mine appears as "Mega317--Roth IRA Brokerage Accout--8675390"). Click the check box "add another Vanguard mutual fund" and enter the name or symbol of the fund you want to buy. Then enter a number in the "buy in dollars" box. Click continue.

Another column will appear: "where's the money coming from?". There is a drop-down menu from which you can select "from my settlement fund" if you already funded the account. (You can also link a bank account for the future.) Click continue. You'll see a summary screen with what you're about to do. Click "submit" to finalize.

Thanks, that triggered me to clear my settlement fund into VTSAX.
Topic Author
Englebert
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Re: Basic (Dumb) Vanguard Question

Post by Englebert »

CABob wrote: Thu Jan 11, 2018 4:23 pm The three funds suggested I find interesting and I am wondering if the OP misunderstood. I think any one of the three would be a good possibility for an investment but not all three in any proportion.
The target date fund is the only one that you could buy with a $1000 investment. The others have higher minimum investments, The target date fund is good because it contains stocks, bonds, and international investments all in a single fund.
If one wanted a single stock fund the S&P 500 would be a good choice although I would prefer Vanguard's total stock market fund.
The Wellington fund also has both stocks and bonds and would be a reasonable single fund investment. It is a managed fund rather than an index fund.
As I remember the conversation I had with the FA he suggested putting money in all three but that I didn't have to. I'm pretty certain that is what he said and that he gave me his reasons for doing so. In a follow-up email this is what he wrote:
I've attached a snapshot of three Vanguard mutual funds:

Vanguard Target Retirement Date 2030 Fund - 1K (minimum investment)
Vanguard 500 Index Fund Investor Shares - 3k (minimum investment)
Vanguard Wellington Fund Investor Shares - 3k (minimum investment)

You can own one or more funds individually and one or more funds in a ROTH IRA's. Roth's are limited to 6.5K annual contribution. You have until mid April of the following year to make the prior year contribution.

I'm not a tax expert so study up. Individual funds are subject to tax on capital gains and dividends. You're required to hold a Roth for five years to receive the full benefit.

You can chose additional investments (monthly, quarterly etc.). I recommend you do everything online and choose electronic statements. Vanguard won't charge you 25.00 per fund if you opt in on electronic statement deliver.
He's a really nice guy and is just helping me out, no ulterior motives. However I am very willing to listen to suggestions on how I can improve/change this. I will check out the wiki and The Bogleheads Guide to Investing.
kilkoyne
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Re: Basic (Dumb) Vanguard Question

Post by kilkoyne »

I went through this myself recently. The first time I called Vanguard to make sure I was doing it correctly. You can ask them to help just don't ask them to do it because they charge a fee.

I see it was already explained but I'll post this anyway.

"My accounts"
drop down to
"buy and sell"
"buy vanguard funds"
check box "Add another Vanguard mutual fund" (easier if you know the ticker symbol ahead of time but can look it up if you don't)
look for Target Retirement 20xx ($1,000 minimum) ...(xx is the year you will believe you will retire, the most aggressive is Target Retirement 2065)
Add amount and hit continue
It will then ask where the money is coming from in the drop down box

From that point I'm not sure because I don't want to continue but it will make you confirm it before you commit to it. Once again you can call Vanguard and ask, just don't let them do it for you. Once you do it a couple times it gets easy.
RCL
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Re: Basic (Dumb) Vanguard Question

Post by RCL »

Englebert wrote: Thu Jan 11, 2018 6:13 pm

As I remember the conversation I had with the FA he suggested putting money in all three but that I didn't have to. I'm pretty certain that is what he said and that he gave me his reasons for doing so. In a follow-up email this is what he wrote:
I've attached a snapshot of three Vanguard mutual funds:

Vanguard Target Retirement Date 2030 Fund - 1K (minimum investment)
Vanguard 500 Index Fund Investor Shares - 3k (minimum investment)
Vanguard Wellington Fund Investor Shares - 3k (minimum investment)

You can own one or more funds individually and one or more funds in a ROTH IRA's. Roth's are limited to 6.5K annual contribution. You have until mid April of the following year to make the prior year contribution.

I'm not a tax expert so study up. Individual funds are subject to tax on capital gains and dividends. You're required to hold a Roth for five years to receive the full benefit.

I'm not a tax expert either, but I'm pretty sure there are no tax consequences on capital gains and dividends in a Roth IRA...I mean, after all, isn't that the point of a Roth Ira?
Someone correct me if this isn't how it is
Topic Author
Englebert
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Re: Basic (Dumb) Vanguard Question

Post by Englebert »

RCL wrote: Thu Jan 11, 2018 7:10 pm
I'm not a tax expert either, but I'm pretty sure there are no tax consequences on capital gains and dividends in a Roth IRA...I mean, after all, isn't that the point of a Roth Ira?
Someone correct me if this isn't how it is
That's right, but he was pointing out that those funds can also be used outside of Roth IRA's in the event that I wanted to make other investments
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