$3K, Which Vanguard Mutual Fund?

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kmwilson343
Posts: 37
Joined: Tue Jun 05, 2018 7:46 pm
Location: Vancouver, WA

$3K, Which Vanguard Mutual Fund?

Post by kmwilson343 » Wed Jun 13, 2018 10:38 pm

Hey everyone! I need some advice. My 457 and Vanguard Roth IRA TDF seem to be very similar (see below), now that I have $3K in my 2035 TDF, should I just let it ride? Or choose another mutual fund that doesn't closely resemble my 457 allocations? And if so which mutual fund would help make my retirement portfolio more diversified? (Morgan Growth (VMRGX), Vanguard Diversified Equity Fund (VDEQX), Federal Money Market, etc...) What are your recommendations? I'm 46 and will retire in 14 years and I don't mind some risk to gain some reward.

ICMA-RC 457:
VTSAX 65%
VTIAX 15%
VBTLX 20%

Vanguard Roth IRA 2035 TDF:
VTSAX 47%
VTIAX 30%
VTBIX 15%
VBTLX 6%

Thanks in advance :D
Kevin

mcraepat9
Posts: 957
Joined: Thu Jul 16, 2015 11:46 am

Re: $3K, Which Vanguard Mutual Fund?

Post by mcraepat9 » Wed Jun 13, 2018 11:09 pm

kmwilson343 wrote:
Wed Jun 13, 2018 10:38 pm
Hey everyone! I need some advice. My 457 and Vanguard Roth IRA TDF seem to be very similar (see below), now that I have $3K in my 2035 TDF, should I just let it ride? not sure what you mean by “let it ride” - it seems like the asset allocation in your Roth roughly matches your 457. If you are comfortable with 80/20, then yes roll with it. Or choose another mutual fund that doesn't closely resemble my 457 allocations?not sure why you’d want to do that - that would DECREASE the diversification you have already via your 3 fund and TDF approach And if so which mutual fund would help make my retirement portfolio more diversified? (Morgan Growth (VMRGX), Vanguard Diversified Equity Fund (VDEQX), Federal Money Market, etc...) none of these - take a look at your asset allocation and see if you are still OK with 80/20 - if you are stick with what you have. If not choose a shorter dated TDF or just buy the 3 funds you have in your 457 tonmatch the stock/bond allocation you want. What are your recommendations? nothing - pick asset allocation and leave it alone.I'm 46 and will retire in 14 years and I don't mind some risk to gain some reward.

ICMA-RC 457:
VTSAX 65%
VTIAX 15%
VBTLX 20%

Vanguard Roth IRA 2035 TDF:
VTSAX 47%
VTIAX 30%
VTBIX 15%
VBTLX 6%

Thanks in advance :D
Kevin
Amateur investors are not cool-headed logicians.

fsh71
Posts: 26
Joined: Mon Jun 04, 2018 3:03 pm

Re: $3K, Which Vanguard Mutual Fund?

Post by fsh71 » Wed Jun 13, 2018 11:10 pm

I'm a newbie here myself, but I believe the standard advice is to settle on an asset allocation (% stocks vs bonds) that you are comfortable with first, and then to balance your entire portfolio, across all accounts, to that allocation.

As for diversification, you can't really get more diversified than what you're holding in your 457. I'd assume the 457 makes up the lion's share of your retirement $, so I'd just put the IRA in the target date fund appropriate for your asset allocation target, or if you want to save a bit on expense ratio, throw it into VTSAX as well. Just make sure your total allocation across all your accounts is in a range you are comfortable with.

I think most here would say 80/20 is a tad on the aggressive side for 14 years out, but it really depends on your risk tolerance. I'm 24 years out and that's my allocation.

kmwilson343
Posts: 37
Joined: Tue Jun 05, 2018 7:46 pm
Location: Vancouver, WA

Re: $3K, Which Vanguard Mutual Fund?

Post by kmwilson343 » Wed Jun 13, 2018 11:57 pm

fsh71 wrote:
Wed Jun 13, 2018 11:10 pm
I'm a newbie here myself, but I believe the standard advice is to settle on an asset allocation (% stocks vs bonds) that you are comfortable with first, and then to balance your entire portfolio, across all accounts, to that allocation.

As for diversification, you can't really get more diversified than what you're holding in your 457. I'd assume the 457 makes up the lion's share of your retirement $, so I'd just put the IRA in the target date fund appropriate for your asset allocation target, or if you want to save a bit on expense ratio, throw it into VTSAX as well. Just make sure your total allocation across all your accounts is in a range you are comfortable with.

I think most here would say 80/20 is a tad on the aggressive side for 14 years out, but it really depends on your risk tolerance. I'm 24 years out and that's my allocation.
I'm a beginner to investing and boy do I feel stupid :oops: , I completely misunderstood what everyone was talking about being diversified and asset allocation. For some reason I thought the assert allocation for my 457 had to be different from other IRAs I had, however after reading your guys post that it finally donned on me that the asset allocation is what a person feels comfortable with (80/20, 60/40, 70/30, etc...) and follow that across your many retirement portfolios. (or am I way off?)

kmwilson343
Posts: 37
Joined: Tue Jun 05, 2018 7:46 pm
Location: Vancouver, WA

Re: $3K, Which Vanguard Mutual Fund?

Post by kmwilson343 » Wed Jun 13, 2018 11:59 pm

mcraepat9 wrote:
Wed Jun 13, 2018 11:09 pm
kmwilson343 wrote:
Wed Jun 13, 2018 10:38 pm
Hey everyone! I need some advice. My 457 and Vanguard Roth IRA TDF seem to be very similar (see below), now that I have $3K in my 2035 TDF, should I just let it ride? not sure what you mean by “let it ride” - it seems like the asset allocation in your Roth roughly matches your 457. If you are comfortable with 80/20, then yes roll with it. Or choose another mutual fund that doesn't closely resemble my 457 allocations?not sure why you’d want to do that - that would DECREASE the diversification you have already via your 3 fund and TDF approach And if so which mutual fund would help make my retirement portfolio more diversified? (Morgan Growth (VMRGX), Vanguard Diversified Equity Fund (VDEQX), Federal Money Market, etc...) none of these - take a look at your asset allocation and see if you are still OK with 80/20 - if you are stick with what you have. If not choose a shorter dated TDF or just buy the 3 funds you have in your 457 tonmatch the stock/bond allocation you want. What are your recommendations? nothing - pick asset allocation and leave it alone.I'm 46 and will retire in 14 years and I don't mind some risk to gain some reward.

ICMA-RC 457:
VTSAX 65%
VTIAX 15%
VBTLX 20%

Vanguard Roth IRA 2035 TDF:
VTSAX 47%
VTIAX 30%
VTBIX 15%
VBTLX 6%

Thanks in advance :D
Kevin
:oops: I finally understand, doh!

isidhu
Posts: 10
Joined: Sun May 20, 2018 3:01 pm

Re: $3K, Which Vanguard Mutual Fund?

Post by isidhu » Thu Jun 14, 2018 12:10 am

I am new here as well, but I will try and walk through what I did.

1. Define my Saving goals and a time line for each. eg. ofgoals may be retirement, saving for buying a property etc.
Each goal may have a different time to execution say for retirement it may be 20 yr but for buying a property it may be 4 yr.

2. Once you have these and the time for each, now find an asset allocation for each goal. This ties into how much risk you want each goal. At this point we are not taking about specific accounts yet.

3. Now you have goals and assets allocation, tie your accounts to the goals. eg. Your IRA, Roth IRA, 401k will go to retirement maybe you also want some of our after tax savings in the retirement goal as well.

If you got till Step 3 you have already done more than most people even think they need to do.

Now you can compare your asset allocation from Step 3(existing allocation) to Step 2(Ideal Allocation). You can also see what all different investments the goals have and plan accordingly.

P.S. This is only the asset allocation part. I would identify funds and rebalance across my accounts. Hope this is clear. Senior Members please comment as well.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: $3K, Which Vanguard Mutual Fund?

Post by ExitStageLeft » Thu Jun 14, 2018 3:40 pm

It wasn't obvious to me until after reading about 100 posts exactly what people mean by allocating across all your accounts. Each account need not replicate the preferred portion of stocks and bonds. In fact, that is counter-productive. The explanation is contained on the tax-efficient fund placement wiki page.

What people generally end up with is their bond funds in their 401k or traditional IRA, higher yielding stock funds in their Roth IRA, and the most tax-efficient stock funds in their taxable account.

In the near term, you might want to allocate across your accounts like this:

ICMA-RC 457:
VTSAX 60%
VTIAX 15%
VBTLX 20%

Vanguard Roth IRA:
VTSMX 5%

Once you get $10k in your Roth IRA switch over to VTSAX.

kmwilson343
Posts: 37
Joined: Tue Jun 05, 2018 7:46 pm
Location: Vancouver, WA

Re: $3K, Which Vanguard Mutual Fund?

Post by kmwilson343 » Thu Jun 14, 2018 9:08 pm

ExitStageLeft wrote:
Thu Jun 14, 2018 3:40 pm
It wasn't obvious to me until after reading about 100 posts exactly what people mean by allocating across all your accounts. Each account need not replicate the preferred portion of stocks and bonds. In fact, that is counter-productive. The explanation is contained on the tax-efficient fund placement wiki page.

What people generally end up with is their bond funds in their 401k or traditional IRA, higher yielding stock funds in their Roth IRA, and the most tax-efficient stock funds in their taxable account.

In the near term, you might want to allocate across your accounts like this:

ICMA-RC 457:
VTSAX 60%
VTIAX 15%
VBTLX 20%

Vanguard Roth IRA:
VTSMX 5%

Once you get $10k in your Roth IRA switch over to VTSAX.
Thank you for the article, very informative. Quick question, since my Roth IRA is a completely separate account from my ICMA-RC (457 work plan) would it be recommended to put 100% in the VTSMX then when it reaches $10K switch it to 100% VTSAX? Or keep it diversified in the 2035 TDF?

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: $3K, Which Vanguard Mutual Fund?

Post by ExitStageLeft » Fri Jun 15, 2018 1:57 pm

kmwilson343 wrote:
Thu Jun 14, 2018 9:08 pm
Thank you for the article, very informative. Quick question, since my Roth IRA is a completely separate account from my ICMA-RC (457 work plan) would it be recommended to put 100% in the VTSMX then when it reaches $10K switch it to 100% VTSAX? Or keep it diversified in the 2035 TDF?
There's nothing wrong in my view with having a target date (TD) fund, provided it's an indexed fund and not an actively managed fund. But you can typically trim a few basis points off the expenses by doing the allocation yourself.

Your 457b plan is a nicely laid out example of a three-fund portfolio. The 2035 TD fund is the Vanguard version of a four-fund portfolio, with the bond allocation diversified into international bonds. I recommend choosing one or the other as your core portfolio model, then allocating across both accounts to meet your desired allocation. Whether it ends up being three-fund or four-fund, I would keep most of the allocation in the 457 account and have the Roth IRA just be the total stock market fund. At current account size that means you are limited to VTSMX but you are correct in that my recommendation was you switch the Roth to VTSMX now. It is the same fund as VTSAX, it just has a higher expense ratio charged against your shares. With a year or two of contributions you'll have a large enough balance to upgrade that to VTSAX.

kmwilson343
Posts: 37
Joined: Tue Jun 05, 2018 7:46 pm
Location: Vancouver, WA

Re: $3K, Which Vanguard Mutual Fund?

Post by kmwilson343 » Fri Jun 15, 2018 4:35 pm

ExitStageLeft wrote:
Fri Jun 15, 2018 1:57 pm
kmwilson343 wrote:
Thu Jun 14, 2018 9:08 pm
Thank you for the article, very informative. Quick question, since my Roth IRA is a completely separate account from my ICMA-RC (457 work plan) would it be recommended to put 100% in the VTSMX then when it reaches $10K switch it to 100% VTSAX? Or keep it diversified in the 2035 TDF?
There's nothing wrong in my view with having a target date (TD) fund, provided it's an indexed fund and not an actively managed fund. But you can typically trim a few basis points off the expenses by doing the allocation yourself.

Your 457b plan is a nicely laid out example of a three-fund portfolio. The 2035 TD fund is the Vanguard version of a four-fund portfolio, with the bond allocation diversified into international bonds. I recommend choosing one or the other as your core portfolio model, then allocating across both accounts to meet your desired allocation. Whether it ends up being three-fund or four-fund, I would keep most of the allocation in the 457 account and have the Roth IRA just be the total stock market fund. At current account size that means you are limited to VTSMX but you are correct in that my recommendation was you switch the Roth to VTSMX now. It is the same fund as VTSAX, it just has a higher expense ratio charged against your shares. With a year or two of contributions you'll have a large enough balance to upgrade that to VTSAX.
Thanks for the advice! The 457 I feel is dialed in and comfortable with the risk, so I wont change that much until I get closer to retirement.
However how does this sound for my Roth:
Switch to VTSMX when $10K switch to VTSAX, then open up VBMFX when $3K can be invested in bonds and allocate and rebalance as needed as I get closer to retirement.

ExitStageLeft
Posts: 723
Joined: Sat Jan 20, 2018 4:02 pm

Re: $3K, Which Vanguard Mutual Fund?

Post by ExitStageLeft » Fri Jun 15, 2018 4:49 pm

That sounds like a fine plan. You can tweak it slightly, without any change to returns or risk, in a way that may result in less taxes paid down the road. That is to keep all of the bond portion of your portfolio in the 457 account. The funds in your Roth IRA will be allowed to grow and you will never pay taxes on the earnings. The funds in your 457 can grow as well, but when you draw the money out in the future you will have to pay taxes on that.

By putting the assets with a lower expected return in the 457b account, you have slightly handicapped that account to result in a lower return. But by having nothing but a stock fund in your Roth account, you have juiced the returns of that account a little bit compared to if you had an equal amount of bonds in both accounts. Your overall stock to bond ratio doesn't change, you just favor the returns in the Roth account by a little bit to allow it to grow faster. The net effect is a small savings in taxes to you, but with no cost. It really is a free lunch.

TropikThunder
Posts: 964
Joined: Sun Apr 03, 2016 5:41 pm

Re: $3K, Which Vanguard Mutual Fund?

Post by TropikThunder » Fri Jun 15, 2018 5:57 pm

kmwilson343 wrote:
Wed Jun 13, 2018 11:57 pm
fsh71 wrote:
Wed Jun 13, 2018 11:10 pm
I'm a newbie here myself, but I believe the standard advice is to settle on an asset allocation (% stocks vs bonds) that you are comfortable with first, and then to balance your entire portfolio, across all accounts, to that allocation.
I'm a beginner to investing and boy do I feel stupid :oops: , I completely misunderstood what everyone was talking about being diversified and asset allocation. For some reason I thought the assert allocation for my 457 had to be different from other IRAs I had, however after reading your guys post that it finally donned on me that the asset allocation is what a person feels comfortable with (80/20, 60/40, 70/30, etc...) and follow that across your many retirement portfolios. (or am I way off?)
Well, there may be some situation where the desired allocation might be different between two account types, but only because they may have separate investment goals and timelines. For example, both your 457 and IRA would normally be considered to be long-term retirement accounts, and if they have the same goal (retirement) and same timeline (~15 years in your case), then it's entirely appropriate to look at them in total and adjust the total asset allocation across the entire portfolio. Now, if you were 30 and had a 457 plus IRA but you also had a 529 for your 8 year old for college, then it would be more appropriate to look at your 529 as a separate bucket then your retirement accounts (457 and IRA) because the 529 has a different purpose (college vs retirement) and a different timeline (~10 years vs ~35 years).

kmwilson343
Posts: 37
Joined: Tue Jun 05, 2018 7:46 pm
Location: Vancouver, WA

Re: $3K, Which Vanguard Mutual Fund?

Post by kmwilson343 » Fri Jun 15, 2018 7:12 pm

ExitStageLeft wrote:
Fri Jun 15, 2018 4:49 pm
That sounds like a fine plan. You can tweak it slightly, without any change to returns or risk, in a way that may result in less taxes paid down the road. That is to keep all of the bond portion of your portfolio in the 457 account. The funds in your Roth IRA will be allowed to grow and you will never pay taxes on the earnings. The funds in your 457 can grow as well, but when you draw the money out in the future you will have to pay taxes on that.

By putting the assets with a lower expected return in the 457b account, you have slightly handicapped that account to result in a lower return. But by having nothing but a stock fund in your Roth account, you have juiced the returns of that account a little bit compared to if you had an equal amount of bonds in both accounts. Your overall stock to bond ratio doesn't change, you just favor the returns in the Roth account by a little bit to allow it to grow faster. The net effect is a small savings in taxes to you, but with no cost. It really is a free lunch.
Right on!!! That helps out allot! I just need to keep educating myself on diversification, allocation, rebalancing etc... Thanks for the support and reassurance.

kmwilson343
Posts: 37
Joined: Tue Jun 05, 2018 7:46 pm
Location: Vancouver, WA

Re: $3K, Which Vanguard Mutual Fund?

Post by kmwilson343 » Fri Jun 15, 2018 7:15 pm

TropikThunder wrote:
Fri Jun 15, 2018 5:57 pm
kmwilson343 wrote:
Wed Jun 13, 2018 11:57 pm
fsh71 wrote:
Wed Jun 13, 2018 11:10 pm
I'm a newbie here myself, but I believe the standard advice is to settle on an asset allocation (% stocks vs bonds) that you are comfortable with first, and then to balance your entire portfolio, across all accounts, to that allocation.
I'm a beginner to investing and boy do I feel stupid :oops: , I completely misunderstood what everyone was talking about being diversified and asset allocation. For some reason I thought the assert allocation for my 457 had to be different from other IRAs I had, however after reading your guys post that it finally donned on me that the asset allocation is what a person feels comfortable with (80/20, 60/40, 70/30, etc...) and follow that across your many retirement portfolios. (or am I way off?)
Well, there may be some situation where the desired allocation might be different between two account types, but only because they may have separate investment goals and timelines. For example, both your 457 and IRA would normally be considered to be long-term retirement accounts, and if they have the same goal (retirement) and same timeline (~15 years in your case), then it's entirely appropriate to look at them in total and adjust the total asset allocation across the entire portfolio. Now, if you were 30 and had a 457 plus IRA but you also had a 529 for your 8 year old for college, then it would be more appropriate to look at your 529 as a separate bucket then your retirement accounts (457 and IRA) because the 529 has a different purpose (college vs retirement) and a different timeline (~10 years vs ~35 years).
I totally agree, and thanks for the clarification. I feel like i'm on the right path now! It's comforting the Bogglehead community is so willing to help others :sharebeer

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