VTSAX or individual index Mutual Funds for long term

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zoeylab
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VTSAX or individual index Mutual Funds for long term

Post by zoeylab » Tue Mar 12, 2019 7:59 pm

This will show either my brilliance or ignorance in investing. Most likely the latter but I'll learn either way. Hopefully I can explain what I am thinking. I was looking at purchasing Admiral Shares of VTSAX, Vanguard Total Stock Market Index Fund for my ROTH IRA roll over. I am looking heavily at the 3 fund approach because what I am reading makes sense to me. However, I thought to myself, "what if I buy VFIAX, Vanguard 500 Index Admiral Shares, VIAMX, Vanguard Midcap Index Admiral Shares, and VSMAX, Vanguard Smallcap Index Admiral Shares. The reason for this would be when it comes time to take money out in retirement, I could choose to take from the account that is performing better at the time and leaving the others time to rebound or grow. Example, if small caps are doing 2% better than the other two in a particular time I am taking money out, I would take from the VSMAX. The next time maybe VTSAX is doing better so I take from there.

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happenstance
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Re: VTSAX or individual index Mutual Funds for long term

Post by happenstance » Tue Mar 12, 2019 8:10 pm

You could do that, but those three funds are pretty highly-correlated with each other because they're all part of the U.S. stock market. In a three-fund portfolio, you also have international stocks as well as bonds, both of which are less-correlated with the U.S. stock market (i.e. more likely to be moving in a different direction than VTSAX). So in the three-fund situation, you can still sell the higher-performing asset.

There are reasons to hold the component parts of VTSAX (e.g. sometimes that's all a 401k plan offers, or if you're explicitly tilting your portfolio), but I don't think the added complexity makes sense just for the reason you stated.

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Wiggums
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Re: VTSAX or individual index Mutual Funds for long term

Post by Wiggums » Tue Mar 12, 2019 8:22 pm

I would go with VTSAX instead of the three funds you mentioned. Reasons: Simplicity and I’m not sure that maintaining the tilt is worth it. You could do better or worse. When you sell, you might get the proportions out of wack and start chasing returns.

Amphian
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Re: VTSAX or individual index Mutual Funds for long term

Post by Amphian » Tue Mar 12, 2019 8:30 pm

For my Roth IRA, I considered exactly this - VTSAX vs the three funds you mention. I ended up choosing to just keep it simple with VTSAX, which I am happy with so far at least. :)

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grabiner
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Re: VTSAX or individual index Mutual Funds for long term

Post by grabiner » Tue Mar 12, 2019 9:21 pm

If you hold separate large-cap, mid-cap, and small-cap funds to match the market portfolio, and rebalance as needed, you will get the same returns as on Total Stock Market, so there is no benefit.

If small-caps outperform large-caps and you hold separate funds, you will sell some of your small-cap index to get back to the original percentage of small-caps. If you hold the small-caps in a total-market index instead, you don't need to do anything to rebalance; the high-performing small-caps will have become mid-caps, and small-caps will still be the same percentage of the market because that is how they are defined. (For example, Vanguard's small-cap index always holds the bottom 15% of the market.)
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averagedude
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Re: VTSAX or individual index Mutual Funds for long term

Post by averagedude » Tue Mar 12, 2019 9:36 pm

To me, it actually seems like a good way to get a possible additional 0.05% rate of return. On a 100k stock portfolio, you just MIGHT be able to make an additional $50 a year. I wouldn't do it unless you just love this type of thing.

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zoeylab
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Re: VTSAX or individual index Mutual Funds for long term

Post by zoeylab » Wed Mar 13, 2019 6:09 pm

In response to happenstance's post, my intent was to also include in my AA VTIAX for international funds. When I retire in 6 years, I will have some money that I can keep money in an account that will guarantee me 3% so that may be where my bond/more secure assets stay. The consensus certainly seems to be to keep it simple and just reallocate every so often so that is what I will do. Thanks everyone.

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