Double down on total market or diversify?

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whereskyle
Posts: 41
Joined: Wed Jan 29, 2020 10:29 am

Double down on total market or diversify?

Post by whereskyle » Fri Feb 14, 2020 9:41 am

Hello all,

I am interested in what advice you would give a 30 year old with virtually zero net worth in the following situation. My new employer offers a pre-tax retirement account with modest contribution matching. The best fund offered in my opinion is a Russell 3000 index fund with a .02 expense ratio. All in all, and due to caps on how much I can contribute to the account, about $5,000 pre-tax dollars will be going into that account every year.

I will also be contributing to a tIRA for student-loan relief tax reasons, and I intend to max out that account every year. Once my loans are paid off, I will either convert or start from scratch in a Roth.

My question for you is what investments you would choose for the tIRA (which right now I hold at Vanguard). I had been planning to go 100% VTSAX, but given the fact that I will have a great deal on the Russell 3000 at work, I wonder if I should diversify instead of simply doubling down on total market. I'm not opposed to doubling down, but I would like some input. One ETF that I'm particularly fond of right now is VIG at a .06 ER. The fund was relatively resilient during the Great Recession and even now it seems to hold steady or even go up when VTI goes down. I wonder if anyone would consider this fund a suitable diversifier due to its focus on dividend appreciation companies, many of which have been consistent performers for a very long time, unlike the FAANG companies that dominate the market presently. I am not bullish on International (except for Australia!), so I am not very confident that I want to go ex-us or even total world, which would give me an 80/20 Dom/Int'l AA across my entire portfolio. In all honesty, I would seriously consider buying an Australia index fund (I don't think this is offered at Vanguard though), but I am not leaning towards total international. I also would consider REITs, but I do not know how correlated real estate is with the total market.

All ideas are welcome and appreciated.

Thanks, all!

dbr
Posts: 31512
Joined: Sun Mar 04, 2007 9:50 am

Re: Double down on total market or diversify?

Post by dbr » Fri Feb 14, 2020 9:47 am

An excellent model for any investor is the three fund portfolio https://www.bogleheads.org/wiki/Three-fund_portfolio which can be chosen with an appropriate ratio of US and international stocks and a diversified bond fund. You don't need to mess around with funds like VIG except maybe when you don't need to ask, not that there is anything wrong with VIG if that is what you want.

You should assess your level of bonds vs stocks by considering your need, ability, and willingness to take risk as discussed in Larry Swedroe's books. That does not mean that 100% stocks is not the answer for you at this time, though some addition of bonds would seem likely.

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Sandtrap
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Re: Double down on total market or diversify?

Post by Sandtrap » Fri Feb 14, 2020 9:50 am

Here's some interesting info on one allocation and why?
Outstanding write up on the 64/40 allocation by Bernstein.
http://web.archive.org/web/20061214061 ... in6040.pdf
R. Ferri on Bernstein's 60/40
http://www.etf.com/sections/index-inve ... nopaging=1

And, from the WIKI.
Asset Allocation (what is right for you?)
https://www.bogleheads.org/wiki/Asset_allocation

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Double down on total market or diversify?

Post by lakpr » Fri Feb 14, 2020 9:53 am

Rusell-3000 index is a very close cousin of the total stock market index. As the name indicates, it invests in the top 3000 stocks from the US market; the total stock market index tracks (I hesitate to say invests, it may not invest in every stock...) the return of the 3400+ stocks in the US market.

The difference is that the Russell-3000 index fund would omit only the smallest (by market cap) stocks in the domestic market. Such stocks make up less than 5% of the total market, so it really is not a difference in either the risk level or the returns between a fund following the Russell-3000 or total stock market index.

Given that you said you are starting from zero, I will urge you to go VTI in your IRA, and this Russell-3000 fund index in your employer retirement plan. Yes, double-down ... your total investment is only $5k in employer plan + $6k in IRA, for a total of $11k per year. Until you reach a combined portfolio balance of $50k, I would not really bother adding bonds in your portfolio.

I also share your non-enthusiasm for international stocks, so if you want to skip it, that's a perfectly fine choice to make as well.

Topic Author
whereskyle
Posts: 41
Joined: Wed Jan 29, 2020 10:29 am

Re: Double down on total market or diversify?

Post by whereskyle » Fri Feb 14, 2020 9:58 am

lakpr wrote:
Fri Feb 14, 2020 9:53 am
Rusell-3000 index is a very close cousin of the total stock market index. As the name indicates, it invests in the top 3000 stocks from the US market; the total stock market index tracks (I hesitate to say invests, it may not invest in every stock...) the return of the 3400+ stocks in the US market.

The difference is that the Russell-3000 index fund would omit only the smallest (by market cap) stocks in the domestic market. Such stocks make up less than 5% of the total market, so it really is not a difference in either the risk level or the returns between a fund following the Russell-3000 or total stock market index.

Given that you said you are starting from zero, I will urge you to go VTI in your IRA, and this Russell-3000 fund index in your employer retirement plan. Yes, double-down ... your total investment is only $5k in employer plan + $6k in IRA, for a total of $11k per year. Until you reach a combined portfolio balance of $50k, I would not really bother adding bonds in your portfolio.

I also share your non-enthusiasm for international stocks, so if you want to skip it, that's a perfectly fine choice to make as well.
Interesting that you mention VTI over VTSAX. I note the .01 difference in Expense Ratio, but, out of respect for Bogle, I thought I would choose the fund rather than the ETFs and keep ETFs in my taxable account. Any reason why you would choose VTI over VTSAX?

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Re: Double down on total market or diversify?

Post by dbr » Fri Feb 14, 2020 10:00 am

whereskyle wrote:
Fri Feb 14, 2020 9:58 am
lakpr wrote:
Fri Feb 14, 2020 9:53 am
Rusell-3000 index is a very close cousin of the total stock market index. As the name indicates, it invests in the top 3000 stocks from the US market; the total stock market index tracks (I hesitate to say invests, it may not invest in every stock...) the return of the 3400+ stocks in the US market.

The difference is that the Russell-3000 index fund would omit only the smallest (by market cap) stocks in the domestic market. Such stocks make up less than 5% of the total market, so it really is not a difference in either the risk level or the returns between a fund following the Russell-3000 or total stock market index.

Given that you said you are starting from zero, I will urge you to go VTI in your IRA, and this Russell-3000 fund index in your employer retirement plan. Yes, double-down ... your total investment is only $5k in employer plan + $6k in IRA, for a total of $11k per year. Until you reach a combined portfolio balance of $50k, I would not really bother adding bonds in your portfolio.

I also share your non-enthusiasm for international stocks, so if you want to skip it, that's a perfectly fine choice to make as well.
Interesting that you mention VTI over VTSAX. I note the .01 difference in Expense Ratio, but, out of respect for Bogle, I thought I would choose the fund rather than the ETFs and keep ETFs in my taxable account. Any reason why you would choose VTI over VTSAX?
I don't broker at Vanguard and find holding ETFs somewhere else to be useful. I doubt Bogle's objections to ETFs apply to VTI, but if you hold funds at Vanguard the mutual fund share class is certainly fine.

lakpr
Posts: 3902
Joined: Fri Mar 18, 2011 9:59 am

Re: Double down on total market or diversify?

Post by lakpr » Fri Feb 14, 2020 10:01 am

whereskyle wrote:
Fri Feb 14, 2020 9:58 am
Interesting that you mention VTI over VTSAX. I note the .01 difference in Expense Ratio, but, out of respect for Bogle, I thought I would choose the fund rather than the ETFs and keep ETFs in my taxable account. Any reason why you would choose VTI over VTSAX?
It just came to my mind, but no I don't have a preference for ETFs over mutual funds. Either would be a perfectly fine choice. In fact, I invest and prefer in mutual funds rather than ETFs myself. When I sell, I don't want to be second-guessing myself whether I sold higher or lower than the end-of-day NAV, due to bid-ask spreads. I'd like to have that decision taken away from me

chevca
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Re: Double down on total market or diversify?

Post by chevca » Fri Feb 14, 2020 10:03 am

I would double down, as you say. Just starting out, your contributions are the most important part rather than worrying about funds and sectors. Just go total stock for now, keep on saving, and evaluate later.

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