VTSAX for roughly 10 year investment?

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dvb316
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Joined: Thu Sep 24, 2020 7:26 pm

VTSAX for roughly 10 year investment?

Post by dvb316 »

Hey guys,

I'm new to this forum as well as new to Investing. I'm 25 and I have no set time on when I would like to buy a house in the future but probably around 10 years give or take a little. So I decided to throw $23,000 into vanguard mutual funds. $5,000 in VASGX and $18,000 in VTSAX. Is throwing more money each pay check into VTSAX a bad idea? I see the hypothetical growth chart from 2010 to 2020 for VTSAX and it had a lot of growth so I figured letting it sit in VTSAX for about 10 years would be okay.

Any advice would be great. Thank you.
rkhusky
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Re: VTSAX for roughly 10 year investment?

Post by rkhusky »

dvb316 wrote: Thu Sep 24, 2020 8:13 pm Hey guys,

I'm new to this forum as well as new to Investing. I'm 25 and I have no set time on when I would like to buy a house in the future but probably around 10 years give or take a little. So I decided to throw $23,000 into vanguard mutual funds. $5,000 in VASGX and $18,000 in VTSAX. Is throwing more money each pay check into VTSAX a bad idea? I see the hypothetical growth chart from 2010 to 2020 for VTSAX and it had a lot of growth so I figured letting it sit in VTSAX for about 10 years would be okay.

Any advice would be great. Thank you.
Actually, the growth chart from 2010-2020 is not hypothetical, it actually occurred. You might want to look at a growth chart from 2007-2020.

If you need the money in 10 years, you might want to invest in Target Retirement 2020 instead. What happens if, 5-10 years from now, stocks drop by 50% and don't return to even for 5 years? Would that affect your plans?
kjm
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Re: VTSAX for roughly 10 year investment?

Post by kjm »

dvb316 wrote: ↑Thu Sep 24, 2020 9:13 pm
Hey guys,

I'm new to this forum as well as new to Investing. I'm 25 and I have no set time on when I would like to buy a house in the future but probably around 10 years give or take a little. So I decided to throw $23,000 into vanguard mutual funds. $5,000 in VASGX and $18,000 in VTSAX. Is throwing more money each pay check into VTSAX a bad idea? I see the hypothetical growth chart from 2010 to 2020 for VTSAX and it had a lot of growth so I figured letting it sit in VTSAX for about 10 years would be okay.

Any advice would be great. Thank you.
[Actually, the growth chart from 2010-2020 is not hypothetical, it actually occurred. You might want to look at a growth chart from 2007-2020.

If you need the money in 10 years, you might want to invest in Target Retirement 2020 instead. What happens if, 5-10 years from now, stocks drop by 50% and don't return to even for 5 years? Would that affect your plans?
If we're looking at arbitrary 10-year periods of stock performance, check out 2000 - 2010.

I'm not telling you time the market, but consider the headwinds we have in front of us. Economic data has stopped improving since the bottom, and in some cases ,the data is getting worse. Valuations are super high. If you accept mean reversion, prices are going to have to come down or earnings are going to have to go up. Interest rates have effectively bottomed, which means they only have one way to go over the next decade - not good for stocks or bonds. I'm not trying to dissuade you from dumping your money into the market, just make sure you understand the risks and are OK with them. rhusky's idea is a good one.
index245
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Re: VTSAX for roughly 10 year investment?

Post by index245 »

rkhusky wrote: Thu Sep 24, 2020 8:51 pm
dvb316 wrote: Thu Sep 24, 2020 8:13 pm Hey guys,

I'm new to this forum as well as new to Investing. I'm 25 and I have no set time on when I would like to buy a house in the future but probably around 10 years give or take a little. So I decided to throw $23,000 into vanguard mutual funds. $5,000 in VASGX and $18,000 in VTSAX. Is throwing more money each pay check into VTSAX a bad idea? I see the hypothetical growth chart from 2010 to 2020 for VTSAX and it had a lot of growth so I figured letting it sit in VTSAX for about 10 years would be okay.

Any advice would be great. Thank you.
Actually, the growth chart from 2010-2020 is not hypothetical, it actually occurred. You might want to look at a growth chart from 2007-2020.

If you need the money in 10 years, you might want to invest in Target Retirement 2020 instead. What happens if, 5-10 years from now, stocks drop by 50% and don't return to even for 5 years? Would that affect your plans?
+1

When you get closer and home buying is imminent (ie within a couple years), I'd go to cash (ie CDs or HYSA).
dbr
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Re: VTSAX for roughly 10 year investment?

Post by dbr »

Investing in something that has the variable returns of stocks means huge uncertainty in what you will end up with in the end. This is offset by hoping for high overall growth. Also the closer to the end point the less you can tolerate possible sudden bad results, such as losing 20%-30%-40% in a couple of months and not seeing your money again for a year or many years.

A person planning to have money ready for buying a house would probably not be well advised to build those savings in stocks. How well you can tolerate the uncertainty and whether it might be worth it is up to you. I wouldn't follow a plan like that but would just put all the money in CDs. The fact that returns available in CDs right now are very low is bad luck.
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nisiprius
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Re: VTSAX for roughly 10 year investment?

Post by nisiprius »

Here are the actual statistics for ten-year holding periods for the Vanguard Total Stock Market Index Fund. (I'm using investor shares, VTSMX, rather than Admiral in order to get a longer time period). I am not going to tell you how to judge whether the risk is acceptable to you (it wouldn't be for me).

Executive summary: for ten-year holding periods during the history of the Total Stock Market Index Fund, if you had started at a random time, there would have been
--a 7.8% of losing money,
--a 13.7% of not doing worse than a money market fund, and
--a 13.2% chance of failing to keep up with inflation.

This includes all complete calendar years in the history of VTSMX.

VTSMX: Vanguard Total Stock Market Index
1/1993 - 12/2019; 324 months total:
===VTSMX: Vanguard Total Stock Market Index===:
Length of holding period: 120 months
Total number of overlapping 120-month periods: 205
Average CAGR (annualized rate of return) of those 205 120-month periods: 7.87%
Vanguard's risk potential classification
Risk level 4
(moderate to aggressive): Vanguard funds classified as moderate to aggressive are broadly diversified but are subject to wide fluctuations in share prices because they hold virtually all of their assets in common stocks. These funds may be appropriate for investors who have a long-term investment horizon (10 years or longer).

Frequency and severity of disappointment:
Number of periods in which VTSMX made less than VMMXX: 28/205 = 13.7%
Average/median shortfall versus VMMXX over those 28 periods: -$3507.26 (average), -$3567.76 (median)
Number of periods in which VTSMX lost money: 16/205 = 7.8%
Average/median dollar loss over those 16 periods: -$824.59 (average), -$711.26 (median)
Number of periods in which VTSMX failed to keep up with inflation: 27/205 = 13.2%
Average/median real loss (inflation-corrected) over those 27 periods: -$2940.13 (average), -$2884.59 (median)

Worst single 120-month performance:
Compared to VMMXX, 3/1999 - 2/2009: -$6292.52
Dollar loss, 3/1999 - 2/2009: -$2290.78
Real loss (inflation-corrected), 3/1999 - 2/2009: -$5190.05

Link to Morningstar chart for that worst period:
Compared to VMMXX: VTSMX vs VMMXX, 3/1999 - 2/2009

Image
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TimeTheMarket
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Re: VTSAX for roughly 10 year investment?

Post by TimeTheMarket »

I'd invest, just don't count on it being higher than it is today. But, based on historic trends, its odds of being higher are very high (no I don't have a number).
Username is not serious :)
dbr
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Re: VTSAX for roughly 10 year investment?

Post by dbr »

TimeTheMarket wrote: Fri Sep 25, 2020 8:25 am I'd invest, just don't count on it being higher than it is today. But, based on historic trends, its odds of being higher are very high (no I don't have a number).
I agree. The issue, however, should be how painful it would be if the money needed for the house is not there when it is needed combined with the odds of this happening. That is the traditional measure of risk as degree of harm multiplied by likelihood of that harm occurring. An obvious corrective for that is to combine stocks and CDs and shift the allocation as the end time approaches. Probably the result is not enough time spent invested in stocks to help very much. But the investor can do what he wants. The investor can ask, for example, how he would choose to hold the money one, two, three, five years before thinking it would be needed.
random_walker_77
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Re: VTSAX for roughly 10 year investment?

Post by random_walker_77 »

kjm wrote: Thu Sep 24, 2020 9:23 pm
If we're looking at arbitrary 10-year periods of stock performance, check out 2000 - 2010.
Tell me about it. I started seriously investing in 2000, and it was quite disheartening to look in 2010 and see that the 10 yr return on those initial investments was roughly 0, and certainly worse than if I'd put that initial money into bonds. Being very early career, and extra-aggressive, and with a nod to Murphy's Law, of course I was almost entirely in stock at a 95/5 allocation. With dollar cost averaging, since a majority of that was invested every paycheck over the 10 years, I was still ahead, but all the same, it made me (a little) sad.

Yes, there is risk. To get more return, you simply have to take more risk. Even over relatively long time periods, there is still risk. Understand it, and be ok with it. I think it's still worth it

*edit: see "It's not really a lost decade" published in 2010: https://www.forbes.com/sites/advisor/20 ... c88287cf81
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1789
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Re: VTSAX for roughly 10 year investment?

Post by 1789 »

dvb316 wrote: Thu Sep 24, 2020 8:13 pm Hey guys,

I'm new to this forum as well as new to Investing. I'm 25 and I have no set time on when I would like to buy a house in the future but probably around 10 years give or take a little. So I decided to throw $23,000 into vanguard mutual funds. $5,000 in VASGX and $18,000 in VTSAX. Is throwing more money each pay check into VTSAX a bad idea? I see the hypothetical growth chart from 2010 to 2020 for VTSAX and it had a lot of growth so I figured letting it sit in VTSAX for about 10 years would be okay.

Any advice would be great. Thank you.
Yes for any 10 years i would put 100% in VTSAX.
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KlangFool
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Re: VTSAX for roughly 10 year investment?

Post by KlangFool »

OP,

A) There is no reason for you to save money specifically for a house in 10 years. If your annual saving is high enough, you can buy a house with your annual savings. If your annual saving is not high enough, you cannot afford to buy a house. Then, there is no reason to save specifically for a house.

B) Do you max up your tax-advantaged accounts? If not, how much taxes are you paying by keeping this 23K in your taxable account?

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whereskyle
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Re: VTSAX for roughly 10 year investment?

Post by whereskyle »

dvb316 wrote: Thu Sep 24, 2020 8:13 pm Hey guys,

I'm new to this forum as well as new to Investing. I'm 25 and I have no set time on when I would like to buy a house in the future but probably around 10 years give or take a little. So I decided to throw $23,000 into vanguard mutual funds. $5,000 in VASGX and $18,000 in VTSAX. Is throwing more money each pay check into VTSAX a bad idea? I see the hypothetical growth chart from 2010 to 2020 for VTSAX and it had a lot of growth so I figured letting it sit in VTSAX for about 10 years would be okay.

Any advice would be great. Thank you.
I would not invest in stocks for this purpose. Tried doing it, a buying opportunity arose (substantial fall in interest rates), and luckily, I was not behind when I decided to cash out. Happily sitting in my new home.

For me, stocks are for retirement. As in, they are for my 30-year time horizon.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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