Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

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Mark15
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Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Mark15 »

Hi all,

I’ve been following the forums for a while and this is my first question to the community.

Here is my situation:

- 35 years old, German living in Germany
- $40,000 in a Vanguard 401(k) money market fund (I used to work in the U.S. for a few years)

What I’d like to do:

- Invest that $40K now into a single fund and forget about it for the next 30 years until I retire
- Choices: anything available to personal investors on vanguard.com
- Goal: maximum return


What I’d like to happen:

- I want the account balance to blow me out of my rocking chair when I look at this account again in 30 years

I don’t care about high volatility as I won’t be looking at this account again for the next 30 years. I want the highest possible return.

This money is not part of my retirement plan. That is taken care of (more or less) here in Germany. This really is invest & forget.


My strategy:

- I went to vanguard.com and sorted the list of funds/ETFs by their 10-yr annual returns.


What I found so far:

Fund / Symbol / Expense ratio / 10-yr annual returns
---
Vanguard Growth Index Fund Adm / VIGAX / 0.08% / 8.67%
Vanguard Equity Income Fund Inv / VEIPX / 0.26% / 8.11%
Vanguard High Dividend Yld Idx Inv / VHDYX / 0.16% / n.a. 5-yrs: 13.04%
Vanguard Health Care Fund Inv / VGHCX / 0.36% / 11.71%
Consumer Staples ETF / VDC / 0.10% / 11.51%

I’m looking for suggestions, which fund to invest in. I’m OK with high volatility, but the fund must be still around in 30 years (with a great return) so I’m not sure if investing in a sector fund like VGHCX or VDC would be wise. I have not set my mind on one of these 5 and am open to suggestions.


Thanks in advance,
Mark
t3chiman
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by t3chiman »

Mark15 wrote:...
Vanguard Health Care Fund Inv / VGHCX / 0.36% / 11.71%
Consumer Staples ETF / VDC / 0.10% / 11.51%

I’m looking for suggestions, which fund to invest in. I’m OK with high volatility, but the fund must be still around in 30 years (with a great return) so I’m not sure if investing in a sector fund like VGHCX or VDC would be wise. ...
There's always going to be a demand for health care; similarly for consumer staples. Faced with a similar situation recently, those were the two funds I picked, as well. I did a 50-50 split, just for the fun of it (Who knows what the future holds?).

It would be nice to enjoy 11% compounded for 30 years. You would end up with the best part of a million dollars. Even at a more conservative 8%, you still end up with $400k. Enough to indulge in a few luxuries in your golden years. Hopefully, a loaf of bread will not cost $500 in 2046.

HTH
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packet
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by packet »

VT
Vanguard Total World Stock

All equities, global cap weight... don't peek for 30 years.

:beerCheers,
packet
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cfs
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by cfs »

Welcome aboard!

Welcome aboard to our shipmate Mark, always good to see new shipmates checking in. You have provided a very short list of options. I will NOT add to your list, but based on your picks I would go with the Vanguard High Dividend Yield Investor, not based on past performance but based on the number of stocks in that index [when compared to the rest of the funds listed]. Our good shipmates will give you one thousand of options to pick from, I could give you MY very own picks but I will not do so, I am just working with the list that you provided. Again, welcome aboard, and good luck with your decision, good luck with your investments, and stay safe in Europe.

Thanks for reading.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by rixer »

I would choose a lifestrategy fund, probably the growth fund in your case.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by pkcrafter »

rixer wrote:I would choose a lifestrategy fund, probably the growth fund in your case.
Gets my vote. +1

Paul
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Jags4186 »

t3chiman wrote:
Mark15 wrote:...
Vanguard Health Care Fund Inv / VGHCX / 0.36% / 11.71%
Consumer Staples ETF / VDC / 0.10% / 11.51%

I’m looking for suggestions, which fund to invest in. I’m OK with high volatility, but the fund must be still around in 30 years (with a great return) so I’m not sure if investing in a sector fund like VGHCX or VDC would be wise. ...
There's always going to be a demand for health care; similarly for consumer staples. Faced with a similar situation recently, those were the two funds I picked, as well. I did a 50-50 split, just for the fun of it (Who knows what the future holds?).

It would be nice to enjoy 11% compounded for 30 years. You would end up with the best part of a million dollars. Even at a more conservative 8%, you still end up with $400k. Enough to indulge in a few luxuries in your golden years. Hopefully, a loaf of bread will not cost $500 in 2046.

HTH
I would avoid healthcare funds for the long haul. There's a real possibility over the next 30 years the US moves towards socialized medicine and if that happens you'll see profits plunge.

I think either VT total world stock index fund or VTI total US stock index fund. If you're like me and believe that the US will continue to outperform its first world counterparts then VTI is the place to go.

Also, if you really want to roll the dice you could throw it all in emerging markets...
dbr
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by dbr »

Don't place bets on sector funds and for gosh sakes don't pick funds based on last ten year return.

Either total world stock index or US total stock market index would be the choices assuming you want to invest entirely in stocks (do you?).

So, a man is about to die of a fatal disease. He takes a chance on having his body frozen hoping a cure will develop and he will be saved. Miracle of miracles the process works, his life is saved, and fifty years later he returns to the world. Before entering the freezing chambers he invests $10,000 in a great stock pick. Coming out he calls his broker and asks for the balance on his account - $100,000,000. Hanging up the pay phone the operator comes on and says that will be $200,000,000 for the call please.

While I would not do anything with the account I would definitely advise looking at it at least monthly and paying very close attention to any notices, emails, messages, or anything else they send you and also that your contact information is always up to date. These days you do not dare literally "not look" at any financial account.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Daryl »

Mark15 wrote:Here is my situation:

- 35 years old, German living in Germany
- $40,000 in a Vanguard 401(k) money market fund (I used to work in the U.S. for a few years)
Before making any significant investments, I'd want to know how that money will be taxes. 401k plans have special tax status for US based investors. It is unclear how that would apply too a foreign citizen living in his country. You might want to bring that money back home before creating a tax headache!
develop
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by develop »

packet wrote:VT
Vanguard Total World Stock

All equities, global cap weight... don't peek for 30 years.

:beerCheers,
packet
+1

Whatever sector or slice does well over the next thirty years, you will own it.

If you make a sector or an undiversified bet, you might get knocked out of your rocking chair by outperformance, or by all the money you lost. This cannot be known in advance. A small tilt to emerging markets might make it more interesting, but not more than 10%.

I am far from expert, but that's what I'd probably do in your situation. Best of luck to you.
develop
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by develop »

Daryl wrote:
Mark15 wrote:Here is my situation:

- 35 years old, German living in Germany
- $40,000 in a Vanguard 401(k) money market fund (I used to work in the U.S. for a few years)
Before making any significant investments, I'd want to know how that money will be taxes. 401k plans have special tax status for US based investors. It is unclear how that would apply too a foreign citizen living in his country. You might want to bring that money back home before creating a tax headache!
Also a fair point.
retiredjg
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by retiredjg »

Assuming it is best leaving the money in a 401k (or rolling to an IRA), I'd use LifeStrategy Growth fund which is 80% stocks and 20% bonds. I would definitely not use a sector fund of any kind. I'd go as broad as possible to take advantage of all the different markets over the long haul.

I do wonder about the tax implications of a German national holding a 401k over those years. There is also the question of - do you really mean a 401k? Usually you don't have a choice of just "any" Vanguard fund in a 401k. Is it possible you are talking about an IRA? And lastly, Vanguard requires a US address for it's customers unless that has changed.
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Mark15
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Mark15 »

Thank you for the warm and friendly welcome and your replies.

I’ll try a collective response:

@t3chiman & @Jags4186: what I like about the health care fund (VGHCX) is that it goes back to 1984 and has a return of 16.84% since its inception. While I’d personally welcome a more socialized medicine, I don’t think it is very likely to happen, but maybe we shouldn’t get into that here ;) So I see your point and will give it some more thought.

@packet: Vanguard Total World Stock: it’s performance in the past has been behind that of the other choices. It’s a broad approach, but I would not mind taking on a bit more risk for a higher reward.


@dbr: I don’t mind investing entirely in stocks. About using the 10-yr return to compare: yes that’s not ideal. For my final choice, I’ll take a close look at the longest possible historical returns of the base index that I can find. “Not looking at the account” was not meant quite literally ;) I’ll make sure to keep everything in order.

@Daryl: tax status: No taxes during the accumulation phase. The account counts as retirement account here in Germany. Once I withdraw the money, the money will be taxed based on the tax treaty between the US and Germany. I thought about bringing the money to Germany, but this would cost me a 10% penalty plus the taxes would be due right away. That’s why I’d like to keep it were it is.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by dbr »

Mark15 wrote:
@dbr: I don’t mind investing entirely in stocks. About using the 10-yr return to compare: yes that’s not ideal. For my final choice, I’ll take a close look at the longest possible historical returns of the base index that I can find. “Not looking at the account” was not meant quite literally ;) I’ll make sure to keep everything in order.
If you are really serious at taking a chance on highest expected (but not promised) return in stocks, we probably would abandon the obvious advice to invest in a total market approach and concentrate in a higher risk segment of the stock universe such as small cap value stocks or emerging market stocks. I would not do that if it were me.

If you want one man's view of the thirty year prospect it is here: https://portfoliosolutions.com/latest-l ... ecast-2015

Scroll way down for some tables. You will not succeed at extracting any better estimate on your own though you can Google for different estimates that might be published by people. Ferri also includes an estimate of risk stated as annual standard deviation.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by RyeWhiskey »

Vanguard Total World Stock Index. The future is uncertain; own as many securities in as simple a fashion as possible. :beer
This post was brought to you by Vanguard Total World Stock Index (VTWSX/VT).
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by retiredjg »

I question the wisdom of going 100% stocks. There are years and even decades when bonds outperform stocks. If you have no bonds, during those periods, none of your asset classes will be making any progress.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by dbr »

retiredjg wrote:I question the wisdom of going 100% stocks. There are years and even decades when bonds outperform stocks. If you have no bonds, during those periods, none of your asset classes will be making any progress.
Maybe this discussion needs some foundation in the concepts of expected return and risk and the wide variation in possible outcome that would exist.

I might suggest starting with Norstad's illustration here: http://www.norstad.org/finance/risk-and ... ml#fallacy

A most helpful chart is presented after scrolling . . . scrolling . . . scrolling way down. After that there are some nuances to discuss.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by patrick013 »

The old standby would be the 500 index. The Total US Stock Market
TSM Index or the Large Cap Index are other similar choices in that
category.
age in bonds, buy-and-hold, 10 year business cycle
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Jack FFR1846 »

Health care and pharma companies seem to have their share of CEOs doing stupid things that land them in court, tank their stock and spend all of their time defending lawsuits.

I'd go with total US stock or S&P 500 and be done with it.
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retiredjg
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by retiredjg »

dbr wrote:Maybe this discussion needs some foundation in the concepts of expected return and risk and the wide variation in possible outcome that would exist.
:shock: Huh? Are you saying that my opinion is brilliant or bunk? I suspect it is one of those, but can't tell which.

Either way, since we don't know whether this 30 years will include good times for bonds or not and since 30 years may or may not be enough time for "expected" to happen, I'm sticking with it. :D
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by dbr »

retiredjg wrote:
dbr wrote:Maybe this discussion needs some foundation in the concepts of expected return and risk and the wide variation in possible outcome that would exist.
:shock: Huh? Are you saying that my opinion is brilliant or bunk? I suspect it is one of those, but can't tell which.

Either way, since we don't know whether this 30 years will include good times for bonds or not and since 30 years may or may not be enough time for "expected" to happen, I'm sticking with it. :D
I am saying that it is brilliant because you are pointing out that a discussion of risk is missing from this conversation. We don't really know how the OP would feel if he expects the moon and ends up in a swamp.

The whole discussion of 100% stock portfolios goes on in this Forum without any one being sure in any given conversation if uncertainty of outcome that is involved is understood and acceptable. It seems everyone has the gleam of the gold ring in the eye.

I even reacted without being sure what the OP wants beyond reading "I don’t care about high volatility as I won’t be looking at this account again for the next 30 years. I want the highest possible return." When I read about the volatility I assumed the OP understands that high annual volatility compounds to a huge range in final results, hence the reference to Norstad's "Fallacy of Time Diversification," otherwise known as you can't expect to get the expected return, which is what you point out. Volatility is not just about this year not being like last year. There are some more issues about this to be discussed perhaps another time.

I guess we need more info from the OP.

I should add that on this forum or anywhere any discussion of return has to have a foundation laid in what the nature of investment returns actually is meaning the wild randomness and variability of it.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by niven »

dbr wrote:So, a man is about to die of a fatal disease. He takes a chance on having his body frozen hoping a cure will develop and he will be saved. Miracle of miracles the process works, his life is saved, and fifty years later he returns to the world. Before entering the freezing chambers he invests $10,000 in a great stock pick. Coming out he calls his broker and asks for the balance on his account - $100,000,000. Hanging up the pay phone the operator comes on and says that will be $200,000,000 for the call please.
Interesting - so in fifty years we go back to pay phones everywhere? :D
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by finite_difference »

VTSAX (Vanguard Total Stock Market) which is US. Nice diversification for you since you are living in Germany. It is a very tax efficient fund if you live inside the US, not sure about whether there are some international tax issues if you are holding it from Germany. I'd think it would be just as good if not better than total world in terms of tax though.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by dbr »

niven wrote:
dbr wrote:So, a man is about to die of a fatal disease. He takes a chance on having his body frozen hoping a cure will develop and he will be saved. Miracle of miracles the process works, his life is saved, and fifty years later he returns to the world. Before entering the freezing chambers he invests $10,000 in a great stock pick. Coming out he calls his broker and asks for the balance on his account - $100,000,000. Hanging up the pay phone the operator comes on and says that will be $200,000,000 for the call please.
Interesting - so in fifty years we go back to pay phones everywhere? :D
Yes, the only problem this guy had is they had not yet implanted his Worldverse Universal Credit implant chip so he needed to come up with cash. Otherwise the payment would have been taken immediately upon voice recognition.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by livesoft »

My issue with 100% stocks is that year 29 of the 30 year holding period could turn out to be like the last few months of 2008.

So a target retirement fund with a glide path might be my suggestion even over a life strategy fund. But a better suggestion would be to look every few years and possibly make adjustments along the way.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by retiredjg »

dbr wrote:I am saying that it is brilliant because you are pointing out that a discussion of risk is missing from this conversation. We don't really know how the OP would feel if he expects the moon and ends up in a swamp.
Oh, I'm so excited! I value your opinion and I'm glad you didn't think it was bunk. :D
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by dbr »

retiredjg wrote:
dbr wrote:I am saying that it is brilliant because you are pointing out that a discussion of risk is missing from this conversation. We don't really know how the OP would feel if he expects the moon and ends up in a swamp.
Oh, I'm so excited! I value your opinion and I'm glad you didn't think it was bunk. :D
Wow.
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Daryl »

Mark15 wrote:@Daryl: tax status: No taxes during the accumulation phase. The account counts as retirement account here in Germany. Once I withdraw the money, the money will be taxed based on the tax treaty between the US and Germany. I thought about bringing the money to Germany, but this would cost me a 10% penalty plus the taxes would be due right away. That’s why I’d like to keep it were it is.
Who is charging the 10% penalty? Is this the United States Internal Revenue Services? The 10% penalty sounds like what we would pay for an early distribution from a 401k plan. I'm not familiar with international tax law / treaties, but you may be able to roll-over to a Traditional IRA, and then possibly to the equivalent tax deferred retirement account in Germany. Ideally you'd be able to simplify your financial life by keeping all of your money in the same country (unless you really want to hold USD denominated assets!)
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by anil686 »

livesoft wrote:My issue with 100% stocks is that year 29 of the 30 year holding period could turn out to be like the last few months of 2008.

So a target retirement fund with a glide path might be my suggestion even over a life strategy fund. But a better suggestion would be to look every few years and possibly make adjustments along the way.
+2 - it is so well diversified and lowers your risk of ending up with a pumpkin just before the 30 year mark IMO ....
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Mark15
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Mark15 »

Daryl wrote:
Mark15 wrote:@Daryl: tax status: No taxes during the accumulation phase. The account counts as retirement account here in Germany. Once I withdraw the money, the money will be taxed based on the tax treaty between the US and Germany. I thought about bringing the money to Germany, but this would cost me a 10% penalty plus the taxes would be due right away. That’s why I’d like to keep it were it is.
Who is charging the 10% penalty? Is this the United States Internal Revenue Services? The 10% penalty sounds like what we would pay for an early distribution from a 401k plan. I'm not familiar with international tax law / treaties, but you may be able to roll-over to a Traditional IRA, and then possibly to the equivalent tax deferred retirement account in Germany. Ideally you'd be able to simplify your financial life by keeping all of your money in the same country (unless you really want to hold USD denominated assets!)
Yes, I was referring to the 10% early distribution penalty for the 401k plan. Unfortunately there is no equivalent to a tax deferred retirement account like a 401k/IRA here in Germany. However, the German IRS seems to acknowledge the 401k as tax deferred (based on the statement of a professional tax consultant, I still need to get final confirmation from the German IRS).

I don't mind holding USD denominated assets. The money currently is in USD anyway. If I want to invest internationally, most funds are traded in USD anyway (unless I go for a EUR hedged version).
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by fblade007 »

I would Advise to buy Google/Facebook/Tesla/Amazon and not look at it for 30 year...

1) owns the Internet and I don't see The Internet go away in 30 years
2) owns our personal and social life - I don't see that going away in 30 years also
3) wants to go to the moon and come back loaded with cash -- I don't see the moon leaving in another 30 years.
4) owns retails - I still see us spend for another 30 years and by that time they will own Xmas and NY also if not the North Pole.

if you seek highest returns but also don't mind losing 40K ...aim high.
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Mark15
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Mark15 »

dbr wrote:Don't place bets on sector funds and for gosh sakes don't pick funds based on last ten year return.
Finally found the time to run some numbers. What I like about the health card fund is that it goes back all the way to 1984 and has a "proven" track record.

Below are 3 heat maps comparing Vanguard Health Care Fund Investor Shares, Vanguard Consumer Staples Index Fund ETF, and Vanguard Total World Stock Index Fund ETF.

If held until today, VGHCX did pretty well even during the dot com crash and the financial crisis in 2008.

Image

Image

Image
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Mark15
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Mark15 »

fblade007 wrote:I would Advise to buy Google/Facebook/Tesla/Amazon and not look at it for 30 year...

1) owns the Internet and I don't see The Internet go away in 30 years
2) owns our personal and social life - I don't see that going away in 30 years also
3) wants to go to the moon and come back loaded with cash -- I don't see the moon leaving in another 30 years.
4) owns retails - I still see us spend for another 30 years and by that time they will own Xmas and NY also if not the North Pole.

if you seek highest returns but also don't mind losing 40K ...aim high.
I do mind losing 40K. That's why I'm looking for a mutual fund or ETF. Investing in a single company or a handful is too risky for my taste. I don't want to gamble, but rather invest the money ;)

The risk that I'm willing to take is that the account balance will take great swings. My advantage is that I have time, 30 years, to wait should the market turn down. If the market is down after 30 years, I wait some more (or withdraw a bit earlier, which I can do, because, hey, I made up these rules for my future self).
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by MossySF »

Picking a fund that includes a bit of bonds won't decrease performance that much compared to 100% stock. For this reason, I'd recommend:

Lifestyle Growth
https://personal.vanguard.com/us/funds/ ... =INT#tab=2

50% Total Stock Market
30% Total International Stock Market
14% Total Bond Market
6% Total International Bond Market

You have your fingers in all pies and the fund will rebalance for you when some segments shoot up wildly (or when some segments go bust).
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Jags4186 »

anil686 wrote:
livesoft wrote:My issue with 100% stocks is that year 29 of the 30 year holding period could turn out to be like the last few months of 2008.

So a target retirement fund with a glide path might be my suggestion even over a life strategy fund. But a better suggestion would be to look every few years and possibly make adjustments along the way.
+2 - it is so well diversified and lowers your risk of ending up with a pumpkin just before the 30 year mark IMO ....
-1 - The S&P 500 30 year period ending 2009 (i.e. 2008 is year 29) recorded a nominal 11.29% CAGR and a real return of 7.52%.

30 year period ending 2008 returned slightly less--11.02% nominal 6.92% real.

Worst case scenarios are generally overstated in their badness. We tend to look at things in short term lenses.

"The $50,000 I invested January 1 2008 is only worth $30000 on 12/31/08 after a 40% drop!"

We forget that the $5,000 we invested in 1980 would have grown to $123,800--nearly 25x.
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David Jay
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by David Jay »

pkcrafter wrote:
rixer wrote:I would choose a lifestrategy fund, probably the growth fund in your case.
Gets my vote. +1

Paul
+2
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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reriodan
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by reriodan »

Total world is the best choice. Second best is a target retirement fund, but that's only for emotional people. No reason you should not pick one of those two.
lemonPepper
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by lemonPepper »

OP, another thing you should consider is converting this 401k to a roth ira over time.

The Vanguard LifeStrategy Growth Fund (VASGX) is a good choice as you could literally not peek for 30 years and still be ok and hopefully find yourself with multiple times the purchasing power of your original investment
Engineer250
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Engineer250 »

fblade007 wrote: 3) wants to go to the moon and come back loaded with cash -- I don't see the moon leaving in another 30 years.
I'm shorting the moon. I have a good feeling someone's going to blow it up in the next 30 years.
Mark15 wrote: I do mind losing 40K. That's why I'm looking for a mutual fund or ETF. Investing in a single company or a handful is too risky for my taste. I don't want to gamble, but rather invest the money ;)

The risk that I'm willing to take is that the account balance will take great swings. My advantage is that I have time, 30 years, to wait should the market turn down. If the market is down after 30 years, I wait some more (or withdraw a bit earlier, which I can do, because, hey, I made up these rules for my future self).
If you don't want to lose 40k, don't put more than 5% of your total investments in any sector, including healthcare. That's 2k that you're allowed to invest. (I suppose I'll allow $3k to get the account minimum if this isn't an ETF you're talking about). That 5% is your gambling money. I agree with Vanguard Total World (VT) for the rest of it. It's wise for you not to be too heavy in the US since you are European so something that automatically market weights everything would be perfect. Then pick up a bond fund (might as well go BND Total Bond Fund, yes it's US only, but diverse and good enough).

$8k BND (20% bonds)
$30k VT (75% total world equity)
$2k gambling (5%)

I'd say healthcare stocks having a good return for several decades is exactly the reason someone might expect them to lag the rest of the market over the next couple decades. While the cost of healthcare has continued to grow each year, the percentage it is growing has been getting lower each year (http://www.mwinvest.com/wp-content/uplo ... a7c633.png). And while healthcare is growing and costs are increasing, keep in mind going to a more socialized system or a less socialized system does not necessarily mean more profits for the healthcare companies themselves. How their stock will do isn't a 1 to 1 to how the sector will do.
Where the tides of fortune take us, no man can know.
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BeBH65
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by BeBH65 »

HI Mark,
Mark15 wrote: @Daryl: tax status: No taxes during the accumulation phase. The account counts as retirement account here in Germany. Once I withdraw the money, the money will be taxed based on the tax treaty between the US and Germany. I thought about bringing the money to Germany, but this would cost me a 10% penalty plus the taxes would be due right away. That’s why I’d like to keep it were it is.
Have you looked into the tax treaty? Will you have to pay taxes on the accumulated dividends? On the capital gain?
Have you looked at the estate/inheritance taxes?

In many cases investing in the US for a non-resident-alien is not straightforward. Have a look at this wiki page on Nonresident_alien_taxation. Not sure what the effect is of putting the investments in 401k, nor what the tax-treaty between Germany and the US says.

Regards,
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
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BeBH65
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by BeBH65 »

Mark15 wrote: Finally found the time to run some numbers. What I like about the health card fund is that it goes back all the way to 1984 and has a "proven" track record.

Below are 3 heat maps comparing Vanguard Health Care Fund Investor Shares, Vanguard Consumer Staples Index Fund ETF, and Vanguard Total World Stock Index Fund ETF.

If held until today, VGHCX did pretty well even during the dot com crash and the financial crisis in 2008.
Please have a look at this Periodic-Table-of-Sector-Returns. You could say that health care and consumer discretionary have been in the top the last 3 years, but will they going forward? If you invest in the total stock market you are guaranteed to invest in the top-sectors.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
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David Jay
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by David Jay »

fblade007 wrote:I would Advise to buy Google/Facebook/Tesla/Amazon and not look at it for 30 year...

1) owns the Internet and I don't see The Internet go away in 30 years
2) owns our personal and social life - I don't see that going away in 30 years also
3) wants to go to the moon and come back loaded with cash -- I don't see the moon leaving in another 30 years.
4) owns retails - I still see us spend for another 30 years and by that time they will own Xmas and NY also if not the North Pole.

if you seek highest returns but also don't mind losing 40K ...aim high.
You are showing your (lack of) age. Look at all of the "Nifty Fifty" that are no longer around. Thirty years is a long time.

Own the haystack!
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
fblade007
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by fblade007 »

David Jay wrote:
You are showing your (lack of) age. Look at all of the "Nifty Fifty" that are no longer around. Thirty years is a long time.

Own the haystack!
Whoa what's up with the personal attack? It was intended to be kind of a joke in the sense that if he was looking for highest returns all or nothing he should have gone for individual stocks and cross his fingers and toes. Hence my in dept analysis of why I had picked those stocks ;)
WhiteMaxima
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by WhiteMaxima »

I believe the health care section will out perform the general market. The reason: growing demand, innovation. Human consume more medicine and demand more health care at older age, tech innovation all drug company develop more efficient medicine, growing income in developing country create more consumer base for health care. In one sentence: Better health better life.
retiredjg
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by retiredjg »

WhiteMaxima wrote:I believe the health care section will out perform the general market. The reason: growing demand, innovation. Human consume more medicine and demand more health care at older age, tech innovation all drug company develop more efficient medicine, growing income in developing country create more consumer base for health care. In one sentence: Better health better life.
The problem with this is that everybody else thinks the exact same thing. So all of this thinking is already reflected in the price of those stocks. This makes it less likely that people who overweight health care will actually receive a benefit. That does not mean it is impossible but don't be too surprised if you just do kind of average.
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Mark15
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Mark15 »

Note to self: Vanguard Small-Cap Value Index Fund Admiral (VSIAX)

https://personal.vanguard.com/us/funds/ ... IntExt=INT
Dandy
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Re: Finding a Vanguard fund to invest $40,000 for 30 years (401k account)

Post by Dandy »

If I were limited to the funds you cited I would go for growth index. Low cost and no active manager risk - even though Vanguard active funds are or seem to have less active manager risk. While 10 year returns are a good measure I would look at cost, diversity and not having any manager risk.
If I would go to funds not listed I would suggest Balanced Index - again low cost and not active - and very well diversified in US equities and bonds. I assume you will get your international investments elsewhere.
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