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I'm thinking about opening a Roth IRA at Vanguard with $5000. I'm debating between mutual funds or ETFs. I'm leaning towards ETFs right now because they're commission-free (as long as I just trade Vanguard ETFs) and mutual funds all have minimum investments so I'd be stuck putting all my cash into one fund, and I'd prefer to do my own allocation between US, EAFE, Emerging, etc. The main thing I'm worried about is that there's some other fees or something that I'm not thinking of. What are the disadvantages of owning ETFs rather than mutual funds in my Roth IRA? If I later decide I want to switch to owning mutual funds, will it be difficult?
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May 19, 2010 02:14
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So I keep reading articles like this: http://news.morningstar.com/articlenet/article.aspx?id=344484 which suggest that BND (which I use for my bond allocation) isn't really the best way to get bond exposure, mainly (I think) because market weights leads to overweighting those entities which have the most debt. Is there any way of using Vanguard bond ETFs to improve my bond allocations? I wouldn't really know any other way of weighting besides market weights. (I mention Vanguard ETFs because that's where I have my brokerage account so I can buy them commission-free). This question is basically just academic for me, as I'm just starting out with a very small Roth IRA account, but I'm still interested to know what people think about the best way to get diversified bond exposure.
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Jul 24, 2010 19:57
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DuckConference posted:Given that they are generally marketed as a way to simply go long (or short) on a commodity when they don't perform that function at all, I think they're a bit misleading. Yeah, front-running the GSCI used to be a huge alpha generator: http://www.google.com/url?sa=t&sour...sj03KuQ&cad=rja This is the number-one reason not to own a GSCI-tracking index fund of any kind. Basically, you're telling the whole world "hey guys, I'm going to sell this contract and buy this other contract between the 5th and the 9th of the month, just letting you know, please don't screw me over, k thanks." Personally I don't have any allocation to commodities, but if you do, definitely use something like DBC, which picks the optimum contract to roll into each time. (Disclaimer: I haven't really looked into DBC that much, just did a google search for "commodities fund optimized roll" or something).
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Dec 10, 2010 05:05
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cowofwar posted:Well technically they're credit unions and not banks. Credit unions always offer better packages at the price of convenience. It's not just credit unions. Check around at your local banks, at least here in the Boston area it's reasonably common (Cambridge Savings Bank and Leader Bank are two that I know of) for local banks to offer 3% or so on checking accounts with a requirement that you sign up for direct deposit, use your debit card at least some number of times per month, and get e-statements instead of snail-mail ones. I'm pretty sure this sort of checking account is a loss-leader for smaller local banks. I'm curious what will happen if the new debit card fee restriction is passed.
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Mar 14, 2011 08:02
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QuarkJets posted:-- My offer letter says that employees "may contribute up to 25 percent of their base salary on a pretax basis, an after-tax basis, or a combination." I'm no expert, but isn't a 401k contribution "on an after-tax basis" the same as a Roth 401k?
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Jun 13, 2012 02:18
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Harry posted:The income he's receiving in his roth is completely tax free, while the income in his 401k will be taxed eventually at whatever the income tax rate is when he starts taking distributions. Isn't everything from your 401k taxed at income tax rate, regardless of whether it came from coupons/dividends/capital gains? I didn't think it mattered whether you kept bonds in an IRA vs. 401k
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Aug 4, 2012 03:29
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Kilty Monroe posted:Betterment probably is the least terrible management service out there, because they don't actually do a whole lot of managing; their portfolios are just a defined mix of core Vanguard and iShares ETFs and all they do is adjust the ratio of stocks to bonds based on an assessment of your risk tolerance. Still, their management fees start at 0.35% annually, which seems like a lot for what you actually get (though the lower ERs and waived commission fees offset that a bit I suppose). Ew, 0.35% for something that I can easily do myself? No thanks. It sounds like they're just doing more or less the same thing as the Vanguard Target Retirement funds anyway, and Vanguard charges much less.
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Dec 3, 2013 15:24
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Xguard86 posted:I have a question on taxes and allocation. Minor point: You seem to be confusing the Fortune 500, which is just a list of companies published by Fortune magazine and not a stock index, with the S&P 500, which is an index of the prices of 500 stocks that the Vanguard 500 index fund (and many other index funds) attempt to track. Presumably most of the companies in both are the same, so it's not really a big deal.
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Dec 9, 2013 18:41
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Nolanar posted:(major) Are there arguments against having a small exposure to REITs and Precious Metal Equities? He made a good case for them being additional non-correlated assets, but I don't normally see them as a part of the typical "lazy" portfolios on Bogleheads and the like. The way I argue it is that REITs and Precious Metal Equities are just equities (there are plenty of both in the S&P 500, for example), so treating them as a separate asset class is essentially overweighting a particular sector of equity, which is something that I don't want to do. Would love to hear other opinions on that. quote:(minor) Is there a reason Bernstein uses "worst single-year loss" as a measure of volatility instead of the more typical "standard deviation of return" that I've seen elsewhere? I haven't read the book but I suspect he is basing this on the way people think about risk: Standard deviation is sort of a poor measure from a human being's perspective, because it counts upside and downside risk equally, and in reality, nobody is crying about risk when their stocks go up a lot quickly. On the other hand, "worst single-year loss" is very important from a human perspective because psychologically you need to be able to handle the worst loss without losing your poo poo and selling everything. As much as we are all buy-and-hold index investors here, even we will probably have SOME level of drop in portfolio that would cause us to freak out.
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Jan 24, 2014 23:09
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Acceptableloss posted:So I've got a chunk of my retirement savings that I've been wanting to move from stocks to bonds for a while, but have not done so due to the beating bonds have been taking over the last couple years? Now that the Fed is finally tapering, would this be a decent time to finally pull that trigger? Don't time the market! We don't really make macro forecasts in this thread. Edit: or any kind of forecast
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Jan 27, 2014 18:11
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razz posted:Yes I know I am posting about this in the other thread but I am kinda confuses/a little freaked out. This page appears to describe the fee situation: https://personal.vanguard.com/us/content/Funds/FundsVanguardFundsLowBalanceDisclaimerJSP.jsp I think as long as you're signed up for "e-service" (getting stuff through email instead of on paper) you should not be charged any fees. You could always call them and ask.
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Jan 27, 2014 22:55
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GLD or TIP are both kind of unusual choices, BND would be more of a "standard" choice if that's what you're looking for. I follow the "own your age in bonds" rule (which seems to be more or less what you're going for) but a lot of people in this thread find that to be pretty conservative, and might put less than 25% in bonds.
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Jan 31, 2014 16:54
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The point of Bernstein really is that it's not that managers can be shown to consistently underperform the market, but rather that they don't consistently outperform the market and then transaction costs and the managers' fees eat up 2 or 3 percent of your money each year. If somebody really was consistently making predictions so bad that they consistently underperformed the market even before taking transaction costs and fees into account, then yes, you could just buy an S&P 500 index fund and short all the stocks they own, and make a little extra money. However there is no manager where you would really have such a strong conviction as to do this, and even if you were totally convinced, the risk wouldn't be worth it. Edit: Also, shorting is more expensive than being long because you have to borrow stock and that isn't free... you'd be shorting these things for a long time too, because mutual fund managers tend to hold the same stocks for years... it's not feasible really. Echo 3 fucked around with this message at 19:20 on Jan 31, 2014 |
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Jan 31, 2014 19:17
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We need some kind of bot to reply "Don't time the market!" every time a new person posts in this thread.
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Feb 4, 2014 02:59
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Bearnt! posted:Can someone explain the differences between the VTSMX Index Fund and VTI ETF? I was going to toss some dough in the VTSMX but noticed the minimum investment is $3,000 where as the ETF has no minimum but is twice the price. While we're at it what about the admiral shares as well (VTSAX)? From what I can see those have the same expense ratio as the ETF which is lower than the index fund but the same price as the index fund with a 10k minimum required investment. An ETF is like a stock, you can buy or sell it whenever you want. A mutual fund transaction only goes through at the end of the day, and Vanguard gets to set minimums and such. This is not really a major difference from the point of view of a long-term investor; in basically all important ways, the ETF and mutual fund are exactly the same. The major difference from your perspective is that you can buy whatever amount of the ETF you want, so go for it.
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Feb 4, 2014 18:55
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kaishek posted:Don't time the market "Dollar-cost averaging" is silly in my opinion: If you have the money now, it makes the most sense to put it in the account now. My strategy is to put it all in on January 1st (or whatever the next business day is) and forget about it; I don't watch every up and down of the market so it doesn't stress me out. On the other hand, if spreading it out between now and April 15 will give you some peace of mind or something, then go ahead, because frankly the difference between the two strategies is unlikely to be very big.
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Feb 19, 2014 17:17
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SiGmA_X posted:The 20% variance from target to actual sounds smart, except if the market tanked (9-2008 style). What would be the problem if the market tanked?
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Feb 21, 2014 22:07
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OK, the thing to understand here is that you only get a limited amount that you can put in your Roth IRA per year. So say the amount is $5,000, and you're going to be putting money into it for another 30 years, that means you get $5,000 * 30 = $150,000 of contributions that you can ever put into your Roth IRA. If you contribute $10,000 in the first year, then take it out a few years later, you can never go back and put that $10,000 back in, it's just gone now. The new total amount that you'll be able to put in to your IRA has been reduced to $140,000. Even worse, the $10,000 you just pulled out is money you put in at the start of your Roth IRA's lifetime, which is worth more than the money you're going to put in when you're old. You've sacrificed all the tax-free gains that money would have made over the next 30-odd years.
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Feb 24, 2014 22:51
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Nail Rat posted:I prefer Roth for several reasons, but the gains being tax-free isn't really an extra benefit, it's part of the core feature that makes it an option on par with traditional. Assume you are in the 25% tax bracket now and will be in the 25% at retirement. You put $100 in a traditional account and the funds you pay into go up by a total of 500% by retirement age(oversimplification but the principle is valid), you'd have $600. When you withdraw it, this is taxed at 25%, so you end up with $450. Note that the contribution limit is the same for Roth and Traditional, so if you have enough to max it out (say $100 is the max, to fit in with your example above), you will be better off with Roth, having $600 at the end. Echo 3 fucked around with this message at 03:30 on Feb 27, 2014 |
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Feb 27, 2014 03:24
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Unormal posted:Now here's something we can all agree on. Haha yeah, I was going to say one thing, decided not to... I think I salvaged it with a mildly interesting post.
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Feb 27, 2014 03:31
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Cranbe posted:Edit: And this was the first time I've really even thought about my accounts since I allocated last September. Basically, it's not nearly as big a time commitment as most people think, and some basic reading will set you up to overcome the initial fears of whether you're doing it right. Yeah, if you can make an Excel spreadsheet and do some basic (like, seventh-grade) math, you can rebalance across multiple accounts. It's not rocket science.
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Apr 13, 2014 19:40
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etalian posted:One a side note the Wealthfront white paper is pretty interesting if you want to look at tax efficiency: This depends on what tax bracket you are in and what state you are in, right? The tax break on munis vs. corporates will not necessarily be worth it for everyone.
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May 7, 2014 04:09
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Harry posted:I'm probably going to be putting $5,000 into Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX) in the next couple of days and wondering if there's any downside I'm missing. It appears to be a pretty good yield, and tax free. I don't have a 401k at my work, and will max out my ROTH by the end of the year and do a HSA contribution. There's pretty much no plan for the money longterm, just want to get more than .87% or whatever I'm getting with Ally. Are you in the top tax bracket? If not, just regular (not tax-exempt) bonds are probably better. Keep in mind that the tax advantage is priced in; typically muni bonds are bought by people in the top tax bracket so they tend to yield the same as a similar corporate bond but minus the top marginal tax rate.
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May 18, 2014 00:43
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LorneReams posted:These numbers look wrong, JFIVX is showing an ER of 0.54% Expense ratios can (will) be different (worse) in 401(k)s than if you buy them as an individual.
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May 29, 2014 15:17
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Henrik Zetterberg posted:
Sell 100% of your company stock; merely by working at that company you are already hugely exposed to their rises and falls. If you are planning on using this money in a year or two (that is a very short horizon), any kind of stock or bond index fund is basically too high-risk. A money-market fund, savings account, or CD is the way to go.
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Jun 3, 2014 20:30
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Cicero posted:Was reading an article about financial knowledge and investment performance in the Economist and this troubled me: They link to the article's abstract here: http://www.iijournals.com/doi/abs/10.3905/jpm.2013.39.4.091#sthash.K05abSaP.PXiVZDYE.dpbs quote:Even Burt Malkiel’s legendary blindfolded monkey, throwing darts at the Wall Street Journal’s stock page, would produce a portfolio with a substantial value- and small-cap bias that would have historically outperformed the S&P 500. The value and small-cap tilts stem from the fact that non-price-based weighting schemes sever the link between a company’s share price and its weight in the portfolio. - See more at: http://www.iijournals.com/doi/abs/10.3905/jpm.2013.39.4.091#sthash.K05abSaP.PXiVZDYE.dpuf More or less what you said. I'm curious what statistic they used (Sharpe ratio? Alpha vs. the market?) to measure this outperformance. Cicero posted:edit: do equal-weighted index funds exist? Yes, RSP is an example (Guggenheim Equal-Weighted S&P 500 ETF)
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Jun 4, 2014 20:54
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EugeneJ posted:Owner - and yeah, probably. If you work for a small company, Vanguard may not be willing to handle your 401(k) plan. I used to work for a company with about 35 employees, and we had a Vanguard 401(k) but the COO mentioned that they only dealt with us because one of our execs was on their board of directors; otherwise they wouldn't have been willing to work with such a small company. Your mileage may vary, of course, and this was back in 2010 or so, so things may have changed.
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Jun 17, 2014 14:37
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baquerd posted:In a world where everyone know 0.5% costs make a big difference over the years, why don't you believe that 0.5% statistically lower returns won't? Because 10% bonds do that. You sound like a market-timer to me. The difference between 0.5% in expense ratio vs. 0.5% in "statistically lower returns" is that I know for a fact what expense ratio I'm going to pay this year, and I have only historical return series to suggest what bond returns might look like over the next whatever number of years. I think 15% is fine Celot, if that's what you feel is appropriate for your risk tolerance. Of course these posters may make you re-think exactly where your risk tolerance should be, but I wouldn't go zero percent bonds just because "everybody knows" that bond returns are going to be low. Echo 3 fucked around with this message at 15:10 on Jun 19, 2014 |
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Jun 19, 2014 15:02
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slap me silly posted:Hehehe. I would love to hear either side of this discussion make some actual long term quantitative projections for different portfolios, being very clear about what the assumptions are... I'm not here to make projections, that's the whole point. Given that we can't see the future, we have to do the best we can, and we know that owning some bonds provides diversification and (if asset prices are mean-reverting and stocks and bonds are negatively correlated, which I think are probably both true) rebalancing can provide some additional returns. If bonds are so terrible, why does anybody own them? Back in 2011 Treasury yields looked super low, Bill Gross pulled out of them because he just knew that yields couldn't possibly go any lower, guess what happened? Yields went lower. I'm not saying that bonds are an amazing investment, I'm saying that I don't have a crystal ball so I feel that it's much better to have some allocation to bonds in case of any of the scenarios Vilgan just identified or anything else that we can't predict now.
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Jun 19, 2014 17:55
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Karthe posted:
Just so we're clear, this is a taxable account? You might think about starting a Roth IRA. quote:I plan on leaving this alone for now but will watch the markets and pull out if things start to take a turn for the worse. Do not do this. Decide on an allocation that is appropriate for your risk tolerance with this money and stick with it. Read the Warren Buffett quote in the OP or simply consider that your strategy sounds an awful lot like "buy high, sell low."
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Jun 20, 2014 20:03
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Karthe posted:My understanding is that I have a Roth 401k - earnings on my contributions aren't taxable since I contribute with post-tax income, while earnings on my employer's contributions are taxable since those contributions are considered pre-tax. We just had our annual 401K presentation yesterday and I received clarification on that point specifically. It's great that you have a Roth 401(k) and are maxing your employer match. Most people in this thread also contribute to a Roth IRA on top of that, which is what I was suggesting (see steps 1 and 2 in the OP). It's a pretty good deal; you get to put in a fixed amount per year (currently $5,500) and let it grow with no more capital gains or income taxes down the road. You could open one up with Vanguard if you wanted. Also note that you could do a Traditional IRA (which has similar tax treatment to the traditional 401(k)) if you wanted to. Echo 3 fucked around with this message at 20:37 on Jun 20, 2014 |
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Jun 20, 2014 20:35
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ntan1 posted:Are you sure that these returns are better than Vanguard 2060? More importantly, "the returns on X fund have been higher than the returns on Y fund over the past Z years" is a bad reason to choose one fund over another. You need to look at expense ratio, what kind of index they are tracking or mix of assets they have, etc.
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Jun 30, 2014 15:57
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Mr. Glass posted:any thoughts on my portfolio? it's a 401k so my options are limited; am I being an idiot by choosing funds myself instead of just using Vanguard's retirement target fund? quote:In terms of portfolio, I'm essentially split evenly among VBMPX, VWIAX, VEMPX, and VTPSX. Just so we're clear, this is the portfolio you're talking about right? And those funds are Vanguard Total Bond Market, Vanguard Wellesley Income, Vanguard Extended Market (which tracks S&P Completion Index), Vanguard Total Int'l Stock (which tracks FTSE Global ex-US)? I think most people in this thread would characterize that as an extremely risk-averse portfolio. You're like 35% bonds right now, for one thing. Also I'm pretty sure you have exposure to every stock in the world except the S&P 500, if I'm reading this correctly, which is totally bizarre. I would say you seem to have given very little thought to this mix, so I would recommend using a Vanguard Target Retirement Date fund and learning a bit more about mutual funds in general. Edit: 42% bonds actually Second edit: For context, I am the same age as you and I have 25% in bonds, and most people in this thread consider that to be really high. I suspect the average recommendation around these parts for a 27-year-old might be somewhere around 10% in bonds. Third edit, because I'm edit-happy today: Technically, you're not totally lacking U.S. large-cap exposure because there's some in the Wellesley Income Fund, basically 1/3 of that 25%, but that's a really low amount unless you have a strong negative view on U.S. large-cap equities (which would of course be market-timing). Echo 3 fucked around with this message at 18:33 on Jul 16, 2014 |
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Jul 16, 2014 18:22
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MrOnBicycle posted:I'm not going to sit and wait for downs in the market and buy in, I'm thinking more of just putting a auto buy at a date every month and leaving it. Shouldn't it spread the risk a bit? Putting in 5k at one point seems more risky. But then again, since my bank offers poo poo rates, I guess taking too long at putting the money in is a waste. It doesn't spread the risk, yes you are reducing the volatility but it's not worth the expected-value hit. The difference is tiny though, so if it makes you feel better, feel free to spread it out. For the mathematical reasons behind it you can read the Wiki article here: http://en.wikipedia.org/wiki/Dollar-cost_averaging specifically the "Criticism" and "Confusion" sections, but basically it's easy to see if you think about it this way: Imagine you had a million dollars, and were considering whether to "spread out" your investment over the next twenty years, or just put it all in today. It should be clear that in a world with positive expected returns to investing, you will be much better off investing it all today. Reducing the time period down to a shorter one doesn't change the math, it just makes the "wrong choice" hurt you less.
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Jul 17, 2014 18:27
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Henrik Zetterberg posted:4 Pillars suggest that if you reside in a state where you get bonds from, you may not have to pay state income tax on it, only federal. So there are advantages to not buying them from multiple states. There are state-specific muni bond mutual funds for this exact reason. Also keep in mind that the tax exemption of munis is really only worth it if you're in the highest tax bracket.
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Jul 22, 2014 01:10
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DNK posted:
There are many problems with your post, but here is one of them: You think Vanguard Total Bond Market is somehow "recession-proof" and it's "guaranteed" that there's going to be a big stock market crash in the next 3 years. Meanwhile, other Nostradamuses (Nostradami?) will go on long rants about how "everyone knows" that bonds are due for a huge correction. Clearly not everyone "knows" the same things that you know about what stocks and bonds are definitely going to do in the next three years.
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Aug 4, 2014 16:24
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DNK posted:Ah! But I am very receptive to your head-slapping. I'm more or less looking to get assaulted for my lovely beliefs about financials as I know just enough to be dangerous to myself. Sorry, my point was that none of those things is predictable. I just wanted to correct what seemed to be an assumption on your part that nobody was predicting doom and gloom for bonds; in fact, many people are. Luckily they are all wrong to think that they can predict asset price movements in any way. Keep in mind, if you say that you can predict price movements that allow you to get a better risk/reward than everybody else, you are saying that you know better than everybody else in the financial markets. If there was a way to get a better risk-reward than just owning stocks and bonds, people would be doing it. You clearly realize that you are not the world's biggest financial genius, you just have to take that to the next step and realize that it implies a buy-and-hold strategy.
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Aug 4, 2014 16:35
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DNK, you shouldn't try to be like Nostradamus, more like Socrates.DNK posted:What are the (overarching; I'm sure the details are horrifying) penalties and fees associated with moving assets within a IRA/401k into different vehicles? There's a question with which I have a burning desire to know the answer to. To answer your question, fees for transferring from one mutual fund to another should be small or zero as long as you are using your IRA provider's mutual funds (for example, Vanguard mutual funds within a Vanguard account)
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Aug 4, 2014 17:44
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etalian posted:The 1000/2000 Russell funds are targeted at small cap companies. Umm I'm pretty sure this is not true; Russell 1000 is the top 1000 (large-cap), and Russell 2000 is the remaining 2000 (mid- and small-cap). Together they make the Russell 3000. According to a quick Google I did the correct weighting would be 92% to the Russell 1000 and 8% in the Russell 2000. Each of the three ideas you proposed seems reasonable. I don't see anything terribly wrong with any of them; you seem to have thought it through pretty well. Personally I prefer to roll my own mix so I'd do the first thing you said (using the weights given above and rounding out as desired with bonds + int'l), but if the asset allocation would be similar, then the other options would have similar results. Echo 3 fucked around with this message at 03:16 on Aug 5, 2014 |
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Aug 5, 2014 03:14
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Donald Kimball posted:Vanguard target retirement funds don't distribute dividends, right? The only way I could see a benefit from compounding would be if I was invested in funds like VFIAX? This question was answered but I thought a little further explanation might be in order. All mutual funds have to pass on income (such as dividends or bond coupon payments) to investors at least annually via a dividend that you see in your account; they do not have an option of reinvesting within the fund or anything like that. Occasionally they may also have to make a "capital gains distribution" which is them passing on to you the value of some capital gains that they incurred. You can set up your account to automatically reinvest these distributions back into more shares of the fund.
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Aug 22, 2014 02:10
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