Advice on balanced fund in taxable account

[meaghanchan]

First, let me try to give you what relevant information I can about my financial situation. I am 24, single, and rent. I recently (just this past week) ended a fairly long period of unemployment, during which time I racked up some credit card debt, because I was not eligible for unemployment insurance.

I have a little (very little) Roth IRA at Vanguard invested in VTSMX, Vanguard total stock market index. I will not be able to max it out this year due to my period of unemployment, but am contributing $100 a month, while using most of my extra money each month to pay down my credit cards.

I also have about $600 in VSTAR, Vanguard's Star account, in a taxable account. This was an UGMA/UTMA that my parents opened for me years (and years) ago to help pay for school. Last year they signed it over to me. For the past year I've been keeping it where it is, and paying taxes on it as applicable.

I feel like I'd be happier with the $600 in my Roth, rather than just paying taxes on it for the next 40 years. At the same time, I don't want to pay capital gains on it- though on $600 that wouldn't be hardly anything, right? I have no idea when the fund was purchased, but I think it was more than 10 years ago.

Advice would be appreciated.

[LuxLiving]

Re: Advice on balanced fund in taxable account

Is the VSTAR the balanced fund?

I'd think that capital gains on 600 would be very minimal!

What little I know about balanced funds is very little - but what little I do know is that the term balanced will mean very little if any growth. I opened a very small position in my Roth IRA in a balanced fund over a year ago. It's not varied over a dollar or two in all that time. Balanced means just what you think. BALANCED. Isn't going up too much nor down too much - will stay relatively flat.

For a 24 year old I'd think you have loads of time to take on a riskier fund. Room for more volatility than us older geezers have. Probably a majority of us oldsters want some of our money stable. Younger people have time for growth. Think more aggressive! Have you taken any of the quizzes online at the various investment firms that help you pinpoint your risk aversion? and help you set up asset allocations?

[meaghanchan]

Re: Advice on balanced fund in taxable account

Luxliving: Sorry for being unclear. Yes, VSTAR is the balanced fund. This fund is about 60% stocks, 40% bonds, with some small cash reserves. This fund was not my choice, it was my parents' choice. If it was in a tax-advantaged account, and there were no consequences for selling, I would sell it in a heartbeat. Not that it's not a good fund, just doesn't fit my allocation right now. I do realize the tax consequences probably won't be great on $600, I just wanted to get an outside opinion on my plan (sell it and put the cash in my roth in VTSMX) before going through with it.

I do have an asset allocation plan. My allocation plan is about 80% stocks, 20% bonds. Out of the 80% stocks, 75% should be US stocks and 25% foreign. Unfortunately I don't have enough money yet to diversify the way I want, so right now my entire Roth account is in stocks (VTSMX, which is a 100% stocks fund)

I do realize there are target retirement funds available which will let me acheive fairly close to my target allocation in just one fund, I'm just not a huge fan of them, so for now my plan is to put all my money in VTSMX until I get to the point where I can really diversify, and then add a bond fund and a foreign fund.

Thank you for your help.

[sweeps]

Re: Advice on balanced fund in taxable account

Yeah, the tax hit is going to be pretty small, particularly in a year when you've been unemployed a good portion of the time. I would sell the fund, and redirect to your Roth, in a fund you're more interested in.

[meaghanchan]

Re: Advice on balanced fund in taxable account

Thanks. I wasn't sure if I was missing anything. I'll sell it and put it in my Roth tomorrow!

[Ima saver]

Re: Advice on balanced fund in taxable account

i opened a vanguard star for my BIL about 10 years ago, back when you could open one for $500. It has tripled in value. I also have the star fund, but it is one of more than 10 mutual funds. That being said, I would call vanguard and tell them to transfer the money from star to the roth ira.

[CRFSaver]

Re: Advice on balanced fund in taxable account

Don't knock balanced funds. They have actually been my consistently best performers over the last 10 years.

[LuxLiving]

Re: Advice on balanced fund in taxable account

I wouldn't knock them - I'd say there is a definite place for them in SOME people's portfolios...just not sure if a 20 something needs one right now at all, much less to have it be their only fund.

There is a LOT to be said for stability. It is, after all, one of the reasons I married The Hubster. He was steady on then and he's steady on now! A LOT can be said for consistency. Isn't that what the Turtle and the Hare story are about, after all?