Vanguard Mutual Funds

**sweeps** · 01-24-2007, 01:41 PM

Re: Vanguard Mutual Funds

If you're just starting out, go with one of the Target Retirement funds. They have a little bit of everything. Later on as you build up your balance and learn about the other funds, you can branch out.

You likely want a Roth IRA. No taxes when it's time to withdraw. And if you must withdraw early, you can withdraw the contributions (but not the earnings) without taxes or penalty.

**kv968** · 01-24-2007, 01:49 PM

Re: Vanguard Mutual Funds

First the standard question of what is this money for? If it's for a downpayment on a house, an emergency fund or something like that your best bet is a cd or a MMA.

The "most important details" to look for in a fund? It depends. Again, what's the money for? What's your risk tolerance? Is it in a taxable account (Although I take it it won't be in your case)? What other investments do you hold? There's a lot of variables to consider. To start off, you could go to a mutual fund company's website (ie. Vanguard, T Rowe Price, Fidelity, etc...) and browse some of their funds. If this is your only fund, you might want something like a large-cap or S&P 500 index to start off with. Looking at past performance can give you an idea of what you're getting into but by NO means should that be your total deciding factor. Some funds will show returns of 20%-30% over the past few years but don't be caught up by those high numbers. You could also go to something like http://finance.yahoo.com/ and look at the funds section to get a better feel for what might be a good fit for you.

As far as penalties, there aren't any for withdrawling from a taxable account. You'll pay taxes on the capital gains and dividends (although that could be considered a penalty

) but nothing else. However, if you put money in a Roth IRA you can always take out the principal you put in without incurring any taxes or penalties either. It's just when you touch the gains that you'll be hit with penalties.

Sorry if that didn't clear a lot of things up for you, but there are just too many factors involved to give a concise answer. If you could post some funds you're looking to invest in it would be easier to give advice.

**creditcardfree** · 01-24-2007, 01:56 PM

Re: Vanguard Mutual Funds

Read the prospectus of any fund you think you may invest in. This can usually be obtained online or through the mail. The prospectus gives you a breakdown of fees, sales charges if any, past returns, risks of the fund and how the money will be invested and managed. It is a long document, but it has a wealth of information.

**meaghanchan** · 01-24-2007, 03:41 PM

Re: Vanguard Mutual Funds

Here are some considerations to look for:

(I'm assuming this would be a taxable mutual fund, not an IRA or Roth IRA, since you want to withdraw without penalties)

1. You want to be diversified. I don't know what other investments you have, you may already be diversified across domestic stocks, international stocks, and bonds within any 401(k)s or IRAs you may have. If this is your only investment, choose 1 fund that's as diversified as possible.

2. (and this partially contradicts #1) You want your fund to be tax-efficient. You don't want a fund that's distributing a lot of dividends and capital gains every year that you'll have to pay taxes on whether you withdraw money from the fund or not. Some examples of Vanguard funds that are tax-efficient are Vanguard Total Stock Market Index or any of their tax-managed funds, for example Vanguard tax-managed International. Note that the tax-managed funds have $10,000 minimums. Avoid bond funds or balanced funds- these give off a lot of bond income, which is taxed at an ordinary income rate.

3. Low expense ratios (I assume you already know this since you're looking at Vanguard). Compare to others in category- an international fund may have a higher expense ratio than a domestic fund, that doesn't mean it's a worse fund, it just means that it costs them a little more to invest internationally. I would not invest in a fund with more than a 1% expense ratio.

4. The fund matches my target allocation. If you don't have a target allocation, it may be time to start thinking of one. What % of your money do you want to invest in US stocks? Foreign stocks? Bonds? REITs? Emerging markets? Commodities? You don't need all these asset classes (I sure don't have all of them). Your most basic decision is % stocks/% bonds- and your bond allocation should be met either in your tax-advantaged funds if you have them (IRA/401(k)) or with tax-exempt bonds or bond funds.

You can find all this in the fund prospectus, or on morningstar.com.

You'll notice I left one statistic off this list- a statistic that most people consider very important. I don't even look at past returns while choosing a fund. I rely on index funds. As long as a fund is matching the return of its target index, there's no need for me to go comparing returns.

**humandraydel** · 01-24-2007, 06:14 PM

Re: Vanguard Mutual Funds

It sounds to me like you want to set it and forget it (and of course watch it grow).

My suggestion to you is to do two things:

1. Open a Roth IRA and put the maximum amount ($4,000) per year. If you open now you can put $4k for 2006 (before April 15th) and another $4k for 2007. As Sweeps mentioned, you can take out the contributions penalty free. And the earnings will be TAX FREE at retirement.

2. Open a taxable account.

The simplest thing to do would be to just invest both the Roth and taxable account in the Vanguard Total Stock Market Index. If you want to get a little bit fancy, you could toss 10-15% into an international index fund and 10-20% into a small cap fund, since the Total Market Index doesn't have much small cap or international exposure.

P.S. How old are you? Do you have a retirement account?

**twins0203** · 01-25-2007, 12:47 PM

Re: Vanguard Mutual Funds

Thank you all for the replies.

I'm currently 21 years old and have no investments going other than MMAs and a couple of CDs that mature within the next 6 months or so. Of that, one CD is for 40k, one is for 15k, and the MMAs is at around 120k.

Basically right now I have no plans for the money other than to have it grow through investments. I'm enjoying the 5-6% I'm getting now, but would like to gradually put some each month into something that over the years should yield a larger return.

My ultimate goal would be able to retire from the 9-5 type job early, but would most likely always do something on the side like my current business. That's mostly the reason I'd like to stay away from the accounts that have the retirement age attached to them or the heavy penalties.

Thanks again!

**humandraydel** · 01-26-2007, 03:33 PM

Re: Vanguard Mutual Funds

I'd fund a Roth IRA with $8,000 immediately - $4,000 for 2006 and $4,000 for 2007. The tax FREE growth is just too good to pass up. And with 175k of liquid assets at age 21, you won't miss $4k a year into a retirement account.

Also, if your current income allows you to save/invest, you really should take advantage of a 401k, SEP, or some tax deferred account. The tax advantages just make it too appealing. And I realize you want to retire early, so leave the 175k in tax efficient invesments. Honestly, I'd probably put 100-125k in stocks. Save the rest for a house downpayment.

As for "what to look for", both vanguard's site and morningstar's site has a section on tax considerations for a fund. It'll usually have a 3 or 5 and 10 year annualized pre-tax return and an annualized after tax return. The after tax return is more important for you. There's also a number that gives percent of portfolio turnover - Total Stock Market Index is 6%, some funds are 30-40% turnover. More turnover leads to more taxable gains.

meaghanchan has it right on though. Index funds are inherently more tax efficient. A total stock market index is one of the most tax efficient funds. But for diversification purposes, you need some international and small cap exposure. As I said earlier I'd add 15-20% of your portfolio into a tax managed international fund or international index, and 10-15% into a tax managed small cap fund or index.

**corolla02** · 01-27-2007, 02:38 PM

Re: Vanguard Mutual Funds

Originally posted by twins0203

Ok, I've finally decided on investing in mutual funds, but have a few general questions.

I'm wanting to open an account w/ $3-5k and for right now plan on being able to add $1-2k/mo, but am clueless on which fund to invest in since I'm really new to this. While looking at the funds details, what is the most important details to pay attention to while comparing the funds?

It's my understanding, that an Individual account is not heavily penalized for withdrawing(whatever the acutal term may be) if you were to want to withdraw, unlike some of the other retirement accounts that have the retirement age attached to them, is this correct?

I'm not wanting to open a retirement account that has the high fees for withdrawing before actual retirement time.

Yes, you are comepletely right. There is an individual account on Vanguard, I have one. You wont pay anything extra but oridinary tax which depends on your tax bracket. Just take an index fund and you go to go!!!
Also, pay attention to withdraw money after long term period because capital gains are taxed less if they are left more than 365 days. Another thing, dividends should stay longer than 61 day untached to be qualified for tax reduction rate. Stay on the course!!!
PS. keep in your mind, short term gains and dividends<61 days are subject to higher tax rate!!!! I hope this help

Vanguard Mutual Funds