Should I be investing more?

[rigz]

On my phone so just a quick question here (I will address the other comments when I get home)

Is throwing all my investments into a target fund too lazy? I felt that would be sufficient diversification but maybe not?

Should I be putting my monthly contributions into multiple accounts? Like the vanguard total stock or international funds? Like 3k into each? I really want it as lazy/simple as possible

Also for tax purposes are there no tax implications until I sell? And do I only pay taxes on what I earn? So if I keep these ad just add to my investments for say 30 years, I won't owe taxes until then? Is this correct?

[jpg7n16]

Is throwing all my investments into a target fund too lazy? I felt that would be sufficient diversification but maybe not?

Should I be putting my monthly contributions into multiple accounts? Like the vanguard total stock or international funds? Like 3k into each? I really want it as lazy/simple as possible

Sorry if that came across the wrong way. I am a HUGE fan of Target Date funds. For people who don't know enough to properly allocate a portfolio long term, and want a fund that does that all for them, Target Date funds are a great option.

Just buy one fund, get a well allocated well diversified portfolio. It doesn't get easier than that.

Also for tax purposes are there no tax implications until I sell? And do I only pay taxes on what I earn? So if I keep these ad just add to my investments for say 30 years, I won't owe taxes until then? Is this correct?

That depends on the type of account you hold it in. In a taxable brokerage account, you don't pay tax on cap gains until sold - but you will be responsible for taxes on dividends and interest payments you receive along the way.

In your Roth, you wont be responsible for any tax ever if you withdraw after 59 1/2.
In your SEP, you won't be responsible for tax until you make a withdrawal.

[rigz]

Dollar cost averaging (DCA) isn't really necessary in this case. If I have $20k to invest, I'd rather have all that $20k in for an extra 20 months, than incrementally invest $1k at a time. Pick an asset allocation that you're comfortable with (i.e. your age in bonds, the rest of your portfolio divided between US and International stock funds).

DCA is good to smooth out fluctuations in the market, but the extra TIME in the market you get from one initial deposit will probably overshadow that anyway.

I wrote a post about my three fund portfolio somewhere. Let me go and find it and I'll copy it here. You might find it helpful...

This is partially copied form a previous post, plus a little extra.


For what it's worth, my husband and I use a three fund "lazy" portfolio. (You can google that...) This portfolio includes Total Stock Market, Total International Stock Market, and Total Bond Market. All vanguard index funds. We used some conventional wisdom on how much you should have in stocks and how much in bonds. To determine out asset allocation we used the "your age in bonds" idea, so we are 30% bonds. Of our 70% stocks, we are 70% US and 30% International. This gives us an overall portfolio of 30% bonds, 50% US stocks, and 20% International bonds.

Now, the only reason we did this instead of just using a target retirement fund was because of the funds that were available in our 401k and 403b from through work. Target retirement funds do the exact same thing. They use Total Stock, Total International, and Total Bond index funds and they balance them as you get older to decrease your risk, so as you get closer to retirement age you will hold fewer stocks and more bonds. Also, when you start including taxable investing, you don't want bonds in those accounts for tax purposes, and the target date funds have bonds in them.

There is a LOT of research that says a three or four fund portfolio gets you about 99% of what an "slice and dice" portfolio would get you, but you have to really research and spend a lot of time to slice and dice the market.

So invest your retirement in tax advantaged accounts, google three fund lazy portfolio, invest in index funds, modify your asset allocation as you head toward retirement age, and don't check your balances more than once a month if even that frequently.

FYI this is my asset allocation and my exact funds (percentages as of a few months ago), to give you an idea of a lazy three fund portfolio: (This was posted on a different investing board, but it's a really nice way to see everything at a glance.)

Taxable
11.6% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)

His Roth at Vanguard
11.9% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)

Her Roth at Vanguard
17.0% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)

His 401k at Vanguard
28.5% Vanguard Total Bond Market Index Fund Signal Shares (VBTSX)
8.6% Vanguard Total International Stock Index Fund Investor Shares (VTIAX)

Her 403b at JP Morgan
22.5% Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares (VITPX)

HSA at Health Equity
0.2% Vanguard Large Cap Index Signal (VLCSX) (considering it to be equivalent to my TSM)

Total of All Accounts Together (not each account individually) equals 100%

Total US Stocks: 51.3%
Total International Stocks: 20.2%
Total Bonds: 28.5%

New annual Contributions
$17,000 (+ co match) his 401k going into Total Bond Market
$17,000 (+ co match) her 403b going into Total Stock Market
$10,000 total into two backdoor Roths going into Total Stock Market
$6,250 HSA account going into Total Stock Market
$16,000 taxable going into International Stock Market

thanks for the advice. im still weary of investing in those types of accounts because i dont really get what the "vanguard large cap index signal" or " Vanguard Institutional Total Stock Market Index Fund Institutional Plus Shares" are. so i will probably just stick with the target funds and i hope those diversify me enough with stocks/bonds, us/international, etc...

you mention picking 3 or 4 funds...if i have vanguard target fund 2040, what other ones should i go with? and should i put 5k into 4 different funds rather than 20k into one fund?

[rigz]

Yes, I guess I am if you are really trying to invest the full $100k, your DCA amount is too low. Sure, you'd get the benefits of DCA, but you'd miss out on a lot of the benefits of compound interest.

Say your portfolio returns 7% on average going forward. By DCAing in $1,000/month, after 100 months, you would have $135,251. Not bad. But if you invested the full 100k up front you'd have $178,896. Aka double the gains of your DCA strategy in the same timeframe.

DCA has its benefits, but in general, the sooner you invest, the better.

whoa, didnt think of it like that. however, i may just go 10k/month because im not sure im comfortable throwing 100k at one transaction. i dont know why since i like to think in terms of math and numbers, yet 100k at once scares me

For you, you may want to do like $10k/month until you've invested as much as you wanted to. You'll get to DCA the lump sum in, have it be a little easier to handle psychologically, but still invest the funds pretty quickly. I think that's a pretty good strategy/compromise.

yes, that sounds better for me.

Target date funds are the ultimate lazy portfolio. OP has a 1 fund portfolio that's even lazier! Haha

is having only one target fund bad? im a little confused now...i keep reading it is diversified but now people are saying you need more than one fund?

(quick little edit: my ROTH is fully in the vanguard target fund but my new investments are being throw into the Vanguard Wellesley Income Fund Investor Shares...i forgot to mention this but its probably very relevant here)

[rigz]

Sorry if that came across the wrong way. I am a HUGE fan of Target Date funds. For people who don't know enough to properly allocate a portfolio long term, and want a fund that does that all for them, Target Date funds are a great option.

Just buy one fund, get a well allocated well diversified portfolio. It doesn't get easier than that.

ok cool.

i forgot to mention that eventhough my ROTH is in a target fund, my recently new account for investing is in a different account (Vanguard Wellesley Income Fund Investor Shares). anyone have any opinions on that - is it diversified enough as well?

dont know why i forgot - i think its because i just started it and it has so little money in it. oops.

i think this (wellesley fund) is where i will be throwing most of my investing money into (mostly because the ROTH is limited).

That depends on the type of account you hold it in. In a taxable brokerage account, you don't pay tax on cap gains until sold - but you will be responsible for taxes on dividends and interest payments you receive along the way.

In your Roth, you wont be responsible for any tax ever if you withdraw after 59 1/2.
In your SEP, you won't be responsible for tax until you make a withdrawal.

great, thanks.

[jpg7n16]

whoa, didnt think of it like that. however, i may just go 10k/month because im not sure im comfortable throwing 100k at one transaction. i dont know why since i like to think in terms of math and numbers, yet 100k at once scares me

yes, that sounds better for me.

I get it I mean would you like to make 1 $100k decision? Or make a number of smaller decisions? I can understand where you're coming from. Just if you make those smaller decisions too small, you miss out on the original benefit.

is having only one target fund bad? im a little confused now...i keep reading it is diversified but now people are saying you need more than one fund?

(quick little edit: my ROTH is fully in the vanguard target fund but my new investments are being throw into the Vanguard Wellesley Income Fund Investor Shares...i forgot to mention this but its probably very relevant here)

Who is saying that you need more than one fund?

Target date funds are a different animal. As a target date fund could also be described as a fund of funds. You buy just 1 fund for your portfolio, but the fund itself is composed of other funds. For instance, check out your 2040 fund: https://personal.vanguard.com/us/fun...FundIntExt=INT

If you scroll down you'll find that it's composed of 3 other funds:

1 Vanguard Total Stock Market Index Fund Investor Shares 63.0%
2 Vanguard Total International Stock Index Fund Investor Shares 27.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 10.0%

It's not about how many funds you have, it's about the overall allocation of the portfolio.

So you could be like Bucky, and by those 3 funds separately and have to monitor and readjust it yourself, or you could just buy the 1 Target date fund and let the fund do it all for you.

ok cool.

i forgot to mention that eventhough my ROTH is in a target fund, my recently new account for investing is in a different account (Vanguard Wellesley Income Fund Investor Shares). anyone have any opinions on that - is it diversified enough as well?

dont know why i forgot - i think its because i just started it and it has so little money in it. oops.

i think this (wellesley fund) is where i will be throwing most of my investing money into (mostly because the ROTH is limited).

and what led you to that fund? It's an income fund, do you need income?

[rigz]

I get it I mean would you like to make 1 $100k decision? Or make a number of smaller decisions? I can understand where you're coming from. Just if you make those smaller decisions too small, you miss out on the original benefit.



Who is saying that you need more than one fund?

Target date funds are a different animal. As a target date fund could also be described as a fund of funds. You buy just 1 fund for your portfolio, but the fund itself is composed of other funds. For instance, check out your 2040 fund: https://personal.vanguard.com/us/fun...FundIntExt=INT

If you scroll down you'll find that it's composed of 3 other funds:

1 Vanguard Total Stock Market Index Fund Investor Shares 63.0%
2 Vanguard Total International Stock Index Fund Investor Shares 27.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 10.0%

It's not about how many funds you have, it's about the overall allocation of the portfolio.

So you could be like Bucky, and by those 3 funds separately and have to monitor and readjust it yourself, or you could just buy the 1 Target date fund and let the fund do it all for you.

oh that helps. makes more sense now. thanks

and what led you to that fund? It's an income fund, do you need income?

tbh, when i decided to start investing more a few months ago i went to the vanguard website and chose what i thought was a well diversified, low fee mutual fund that had a good long term track record. beyond that i have NO idea what to choose.

i didnt know it was an income fund. i dont even know what an income fund is. and no, we dont need income...i just want a long term mutual fund that can help my money grow with as little involvement as possible.

should i move my money out of Wellesley? should i move it into the target 2040 fund (considering all my ROTH is already in target 2040)? should all my future investing also go there? sorry for so many questions, just trying to make the best decisions.

i guess part of me really likes the target fund (put it in and forget it, already diversified, easy to do) but i'm still trying to figure out if having ALL my money in that one fund is "normal" or "right". maybe it is? it is diversified already so thats good.

[BuckyBadger]

So you could be like Bucky, and by those 3 funds separately and have to monitor and readjust it yourself, or you could just buy the 1 Target date fund and let the fund do it all for you.

Yup -- if we still had only two Roths, they would still be in Vanguard Target Date funds. We got out of the funds for two reasons:

1. There were no good target date funds in either of our 401k accounts. He had no target date funds at all, and I had only a non-Vanguard fund target date with a 2% fee attached to it.

2. Once we opened a taxable account, we didn't want to put bonds in it for tax reasons, so we couldn't use a target date fund. That was the tipping point for us and when we went from target date funds to my three fund portfolio.

If you have an appropriate target date fund available in all of your accounts, and they are all tax advantaged, there is certainly no reason you couldn't use only target date funds.

[BuckyBadger]

Oh, and as far as rebalancing goes, it's not that bad with only three funds. I passively balance throughout the year by contributing to all three accounts. I actively balance once a year in January when we make our Roth contributions. I plan on keeping my 70/30 allocation until we are 35 and then I'll switch to 35/65 in one fell sweep.

[jpg7n16]

tbh, when i decided to start investing more a few months ago i went to the vanguard website and chose what i thought was a well diversified, low fee mutual fund that had a good long term track record. beyond that i have NO idea what to choose.

well, there are a lot of diversified, low fee funds that have good track records. Technically, every mutual fund is diversified.

The most important thing is an allocation that lines up with your goals.

i didnt know it was an income fund. i dont even know what an income fund is. and no, we dont need income...i just want a long term mutual fund that can help my money grow with as little involvement as possible.

should i move my money out of Wellesley? should i move it into the target 2040 fund (considering all my ROTH is already in target 2040)? should all my future investing also go there? sorry for so many questions, just trying to make the best decisions.

i guess part of me really likes the target fund (put it in and forget it, already diversified, easy to do) but i'm still trying to figure out if having ALL my money in that one fund is "normal" or "right". maybe it is? it is diversified already so thats good.

https://personal.vanguard.com/us/funds/snapshot?FundId=0027&FundIntExt=INT

That fund is about 2/3 bonds and 1/3 stocks. It's designed for investors who are seeking income (from the bonds) but need a little growth to keep pace with inflation (hence the stocks). Also works for investors who want a more secure lower risk portfolio.

You on the other hand stated you were more risk tolerance, are not looking for income, and have the timeframe to take the growth risk of stocks.

IMO, the Target fund is much more in line with your goals than the Wellesley Income Fund is.

[rigz]

first of all i really appreciate all the help and answers. im learning a lot.

well, there are a lot of diversified, low fee funds that have good track records. Technically, every mutual fund is diversified.

The most important thing is an allocation that lines up with your goals.

i guess this means i gotta go target fund all the way.

should i throw some in a target fund 2040, some into a target fund 2030, and some into a target fund 2050 for extra diversification?

https://personal.vanguard.com/us/fun...FundIntExt=INT

That fund is about 2/3 bonds and 1/3 stocks. It's designed for investors who are seeking income (from the bonds) but need a little growth to keep pace with inflation (hence the stocks). Also works for investors who want a more secure lower risk portfolio.

You on the other hand stated you were more risk tolerance, are not looking for income, and have the timeframe to take the growth risk of stocks.

IMO, the Target fund is much more in line with your goals than the Wellesley Income Fund is.

yes that makes sense. i will stop contributing to the wellesley fund and go back to target for both my ROTH ira accounts and my other investment account.

[jpg7n16]

first of all i really appreciate all the help and answers. im learning a lot.

Hey that's what we're here for right? I'm glad you're learning, and glad I can be part of it

i guess this means i gotta go target fund all the way.

should i throw some in a target fund 2040, some into a target fund 2030, and some into a target fund 2050 for extra diversification?

Why do you feel the 2040 fund is not diversified enough on its own?

That's the main question right there. I'd like to hear your thoughts on that one.


My thoughts: The 2040 fund is both well allocated AND well diversified. It's in total market index funds. You can't really get more diversified than the total market

Besides, the three funds invest virtually identically. (2040 and 2050 literally are currently identical)

Target 2040
1 Vanguard Total Stock Market Index Fund Investor Shares 63.0%
2 Vanguard Total International Stock Index Fund Investor Shares 27.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 10.0%

Target 2030
1 Vanguard Total Stock Market Index Fund Investor Shares 55.8%
2 Vanguard Total International Stock Index Fund Investor Shares 24.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 20.2%

Target 2050
1 Vanguard Total Stock Market Index Fund Investor Shares 63.0%
2 Vanguard Total International Stock Index Fund Investor Shares 27.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 10.0%


If you buy 20 different index funds that all track the S&P 500, you are no more diversified than if you only had 1 fund that tracked it.


I think it would be beneficial for you to stop thinking diversification means the number of fund names you have in your portfolio, and realize that diversification is more what you are ultimately invested in.

My point is, just because you only have 1 fund, that doesn't mean you aren't diversified.

[kv968]

i guess this means i gotta go target fund all the way.

should i throw some in a target fund 2040, some into a target fund 2030, and some into a target fund 2050 for extra diversification?

As jpg pointed the NUMBER of funds you have doesn't necessarily equate diversification. I know of people who own 4-5 funds and think they're diversified but if you look at what the funds are invested in there's a lot of overlap and they're essentialy the same thing. That's not diversification.

As far as target date funds go, usually (depending on the fund family) there's very little difference in their funds with a date of ~2035 and up. So investing in a 2040, 2045 and 2050 fund would basically be the same thing. What you have to look at with those funds is their "glide path" or how and when they start trasitioning stocks to fixed income assets.

For example, you may age-wise be in the range of a 2050 fund but it may have too much stock exposure for your liking so if you added a little of the 2020 fund (which would have more fixed), that would bring your total allocation of stocks to bonds down. Although you may be able to just invest in a 2030 fund and that would have the same overall allocation.

Not all target funds are created equal and you can't just blindly pick the date you're "supposed" to retire and go with it. As with any investment, look at what it holds and see if you're comfortable with it. If not, look at other dates and see if they fit your risk tolerance better.

I like target funds (especially if you're a hands-off type of person) since they are basically "one stop shopping" and you are pretty much totally diversified with just that one fund. However you still have to look under the hood to see what they hold and are you comfortable with it.

[rigz]

Hey that's what we're here for right? I'm glad you're learning, and glad I can be part of it

much appreciated.

Why do you feel the 2040 fund is not diversified enough on its own?

That's the main question right there. I'd like to hear your thoughts on that one.

mainly because im still trying to learn how the funds work. it probably is - i just dont know it yet.

My thoughts: The 2040 fund is both well allocated AND well diversified. It's in total market index funds. You can't really get more diversified than the total market

Besides, the three funds invest virtually identically. (2040 and 2050 literally are currently identical)

Target 2040
1 Vanguard Total Stock Market Index Fund Investor Shares 63.0%
2 Vanguard Total International Stock Index Fund Investor Shares 27.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 10.0%

Target 2030
1 Vanguard Total Stock Market Index Fund Investor Shares 55.8%
2 Vanguard Total International Stock Index Fund Investor Shares 24.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 20.2%

Target 2050
1 Vanguard Total Stock Market Index Fund Investor Shares 63.0%
2 Vanguard Total International Stock Index Fund Investor Shares 27.0%
3 Vanguard Total Bond Market II Index Fund Investor Shares† 10.0%


If you buy 20 different index funds that all track the S&P 500, you are no more diversified than if you only had 1 fund that tracked it.


I think it would be beneficial for you to stop thinking diversification means the number of fund names you have in your portfolio, and realize that diversification is more what you are ultimately invested in.

My point is, just because you only have 1 fund, that doesn't mean you aren't diversified.

yes - that is my main problem. I feel if I have every single cent I invest in one single fund, that it possibly cannot be diversified. but it looks like it can if I stick with target funds. im glad im figuring this out now and not in 10 years.

another question i just through of this morning. i know these target funds re-allocate themselves over the years (for example, mostly stocks now but as it gets closer to 2040 mostly bonds). does this mean vanguard will automatically sell my stocks and buy bonds as time goes on or does that mean anything I buy closer to 2040 will be more bonds and less stocks? (I hope I asked that correctly)

[rigz]

As jpg pointed the NUMBER of funds you have doesn't necessarily equate diversification. I know of people who own 4-5 funds and think they're diversified but if you look at what the funds are invested in there's a lot of overlap and they're essentialy the same thing. That's not diversification.

As far as target date funds go, usually (depending on the fund family) there's very little difference in their funds with a date of ~2035 and up. So investing in a 2040, 2045 and 2050 fund would basically be the same thing. What you have to look at with those funds is their "glide path" or how and when they start trasitioning stocks to fixed income assets.

For example, you may age-wise be in the range of a 2050 fund but it may have too much stock exposure for your liking so if you added a little of the 2020 fund (which would have more fixed), that would bring your total allocation of stocks to bonds down. Although you may be able to just invest in a 2030 fund and that would have the same overall allocation.

Not all target funds are created equal and you can't just blindly pick the date you're "supposed" to retire and go with it. As with any investment, look at what it holds and see if you're comfortable with it. If not, look at other dates and see if they fit your risk tolerance better.

I like target funds (especially if you're a hands-off type of person) since they are basically "one stop shopping" and you are pretty much totally diversified with just that one fund. However you still have to look under the hood to see what they hold and are you comfortable with it.

thanks. this helps.

is risk tolerance basically how much volatility I am emotionally able to handle? or is there a number that people use? I am looking very long term (20-30 years) and will try not to look at the balance very often as it goes up and down over the years...does this mean I can handle a lot of risk?