Contribute to same funds each year in Roth?

[cologero]

Hello,

I've been contributing the max to my Roth the past 4 years. Currently the contributions are split 75% to Vanguard Admiral Shares (large cap domestic) and 25% to Intermediate Term Domestic Bonds. My question is, should I just keep contributing to those funds year-over year-over, or should I contribute to other funds?

I'm assuming I should keep contributing to those as the more I have invested in them, the better the compound interest will be...versus adding another fund with a small amount.

[disneysteve]

The answer is that you need to have an asset allocation plan. That will guide all of your investment decisions both in your Roth and outside of it.

So if, for example, you want to have 50% domestic stocks, 25% international stocks, 20% domestic bonds, and 5% international bonds, you would invest accordingly. Also, periodically you would "rebalance" if you stray too far from those percentages due to market performance and investment returns.

Without knowing your overall allocation plan or what other investments you have, we can't really answer your question.

[corn18]

To add to Steve's reply, it is also important to consider the tax efficiency of your entire portfolio. Bonds in taxable is very tax inefficient, so I keep bonds in my Roth IRA's and 401k. My taxable savings is all stock index funds which have very little realized capital gains and 90% qualified dividends, so I don't pay much tax until I pull out the money.

[Like2Plan]

+1 to the asset allocation plan.

In addition to periodic re-balancing, maybe your plan (based on your risk tolerance and retirement goals) calls for more bonds as you get older.

[msomnipotent]

It depends on your age, your risk tolerance, and what stocks are in your Admiral fund. You don't want to invest in another fund that mimics what you already have. I recently double checked my retirement funds and found that 3 of the 5 had nearly the same stocks, so I had to do more than a little rebalancing. I currently have 25% invested in an international fund, which some people think is aggressive. You could do 10% just to get your feet wet and have some diversity. Or you could consider an age based fund to start out with, unless you are nearing retirement. They tend to be conservative the older you are, and the ones offered in our accounts are too conservative to add much value IMO. I'm pretty aggressive, though.

[disneysteve]

I currently have 25% invested in an international fund, which some people think is aggressive.

What is too aggressive to one person might be just right for another and too conservative for yet another. It depends on many factors.

Vanguard has a tool to work out an appropriate allocation:

https://personal.vanguard.com/us/funds/tools/recommendation?reset=true

You can find other asset allocation calculators online if you do a quick search. Play with a few and see what kind of results you get.

[cologero]

Thanks everyone. I've never put an allocation plan together (other than trying to stay with 75% stocks and 25% bonds)...I just wanted to get saving first. So I guess I now know what I need to do.

[disneysteve]

Thanks everyone. I've never put an allocation plan together (other than trying to stay with 75% stocks and 25% bonds)...I just wanted to get saving first. So I guess I now know what I need to do.

When you are first starting out, the allocation isn't so important because the dollar amounts are minimal. Also, due to fund minimums, you are somewhat limited in your ability to diversify from day one. Once you start building up your portfolio, however, it's time to take a closer look.

[Like2Plan]

Also, it is a good idea to look at your portfolio including all sources.

I have found this format very helpful: https://www.bogleheads.org/forum/vie...php?f=1&t=6212

What I did was to stick the information into an excel spreadsheet to keep track of DH's and my overall asset allocation.

[cologero]

When you are first starting out, the allocation isn't so important because the dollar amounts are minimal. Also, due to fund minimums, you are somewhat limited in your ability to diversify from day one. Once you start building up your portfolio, however, it's time to take a closer look.

Hmmm. I have about $25K in my Roth. Based on Vanguard's recommendation, I should have $15K in Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) and $10K in Vanguard Total International Stock Index Fund Investor Shares (VGTSX). This stuff is confusing...

[Jluke]

If you haven't already highly recommend you go to bogleheads forum. Read the wiki on three fund portfolio and other investing ideas.


Total stock VTSAX (I think that is the symbol for admiral shares)

[cologero]

If you haven't already highly recommend you go to bogleheads forum. Read the wiki on three fund portfolio and other investing ideas.


Total stock VTSAX (I think that is the symbol for admiral shares)

Thanks. I'll read that when i get a few minutes. So if I'm understanding everything up to this point, the Admiral Shares (VFIAX) I currently have are not something I'll want to have ling-term?

[~bs]

if you're trying to maintain that same split, you'd probably be contributing to bonds only in an up stockmarket year (like now), and to stocks in a down year.

If you maintained 75/25 previously, I'm sure that ratio is now way out of whack given the stock market run.

[~bs]

It depends on your age, your risk tolerance, and what stocks are in your Admiral fund. You don't want to invest in another fund that mimics what you already have. I recently double checked my retirement funds and found that 3 of the 5 had nearly the same stocks, so I had to do more than a little rebalancing. I currently have 25% invested in an international fund, which some people think is aggressive. You could do 10% just to get your feet wet and have some diversity. Or you could consider an age based fund to start out with, unless you are nearing retirement. They tend to be conservative the older you are, and the ones offered in our accounts are too conservative to add much value IMO. I'm pretty aggressive, though.

My allocation is similar, but I'm on the younger side so deal with the risk. Some would call even my portfolio too conservative, and slash the bond allocation down to 0 - 10%

I'm at 50% US stock, 25% international, 20% bond, 5% reit.

[disneysteve]

Vanguard Admiral Shares (large cap domestic)

the Admiral Shares (VFIAX)

I want to clarify something here. Admiral Shares is not the name of the fund. The fund you own, VFIAX, is Vanguard's S&P 500 Index Fund. That fund, and all (I think) Vanguard funds are available in two fund classes: investor shares and admiral shares. Admiral shares are only available to investors who meet a certain minimum dollar amount in their account. In the case of the S&P fund, that minimum is $10,000 (minimum for admiral shares varies by fund - I own one Vanguard fund with a $50,000 minimum for admiral).

When you first start investing in the fund, assuming your initial investment is less than 10K, you are given investor shares. Once you're balance grows to 10K or more, they automatically convert you to admiral shares. They are virtually the same with one significant difference: admiral shares have lower expenses. In this case, the investor shares have an expense ratio of 0.16% and admiral shares are at 0.05%. So they reward you for achieving the larger balance with fees that are less than 1/3 of the investor shares.

I hope that all makes sense.

An S&P 500 index fund certainly isn't a bad choice for large domestic stocks, but for a simple 3 or 4 fund portfolio, the recommendation is typically for a Total Stock Market index fund. The S&P 500 index holds about 500 companies. The Total Stock Market index holds about 3,600 companies so it is much more widely diversified.