Help me choose between 5 Vanguard Funds
February 15, 2013 8:04 PM   Subscribe

Help me choose between 5 Vanguard Funds

General Info:
401k maxed - target retirement 2045 - vanguard fund
Roth 2012 & 2013 maxed - Life Strategy moderate growth fund (VSMGX 60% stock | 40% bond)
I want to invest ~$1000 / month (after tax)
Time Period - 7-10 years (Can keep it longer if the market performs poorly)
Risk Appetite: Moderate

Which would you pick / suggest?

- Vanguard 500 Index Fund (VFINX)
-Vanguard Life Strategy moderate growth fund (same as what I have in my Roth)
-Vanguard growth strategy Fund (VASGX) [80% Stock | 20% Bond]
- Vanguard target Retirement Fund 2020 / 2025 (This is tricky cause maybe I change my mind and want to continue investing beyond 10years)
-Vanguard total stock market investor share (VTSMX) - My current preference
posted by r2d2 to Work & Money (5 answers total) 13 users marked this as a favorite
I have VFINX. So does my sis. It didn't do too well for a couple of years but it's been okay since.
posted by discopolo at 8:08 PM on February 15, 2013

If your risk preference is truly moderate, choose one of the targeted retirement funds that has between 20 and 30% bonds.

Also, visit the bogleheads forum at, check out their wiki, and look especially at the Three Fund Portfolio. This question is perfect for bogleheads, where hundreds of helpful Vanguard enthusiasts will put you on the right track. Really! It is designed to help people exactly like you.
posted by MoonOrb at 8:12 PM on February 15, 2013 [2 favorites]

I'll take a slightly different tack here--what exactly do you mean by saying that your risk appetite is "moderate"? It sounds like you are a Vanguard customer, so I would recommend using their web-based questionnaire to really quantify your risk appetite. The results of this questionnaire will give you different bond/stock asset allocations to which they compute the min/max gain/loss and average gain based on historical data. I think that will help with figuring out the particular asset allocation for (what seems to me) your non-retirement (i.e. not tax advantaged) investment account.

On preview, I also echo checking out bogleheads as they have quite a wealth of info for personal investors regarding asset allocation and all of the considerations that go into building your portfolio.
posted by scalespace at 8:20 PM on February 15, 2013

Personally I would get:

70% Total Market Index
10% Bond Index
10% REIT Index
10% International Index
posted by Dansaman at 8:33 PM on February 15, 2013

Do you know what your _overall_ target allocation is? ('moderate' risk appetite might mean 50% stocks/50% bonds or it might mean 80% stocks/20% bonds, or anything in between)

You should think of your portfolio as a whole, rather than as a collection of parts. If your goal allocation is, for example, 70% stocks/30% bonds, you should be looking at the best way to make that happen across all your investments.

Because this investment is (I assume) in a taxable account, you want to keep tax efficiency in mind. Stocks are very tax-efficient, bonds are very tax-inefficient.

My recommendation would be to buy VTSMX (which is the most tax-efficient of the funds you list, since it contains no bonds and is very rarely forced to sell shares in a tax-inefficient way) BUT because it contains no bonds, you should look at modifying your other investments so that your portfolio doesn't become more stock-heavy than you intend. One way you could do this is to switch from LifeStrategy Moderate Growth in your Roth IRA to something slightly more conservative- maybe a 50-50 fund.

I feel like I'm not explaining this well--
Sorry if this gets long-winded.

Begin with your end goal in mind- imagine everything is in one bucket, and you know your target allocation (I will use 70% stocks/30% bonds just for simplicity).

Let's say your portfolio was $50,000-- $30,000 in a 401(k), $10,000 in Roth IRAs, and $10,000 that will (over the course of the year) go into this new account, which is not tax-advantaged in any way. 70% of $50,000 is $35,000, so you want $35,000 in stocks and $15,000 in bonds.

You want your new account to be 100% stocks, (VTSMX) for tax-efficiency. That's $10,000. You still have $25,000 in stocks and $15,000 in bonds to divide up. That means that of the remaining (tax-advantaged) accounts, you would want 62.5% ($25,000/$40,000, the remaining amount) in stocks, and 37.5% in bonds. Well, that's pretty close to a 60/40 split-- so you could put both your Roth IRA and 401(k) in funds with a 60/40 bonds/stock split. (obviously, redo this using your own numbers-- or, like MoonOrb said, ask on they live for this stuff).
posted by matcha action at 8:39 PM on February 15, 2013

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