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 (4 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

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

« Older What English Language TV Comedy Should We Watch...   |   Jesus says no! Newer »
This thread is closed to new comments.