Submitted by dennisj9 t3_11duvjl in personalfinance
Title says it all. 100% of my Roth IRA is invested into Vanguard's VTSAX. It's down 10% since last year, but I'm okay with that since I don't plan to retire for another 30 years. Is it smart to just continue investing my yearly Roth IRA contribution into VTSAX every year for the foreseeable future?
For context, I also max out my 457 through the state of Michigan each year and I am vested into a state pension.
This is a good reminder to not put two questions in a post - one where the right answer is 'No' and another where the right answer is 'Yes.'
Also a good reminder *for ME* to read the entire post.
I was so confused for a moment.
Edit: In hindsight it may not be obvious that I agree with u/Stock-Freedom but due to the duality of OPs questions I initially took a double take at this response. I thought he was responding to the question in the title, "Is it an issue to keep investing in VTSAX each year?" to which the answer 'Yep.' was confusing.
And which one would be a no for you?
The question posed in the title is:
>Is it an issue to keep investing in VTSAX each year?
The answer to that is "no".
Then in the body of the post they ask:
>Is it smart to just continue investing my yearly Roth IRA contribution into VTSAX every year for the foreseeable future?
The answer to that is "yes".
Doesn't really matter I don't think as my point was that the two questions were effectively opposites.
Though I'd say no to 1 and yes to 2.
I see. I think op just rephrased the question.
There’s only one question mark.
100% VTSAX for life can be an adequate choice. If that gets to risky you can reduce its allocation by adding a total bond market index fund as you get closer to retirement. Recommend reading JL Collins’ very popular book “A Simple Path To Wealth.”
I’ve read that book and it only has 1 message: invest in VTSAX and avoid doing anything fancy with your money.
In relation to investing, it's the "fancy" stuff that causes people to underperform with their portfolio. Fortunately Mr. John "Jack" Bogle, the man credited with inventing index investing, realized that and happily shared it with the world.
Less think the better.
LOL. The key word in the book is simple, because the entire book could be re-written to what you said. I thought he recommended 2 funds though.
Great book. Highly recommend.
If OP does VTSAX for thirty years he should have enough dividends even in a down market that he will have no financial problems at all.
Arguably the best book on beginner retirement investing. Anyone at any level can read this and understand it.
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Loved that book, the first financial literacy book I read. Than I read John Bogle book “The little book of common investing” and then my mind exploded even further.
Not an issue, it is all preference. I personally prefer VTWAX because I like to have more international exposure. I will add bonds when I turn 40ish.
One could always add a bit of that to help diversify, the expense ratio's certainly low enough.
You realistically shouldn’t be adding bonds at that point unless you’re trying to retire early, but it all depends on what the market looks like at that point in time. If we are back to a low interest rate environment we saw for the past decade, no, you absolutely should not add bonds. If things are at 5-6% or higher on the 30 year, it would be a little bit better. It also depends on how much you have and how much you need to retire. (Above your goal, then it’s ok to take some risk off the table)
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Like I said, personal preference. International has been performing well these last few years. I want to cover all weighted stocks and that’s what VTWAX does.
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Certainly has. However, past performance isn’t a good indication of future performance. Plenty of massive companies all around the world that are continuing to grow.
Used to be where if the US markets are performing poorly, the whole world followed. It’s no longer that way, European and Asian markets operate independently. An example is during Covid, the US struggled to obtain micro chips and various supplies since we rely heavily on foreign goods.
Again, VTSAX is diverse and a viable option. I’ll stay more diversified since I cannot predict the future.
That's what I do, but I'd like to hear everyone's opinion on it. VTSAX has basically been my catch-all, but I've been wondering if I should, idk, diversify?
VTSAX is the entire us stock market. That is plenty diversified. You can think about bonds or international.
Yup, I buy international funds (i.e. VTIAX) to diversify my portfolio, but I didn't bother until I was well into six figs invested. I'm currently 70/30 VTIAXVTSAX/VTIAX essentially.
> 70/30 VTIAX/VTIAX
VTSAX/VTIAX?
Yup, my bad. I'll fix.
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Foreseeable future, fine. Once you’re closing in on your retirement, not fine.
OP has a state pension, I'd think staying 100% VTSAX would be fine with that safety net in place.
Interesting. My parents do that. Live off SS and leave the rest in the market so they can earn. They said bonds never did much for them and they have SS to cover the monthly expenses.
This is a myth. 100% VTSAX is fine
Retirement age people 100% in VTSAX would've lost 19.53% last year. That's... not ideal with the amount of capital they should have saved by that point. They may no longer be in a position to just 'wait it out'. Holding the position at that age without guaranteed income is pretty risky.
A lot of people live until 90. They can do 3-4% withdrawal in full stocks and not touch the principle. Bonds is an old theory and one that I just disagree with.
How do you 'not touch the principle' when the investment falls almost 20%? There are no gains to sell off. There's nothing but a fraction of the principle you had a year ago.
I’m assuming this is someone who has been investing for many years. Not someone who is 64 and just started investing
Someone whose been investing since 1990 (or many many years) need not go into bonds in my opinion. The 20% pull back doesn’t affect them.
I’m in my early 30’s and I’m heavily investing - by the time I’m at retirement age I plan on doing full stocks for the 11.5% or so average return. My family has longevity so I’m assuming I’ll live into my 90s especially with advances in healthcare in the next 30 years.
The average return of VTSAX since it's inception is 7.15%, idk where you got 11.5 from.
I'm about the same age and you are assuming we will be lucky enough to match the greatest bull runs of human history. It's far more likely our parents just had better investment opportunities than we will ever have access to.
The needs of a 64 yo who started investing a while ago and a 64 yo who started investing last year will still be the same. A 20% hit would affect both the exact same. Monetary needs are forward moving.
The second chart on this page is interesting
https://www.longtermtrends.net/stocks-vs-bonds/
Shows how crazy the market is compared to so an early 40 year window - so ya, good chance we won't repeat this as much if it was due to deficit spending. It also shows how much worse bonds have performed.
Sorry bro your post makes zero sense. I wish you luck in your wealth building FYI VTSAX closely mirrors s&p 500 which has a non inflation adjusted return of 11.58%. Lets touch base in 30 years and see who has more money :)
You might want to report that to Vanguard then, because it literally shows it's yield since inception as 7.15% https://imgur.com/a/mGCNpiW
S&p500 is what you want to look at
The s&p 500 is older than 2000.
I think the idea is that the returns are so much better and for people who have enough, the well is deep enough to survive the down turns and on the long run, come out on top. Seems like it all depends on the ratios of expenses, wealth, and timing.
Those same people would be up 44% over the last 5 years still
how did bonds do
depends on how reliant you are on the dividends, if its the only source of income then probably not ideal for the reasons you mentioned. If you're well diversified (outside of securities) and have a12 month emergency fund, then I don't see an issue with being 100% in a broad index fund, but to that end- it applies to such a small amount of people that those in the position to hear it, probably don't need it.
I'm not sure. (PDF warning)
Under "Why not 100% stocks?"
> In short, although a strategy that fully invests a retirement portfolio in stocks can be perceived as riskier than most alternatives, is that really the case? Is a strategy that has the lowest probability of failure, provides the same or better downside protection, and higher upside potential really riskier than other strategies simply because a retiree is more uncertain about (how much higher will be) his bequest? If not, then having a retirement portfolio fully invested in stocks is a strategy that should be seriously considered by retirees.
What to go for when ~10 years from retirement?
Not 100% stocks. You can’t afford to risk a possible 30% portfolio hit when you’re within a few years of retirement.
A target date fund would probably be a prudent move in a few more years. If you don’t want to risk 100% stocks (and you shouldn’t), let the pros worry about asset allocation.
What are the mechanics of moving to something like a target date fund, if I had been fully invested in equities for the previous ~30 or so years? Sell the equities and simply buy into a target date fund?
From my understanding, yes, and since it's in an IRA you don't owe capital gains taxes.
Yup. No tax implications of anything done within an IRA. Sell VTSAX, buy VFFVX.
I just want to point out that some people MAY be able to ride the ride IF their retirement account is plenty large enough. It also is dependent on risk tolerance.
Thank you
Another option is a bond tent. Basically, shift your portfolio to 40% bonds as you get closer to retirement (say, over 5-10 years), and then glide back down to 100% stocks over 10 years or so. This is more useful for early retirees expecting a long retirement, but it can certainly work for anyone retiring at any age.
The intuition is that the biggest risk is sequence of returns risk, i.e. taking a big hit (your 30%) in the first few years of retirement, so the plan is to just protect the first 10 years or so of retirement. Invested money approximately doubles every 10 years, so your 60% stocks should be 120% of their original value after 10 years, which is enough buffer to ride out another hit without needing bonds.
This strategy obviously takes some effort, so it's only really valuable if you expect to have a long time horizon.
That may depend on how flexible you are regarding your retirement date and how long you are preparing to live post-retirement. If you're going to retire in you're 30s by giving a surprise two-week notice whenever you hit "you number," I think staying all-in on equities isn't too suboptimal. But in most cases (including mind) there'll be some diversification as I near the big day.
Target date funds are pretty great.
Biggest negative is they charge a slightly higher expense ratio for them doing the work of blending over to bonds over time.
The additional expense is very small, and likely worth it if you are the kind of person who might forget to adjust your allocation over time, or who would lie awake at night worrying about whether you did it right yourself.
That’s definitely one of the most important things to look into when choosing one.
You could switch to VTWAX
for tax advantaged accounts i just do vanguard TDF fund now that they have lowered the ER to 0.08. quite literally the best set it and forget it option now.
Curious, why not something like VT?
Or VTI?
VTSAX and VTI are the same thing behind the curtains. The only difference is that VTI is an ETF and VTSAX is a mutual fund.
Ventricular tachycardia is a lethal rhythm that can require defibrillation. I would not recommend.
not op but:
VTI/VTSAX has at least 2x lower Expense ratio and is older thus more "attractive"
Not saying its better just that's I why I picked it.
really you cannot go wrong with either
its perfect. set it, fund it, forget it
VTSAX and VTWAX make up 50% of my portfolio. You really can't go wrong with them. If they do go wrong, the entire market is screwed anyways. Once you're over 50 you might want to rotate some of it into bonds though, just to be safe....
A fair warning with those two fund, the Vanguard Total World Stock Index Fund is basically the equivalent of owning 50% VTSAX and 50% Vanguard Total International Stock Index Fund.
VTIAX has some tax benefit too. If you want this control, you'd probably want to do VTSAX/VTIAX.
This is a good point: how important is it to ensure that index funds are not overlapping? For instance, is it asinine to fund both VTSAX and VFIAX given that one is a subset of the other?
It's not important per se in these types of highly diversifed funds.
When the funds overlap, you're not changing diversification -- you're changing asset allocations.
I use Vanguard Total Stock Market Index Fund (VTSAX) along with Vanguard Small-Cap Index Fund (VSMAX) to get more mid-cap and small-cap exposure. My investment plan calls for taking more risk (and hopefully returns) by increasing my exposure to mid-cap and small-cap stocks.
However, all of the stocks in VSMAX (1,486 stocks) are in VTSAX (3,969 stocks).
I'm curious to see others thoughts on this as this is what I'm doing too. To me it's already diversified. If there's a US meltdown in the future, I fail to see how International will do better. The world is so tied to US companies as of now. Over the past 100 years or something, stocks have went down 25% of the years and up 75% of years. My feeling is worst case once I retire or want to retire, if we're in a situation like we were this past year, I could cut spending and get a job as a Walmart greeter or whatever to get a little extra income to not tap into investments for that down period more than necessary. Interested to see what other say on this.
You can play with this a bit and see how international does annually. https://www.blackrock.com/corporate/insights/blackrock-investment-institute/interactive-charts/return-map
Vanguard's VWO int'l emerging fund has alibaba, tencent, tsmc
I don't think this is an issue but I like the idea of holding 2 or 3 etfs.
But why buy three if one do trick?
You could buy:
And then you'd just get something very close to VTI/VTSAX performance, but a lot more complicated.
Alternatively, you could buy an international fund to further diversify, but then you could just switch to VT/VTWAX, assuming you're looking for a global market cap weighted strategy.
In other words: don't buy funds to have more funds. But the funds you need to match your strategy.
I try to buy as few funds as I can to get my desired asset allocation, currently, that's something like 7 because of fund options are various institutions (e.g. S&P 500 + small cap in 401k, FXROX and FZILX in my Fidelity HSA, both VTIAX and VFWAX in my taxable brokerage for TLH, and VTSAX in my IRA).
I definitely have a lot more to learn. I knew vtsax was diversified. Thanks for the input.
Hope it helped!
The main takeaway is that more funds doesn't necessarily mean you're more diversified. I have VTIAX and VFWAX, but they're pretty much the same thing. Likewise with VOO and VTI.
The important thing is to decide what allocation you want, and then buy funds that provide that. Unfortunately, there are as many fund allocation strategies as funds, so it can be complicated.
Good luck! I'm happy to answer any questions.
Honestly it's great that it's down. Buy more shares with the same amount of money =p
What are you investing your 457 in? Assuming you work for the State of Michigan, Vanguard isn't an option unless you're paying extra to invest in whatever you want.
VTSAX and Chill 😎
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I do about 60% total market, 10% real estate 10% international 10% international and 10% bonds. I have been adjusting the percentages though and have stopped contributing to bonds completely. I am in my mid 30s
No international exposure with vtsax.
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If you think the US economy will consistently outperform international markets, then yes. But you’ll lose if the opposite is true.
Personally, I would add some international exposure.
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You want the market to suck real bad until the day you retire. Bad markets = cheaper stocks.
Why not VOO, I thought the S&P historically outperformed the total market index?
It's not a bad fund. Especially if you're buying and holding for the long term.
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Vanguard says vxus will beat vtsax for the next 10 years. Do with that what you will.
I'm trying to add vxus and maybe be 75 and 25 vtsax and vxus
I’m 20% ex-US and a huge Vanguard fan but I have a hard time going with their recommendation of 40% ex-US
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Do you put it all in at once? You should spread it out throughout the year. Probably good to diversify even with funds. maybe 3-4
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Stemming question from OP’s question: Is VTSAX basically the same asset allocation as the target retirement funds but without the bonds? I too intend to receive a pension and fund a 457 plan, so I’d like my Roth to be more aggressive if possible and simply ride the waves. Thank you in advance.
No, VTSAX is all US stock market. Target date funds are that plus some intl stock, plus US and intl bonds. All with varying equity / bond allocations dependent on the year it’s targeting
I thought you weren't supposed to put all your eggs in one basket? Would it be better to invest in several things?
Not helpful but I am curious.
>What are the mechanics of moving to something like a target date fund, if I had been fully invested in equities for the previous ~30 or so years? Sell the equities and simply buy into a target date fund?
VTSAX is an index fund that holds the entire U.S. stock market. It's pretty diversified just by itself. Popular tips would be to hold VTSAX and then get a bond fund or global stocks index fund/ETF
A representative sample of the investable U.S. stock market. It doesn’t contain all small-caps or micro-caps, and some stocks can be determined to not be investable (for example, Berkshire Hathaway was considered to be not investable by most funds before the B share class was created).
To be precise, the fund owns stock in 3,969 companies.
Good point!
ETFs ARE multiple things. It's a collection of thousands of stocks out into a nice little backer that you're owning a piece of. A lot easier than you having to keep track of all those different stocks yourself. And usually cheaper too
VTSAX isn't an ETF, it's a mutual fund. The ETF class for that fund is VTI.
Otherwise you're correct. VTSAX owns a piece of pretty much every publicly traded company in the US, in amounts consistent with each company's valuation (i.e. it buys much more Apple stock than, say, AMC).
Stock-Freedom t1_jaayr89 wrote
Yep. That’s pretty solid if you have 30 years.