My IRA with VANGUARD

[frujinator]

I am 19 years old, and I'm into investing for retiremnet early. I have my retirmenet account with VANGUARD.

Here is what I have -

-ROTH IRA - $5600 in Vanguard Target Retirement 2045
-SEP-IRA - $9500 in STAR Fund.

So I have $9500 in my SEP IRA, and I put it all into the Vanguard STAR Fund, but thanks to some suggesstions, I realize I want to have a more aggresive approach.

Here is my situation:

-I'm not going to touch the $9500 for 20-30 years
-I want to contribute around $10,000 to my SEP Each Year

I am thinking of exchaning the STAR, and divide the $9500 equally into these funds:

-International Growth Inv VWIGX
-U.S. Growth Fund Investor VWUSX

I'm also interested in the Extended Mkt Index Inv VEXMX, I was reading up and this fund VEXMX has had pretty good returns last few years.

Any suggesstions and or opinions? What do you guys think?

Thanks!

-Fruji

 

[cute fuzzy bunny]

Two off the cuff...#1 dont see much wrong with where you are already, although if you want more aggressive, moving the Star fund to more 2045 gives you a little more equity exposure and a lower cost. Not sure what the draw is to the IGX and USX, but theres no reason to think they'll be better returners over 20 years than 2045 or Star.

As far as vexmx, remember, past returns are not prediction of future results. A lot of stuff thats "had pretty good returns the last few years" might just be getting ready to compensate for that with "pretty bad returns" for a while.

That disclaimer aside, stuff like 2045 and Star are heavily large cap weighted, a ballast of small and mid caps like you get with VEXMX isnt a horrible idea to throw in. I dont know if I'd allocate 50% or 33% of my weighting to it, but 20-25 for your age isnt a bad idea.

On the other hand, again, looking at your age...I'd bet that all of it in 2045 or a split between 2045 and Star, left alone, would beat 90-95% of other options over that 20+ year time period. And you dont have to ever look at it again. Oh yeah, good luck finding the combo in that 5-10% range that beats those options.

 

[frujinator]

Wow thanks for the reply! You sound like you really know what you are doing.

Can you please clarify on this statement you made:

"Oh yeah, good luck finding the combo in that 5-10% range that beats those options."


Thanks for the response! I really appreciate it! I'm a young investor, only 19, and I want to start early.

I hope to retire around 45

 

[cute fuzzy bunny]

Hah, another one fooled, alas, a day late.

Check "The four pillars of investing" by Bernstein out of your library and give it a read. His thesis, reasonably well backed up by historic data, is that indexed equities and bonds held over long periods of time beat the vast majority of "other" mutual funds. Happening to own one of the few funds that does overachieve is more of a stroke of luck than genius.

Further, the low costs of indexed investments, compounded over 20+ years, are a tough edge for more expensive fund offerings to beat.

But that was historic. The future might be completely different.

 

[poboy]

Finding beer money was the most important financial quest for me at age 19.

 

[cute fuzzy bunny]

Finding free beer was mine. Hmmm...

 

[unclemick]

Hmmm

I second CBF's last paragraph. Star and Target ain't a bad combo.

Male hormone wise - a nice hobby might suffice. Of course if you read too many books '- sooner or later you may succum to a 'hands on the throttle' episode.

Even I - who ought to know better - have 14% in individual stocks. Haven't bought a kayak yet. Failure at my age 62/63 won't ruin my ER and success?? maybe a kayak with it's own trailer

heh heh heh heh

 

[Craig]

Wow.  I'm sure everyone here is jealous of your position.  19, and over $15K saved already.  I was trying to afford gas for my car, and working really stinky jobs at that age.  Great position you're in ... congrat's, and keep going.

The advice above is right on, as is the book recommendation.  My personal theory is that you become wise and sucessful in investing (and life) when you finally realize you're not as smart (or prescient) as you think you are ... at least that has aided me.

Considering your young age, your current investments are fine, but if it were me ... I'd be tempted to be all equities at that stage, with lots of international exposure now.  Consider plenty of international with VEIEX, VEURX, VPACX; and VFINX and VEXMX are easy choices for domestic.  Index funds have embarrassed most active managers for years ... I'm probably unreasonably biased against bond funds right now, and we're using some CD's instead.  Personal quirk.

You'll get great advice here.  Whatever allocations / investments you choose, the biggest determinants are continuing to invest regularly, and living below your means (LBYM).  Best of luck.

 

[Eagle43]

When I was 19, the U.S. Military was paying me $1700 or so annually. And, of course free lodging and meals. You are way ahead of the game and if you don't flinch, you will be well off by 2045; even before! Congratulations!

 

[cute fuzzy bunny]

you become wise and sucessful in investing (and life) when you finally realize you're not as smart (or prescient) as you think you are

I'd go a step further. You become wise and successful when you realize that NOBODY is as smart as they think they are

I'm probably unreasonably biased against bond funds right now, and we're using some CD's instead. Personal quirk.

I think its pretty reasonable. Why take a volatility risk with bonds paying under 5% when you can get over 5% with no volatility? If we were in a stable or dropping interest rate environment, perhaps I'd rethink the cash.

For someone under 25, and maybe under 30, with no plans in the next 10 years for retiring, almost any bond holding doesnt make much sense. Cash just to the extent that if you lost your job or experienced some other emergency, you could get by without dumping your investments...because its assured that your emergency will coincide with a market downturn.

Maybe 5, 10, 15% bonds tops. International is good. You're getting a decent dollop of that with both the 2045 and Star. More wouldnt hurt. Might not help. I'd add "total international" or "international value" in a small amount if I felt adventurous.

 

[Nords]

Welcome to the board, frujinator!

Since this post pretty much covers the same text of your "Hi, I Am..." post and has already had plenty of responses, I deleted your other post. No criticism implied, just less confusing for those who haven't seen the dupe.

Feel free to post a different intro there or anything else.

 

[frujinator]

No problem Mr. Nords!

Wow ,thanks so much you guys for all the responses. You are all very helpful.

I do want to go international, what fund or funds would you guys recommend? I feel the United States of Europe could be in for some economic reforms and gains. Really want to play that market.

Which Vanguard international funds?

Thanks,

-Fruji

 

[Spanky]

Tax-Managed International or Total International Index.

If you like slice and dice, here is an example:

Developed Markets
Emerging Markets
Pacific

 

[frujinator]

What in the world are Tax-Managed funds? What are they for anyways?

 

[jj]

Frujinator,

Great job - are you sure you're not really a 49 yr old pretending to be 19? 

Tax managed funds are designed for investors who are already paying lots of tax (from their high income) and want to minimize taxable income distributions coming from their investments.  The Tax managed funds at Vanguard try to reduce taxable distributions through minimal trading within the fund.  To this end they charge a 1% fee to anyone who sells the fund within 5 years - this is not technically a back-end load as this 1% is paid into the fund to the benefit of existing fundholders.

 

[TromboneAl]

Way to go, Fruji!

I'd like to hear your story. Where's the money coming from?

If your tax bracket is low, you might think about converting some of your SEP-IRA to a Roth (several pros and cons to consider).

 

[cute fuzzy bunny]

What in the world are Tax-Managed funds? What are they for anyways?

Most mutual funds "pay out" dividends and capital gains. Dividends are paid by holdings in the fund, such as bonds and stocks. Capital gains (and losses) are generated when the fund buys and sells securities.

Generally those dividends and capital gains are taxable to the owners of the fund in the year they are generated. Whether you take them or reinvest them.

Tax managed funds try to minimize taxable dividends and gains and where they cant eliminate them, tries to offset them with losses, and where it cant offset them, tries to transact and pay as long term gains rather than short term.

They sometimes have long minimum holding periods (for example, some of vanguards funds require you to pay a 'fee' if you sell shares within 5 years of buying them), as people who jump in and out may cause the fund to have to sell assets to pay out...creating taxable events. The dividends paid out by a tax managed fund are often lower than a non-tax managed fund of similar composition.

Good funds if you're paying a lot in taxes (or will be in retirement),dont plan on selling for a while,and dont need a lot of current income.

Maybe not as good if you arent paying a lot in taxes, want to sell shares, and/or need high current income.

 

[frujinator]

Hey guys,

I'd love to share my story with you all, and thanks for the comments TromboneAl! But I already have a Roth IRA. Hold on, so will all gains/distributions be taxed in my SEP-IRA or only when I pull them out Thats not how I thought SEP's work.

I'll post my story for ya.

 

[cute fuzzy bunny]

Yep, tax managed investments in an IRA or 401k/403b are probably not your best option.

 

[frujinator]

I thought I get only taxed on my SEP-IRA when I retire and withdraw the money.

Are you telling me it gets taxed when I make the money immediately that year even if I don't withdraw

 

[gindie]

frujinator-
Your understanding is correct. SEP's, etc. are taxed on withdrawl, therefore trying to manage taxes is such an account is unnecessary.

 

[frujinator]

Great, thanks for the clarification!

 

[Craig]

frujinator ... check my post above for some Vanguard international index funds.

I hear Dodge & Cox has a great fund as well, though we're not in it right now ... do a search on the forum, and you'll learn more. I'm sure others here can contribute more ideas of funds they appreciate.

 

[cute fuzzy bunny]

I just want a list of funds that will appreciate.

 

[frujinator]

YES ME TOO!!!!