Vanguard Review

[garrynky]

I'm starting to make a little progress towards retiring at the end of this year. I opened an account with Vanguard, moved an IRA in kind and got my financial plan from them a few days ago. Here's the allocation they recommended:

VBMFX Total bond market index 50%
VTSMX Total stock market index 20%
VDEQX Diversified Equity 20%
VGTSX Total international stock index 10%

I'd like to have a few years cash outside of this mix but other than that I'm wondering what the advantage/disadvantage of this approach would be over picking one of the life strategy or target retirement funds? I basically want a set it and forget it portfolio that I rebalance once a year.

Any thoughts?

 

[Tiger]

Either life strategy or target retirement would certainly be the easiest and target retirement would do the balancing for you.

When you combine VTSMX & VDEQX their holdings equal that of the S&P 500 so why not just own Vanguard 500 Index VFINX which has a lower ER then the other two combined?

Also IMO I would want to own at least 20% of VGTSX.

What about a cash reserve i.e. money market, CDs, etc.?

 

[Olav23]

This allocation is very similar to Vanguard Target Retirement 2010 or 2005. If you aren't comfortable rebalancing, I'd go for either of these choices. If you prefer to rebalance, or take from specific funds instead of the portfolio as a whole, I'd slice it up. Whichever you prefer.


2010: (55% stocks/45% bonds/0% cash) VTENX 0.2% expense ratio
1 Vanguard Total Stock Market Index Fund 44.1%
2 Vanguard Total Bond Market Index Fund 40.9%
3 Vanguard European Stock Index Fund 6.4%
4 Vanguard Inflation-Protected Securities Fund 4.0%
5 Vanguard Pacific Stock Index Fund 2.9%
6 Vanguard Emerging Markets Stock Index Fund 1.7%

2005: (44% stocks/54% bonds/~2% cash) VTOVX 0.21% expense ratio
1 Vanguard Total Bond Market Index Fund 41.3%
2 Vanguard Total Stock Market Index Fund 35.6%
3 Vanguard Inflation-Protected Securities Fund 12.7%
4 Vanguard European Stock Index Fund 5.3%
5 Vanguard Pacific Stock Index Fund 2.3%
6 Vanguard Prime Money Market Fund 1.4%
7 Vanguard Emerging Markets Stock Index Fund 1.4%

Your allocation: (50% stocks/50% bonds/0% cash) 0.26% expense ratio

 

[dex]

Are you going to average into these funds? If so, over what period of time?

 

[Peter]

One thing that's always puzzled me about some of these slice and dice allocations: what's the point of 'slices' less than 5%? Whether that 5% does incredibly well, or incredibly badly, isn't going to have much effect on the overall result.

Or am I missing something?

Peter

 

[Olav23]

One thing that's always puzzled me about some of these slice and dice allocations: what's the point of 'slices' less than 5%? Whether that 5% does incredibly well, or incredibly badly, isn't going to have much effect on the overall result.

Or am I missing something?

Peter

I agree. I think a lot of times it is shown for "visual completeness" more than anything else. Look! we have emerging markets AND pacific exposure! (sure it might be .0003% but it is in there!) And, we're doing extra work for that expense ratio by re-balancing back to .005% yearly!

 

[LOL!]

One reason slice and dice can work better than a target retirement or a life strategy fund has to do with taxes. If you have both an IRA and a taxable account, then you can put the bond funds in the IRA were the dividends would be tax-deferred (traditional IRA) or tax free (Roth IRA), and you can put the tax-efficent stock funds in the taxable account where unrealized capital gains are tax free.

 

[mathjak107]

as you get close to retirement sometimes you are better off with funds that arent so tax efficient to avoid a whopping tax bill as you start to liquidate or rebalance. you pay a little each year to ease the pain.

when you are younger i agree to defer the taxes as long as possible but once your close to withdrawing and min. distributions from ira's i have mixed feelings

 

[teejayevans]

as you get close to retirement sometimes you are better off with funds that arent so tax efficient to avoid a whopping tax bill as you start to liquidate or rebalance. you pay a little each year to ease the pain.
when you are younger i agree to defer the taxes as long as possible but once your close to withdrawing and min. distributions from ira's i have mixed feelings

Why not just convert over to Roths, spread over a years before you're 70.5 to minimize
taxes, leaving enough in the IRA so your min. distributions are what you need to take
out anyway, basically put extra in Roth.
TJ

 

[garrynky]

Either life strategy or target retirement would certainly be the easiest and target retirement would do the balancing for you.

When you combine VTSMX & VDEQX their holdings equal that of the S&P 500 so why not just own Vanguard 500 Index VFINX which has a lower ER then the other two combined?

Also IMO I would want to own at least 20% of VGTSX.

What about a cash reserve i.e. money market, CDs, etc.?

I plan on keeping a couple of years expenses in a money market account.

 

[garrynky]

This allocation is very similar to Vanguard Target Retirement 2010 or 2005. If you aren't comfortable rebalancing, I'd go for either of these choices. If you prefer to rebalance, or take from specific funds instead of the portfolio as a whole, I'd slice it up. Whichever you prefer.


2010: (55% stocks/45% bonds/0% cash) VTENX 0.2% expense ratio
1 Vanguard Total Stock Market Index Fund 44.1%
2 Vanguard Total Bond Market Index Fund 40.9%
3 Vanguard European Stock Index Fund 6.4%
4 Vanguard Inflation-Protected Securities Fund 4.0%
5 Vanguard Pacific Stock Index Fund 2.9%
6 Vanguard Emerging Markets Stock Index Fund 1.7%

2005: (44% stocks/54% bonds/~2% cash) VTOVX 0.21% expense ratio
1 Vanguard Total Bond Market Index Fund 41.3%
2 Vanguard Total Stock Market Index Fund 35.6%
3 Vanguard Inflation-Protected Securities Fund 12.7%
4 Vanguard European Stock Index Fund 5.3%
5 Vanguard Pacific Stock Index Fund 2.3%
6 Vanguard Prime Money Market Fund 1.4%
7 Vanguard Emerging Markets Stock Index Fund 1.4%

Your allocation: (50% stocks/50% bonds/0% cash) 0.26% expense ratio

This is a good point and somethng to consider. However, with VTSMX and VDEQX I can get admiral shares and the expense ratio is lower. The expense ratio is a little higher with the VGTSX.

 

[garrynky]

Are you going to average into these funds? If so, over what period of time?

I'll probably just dive right in. I've had a good run up in the IRA I'm moving so I figure it's a wash. Hope I'm right.

 

[donheff]

One thing that's always puzzled me about some of these slice and dice allocations: what's the point of 'slices' less than 5%? Whether that 5% does incredibly well, or incredibly badly, isn't going to have much effect on the overall result.

Or am I missing something?

Peter

I have to admit when I was mimicking the Vanguard TR fund allocations I wondered about some of the low allocations (e.g. emerging) - felt like a bit of salt and pepper with no real chance for an impact.

I'm still missing a REIT but I can't get over the feeling that I would be buying at the top. I have a spare weekend house I could sell in a pinch - I guess that could stand in for RE diversity, right?

 

[teejayevans]

One thing that's always puzzled me about some of these slice and dice allocations: what's the point of 'slices' less than 5%? Whether that 5% does incredibly well, or incredibly badly, isn't going to have much effect on the overall result.

Or am I missing something?

Peter

He probably could have just gone with a Total International fund and skip the small slices.
TJ

 

[Achiever51]

My AA at Vanguard is very similar to that proposed for Garrynky. I rolled over two 401(k) accounts and did not DCA -- I went all in.

Current AA is:
40% in Vanguard Total Bond Market Index Fund Admiral Shares
24% in VG Total Stock Market Index Fund
24% in VG Diversified Equity Fund
12% in VG Total International Stock Index Fund

Average return 9.0%; total return YTD is 5.61%
Expense ratio is 0.21%

As a reformed market-timing, stock-picking, slice-and-dicer, I am now sleeping better at night!

 

[garrynky]

My AA at Vanguard is very similar to that proposed for Garrynky. I rolled over two 401(k) accounts and did not DCA -- I went all in.

Current AA is:
40% in Vanguard Total Bond Market Index Fund Admiral Shares
24% in VG Total Stock Market Index Fund
24% in VG Diversified Equity Fund
12% in VG Total International Stock Index Fund

Average return 9.0%; total return YTD is 5.61%
Expense ratio is 0.21%

As a reformed market-timing, stock-picking, slice-and-dicer, I am now sleeping better at night!

The sleeping at night part is what I'm after. When I retire at the end of the year I have a cash balance account and an IRA to move over then, but having everything in one place in just a few accounts sounds great to me.

 

[mathjak107]

Why not just convert over to Roths, spread over a years before you're 70.5 to minimize
taxes, leaving enough in the IRA so your min. distributions are what you need to take
out anyway, basically put extra in Roth.
TJ

we are mostly talking about the money outside of the ira's, the tax efficiant mutual funds