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what vanguard funds to invest into
Old 06-25-2012, 12:33 AM   #1
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what vanguard funds to invest into

quick stats:
401k around $800k (all mutual funds)
taxable accounts around $350k (all mutual funds)
iras & an annuity (barf) around $110k
misc. other accounts approx $75k
various real estate rentals (equity value) approx $700k

i plan to pull the plug on my career in about 4 or 5 years, as soon as fire calc says i am 100% good-to-go.

i max out my 401k every year (approx 48.5k this year)
i make extra principal payments to the rentals from time to time, approx 10-15k / yr.
i try & add 2-5k / mo into the taxable accounts (all mutual funds) & am pretty well diversified.

i would like to dip my feet into some vanguard funds with my after tax monthly surplus cash flow before just jumping in head first.
(both my 401k & taxable accounts are at Merrill lynch...i know, i know )
but am not sure of which funds to open & set on auto pilot monthly investing.

let the flaming, i mean advice begin!
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Old 06-25-2012, 09:10 AM   #2
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You have some work to do first.

You need to decide what your target asset allocation (AA) is given how much risk you are willing to accept. For example, my AA is 55% equities, 41% fixed income and 4% cash.

Once you have decided your target AA, you should look at your current AA across all of your investments. Morningstar's Instant X-Ray tool or Vanguard's Portfolio Watch (if you have a Vanguard account) are useful in doing this.

The next step would be to assess any differences between your current AA and target AA and where other contributions are going so you know whether this new taxable account money should go into equities, fixed income or whatever. Then you can select a low-cost fund that solves the AA puzzle.

YMMV but that is the approach that I would take.
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Old 06-25-2012, 09:27 AM   #3
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Originally Posted by pb4uski View Post
You have some work to do first.
+1. With no more information than you've provided, I'd suggest a

balanced fund https://personal.vanguard.com/us/fun...egory=Balanced or
life cycle fund https://personal.vanguard.com/us/fun...gory=LifeCycle.

They're pretty much set-it-and-forget-it funds that sound like what you describe. You could do a little better
managing taxes by putting income generating funds (bonds, dividend equity, etc.) in tax sheltered accounts and more tax efficent funds (large cap equity, TM funds) in taxable though. Still the balanced and life cycle funds are good places to park investments while you learn more about asset allocation and picking funds.
Bogleheads wiki
Investment Books

Best of luck...
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Old 06-25-2012, 11:49 AM   #4
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Vanguard's target retirement funds use VTSMX (Total Stock Market), VGTSX (Total International Stock), and VTBIX (Total Bond Market II). Select your target percentages and they'll make a fine simple portfolio.
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Old 06-25-2012, 02:41 PM   #5
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How do you max out 401K at 48.5k when contribution limit is 22.5k?
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Old 06-25-2012, 02:45 PM   #6
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How do you max out 401K at 48.5k when contribution limit is 22.5k?
This is what I want to know. I must be doing something wrong.
(And the 22.5 is only for those 50 and older.)
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Old 06-25-2012, 02:49 PM   #7
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Vanguard's target retirement funds use VTSMX (Total Stock Market), VGTSX (Total International Stock), and VTBIX (Total Bond Market II). Select your target percentages and they'll make a fine simple portfolio.
As for domestic, I have Total Market VGTSX, Mid cap VIMSX and small cap VISVX and VG Stock Analysis shows I have nohting in Growth (Large, Mid or Small).

Is that what happens when we do these VG funds without specifically buying into growth funds? (my Large/mid are half/half value and blend and cap is heavy on value.)
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Old 06-25-2012, 02:50 PM   #8
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How do you max out 401K at 48.5k when contribution limit is 22.5k?
I would like to know also...

Maybe the company matches 100% up to the max, plus some??
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What?
Old 06-25-2012, 04:03 PM   #9
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What?

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Originally Posted by tessaduncan View Post
How do you max out 401K at 48.5k when contribution limit is 22.5k?
Oh, good, I wasn't the only one who picked up on that. I'm eager to hear if the OP knows something we don't know.
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Old 06-25-2012, 04:09 PM   #10
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How do you max out 401K at 48.5k when contribution limit is 22.5k?
That sounds suspiciously like the $50k combined limit for a Solo 401k. Maximum employer contributions help any 401k as well.

Edit: regular 401k's can hit $50k + catch ups as well, from what I see on the web, if you have a really generous employer.
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Old 06-25-2012, 04:43 PM   #11
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Clearly you are clearing a lot of cash every month. That suggests you are in a high tax bracket. One of the most tax efficient funds to use in a taxable account at Vanguard is the Vanguard Total Internationals stock index fund. You can probably get the Admiral or Signal share class of this fund in order to keep expenses low.

That's where I would start in order to dip feet and test waters. If you think you have too much international already, then exchange some existing international in 401(k) or tax-advantaged account into some other fund that fits your asset allocation.

Do NOT use LifeStrategy, Balanced, Wellington or any other fund with a mix of equities and fixed income in your taxable account as they would not be tax-efficient and you would get killed on taxes.

Check out Bogleheads Investing Advice and Info and their Wiki for lots of great info.
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Old 06-25-2012, 05:24 PM   #12
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How do you max out 401K at 48.5k when contribution limit is 22.5k?

I think the OP's plan probably allows for post-tax contributions and that is why he can contribute so much. While only 22.5 of the 48.5 would be excluded from his/her W-2 earnings, investment income/gains on the entire 48.5 would be tax deferred. My former employer's plan allowed such post-tax contributions up to a total of 49k a year (54.5 if you were over 50).
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Old 06-25-2012, 05:34 PM   #13
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It is not a good idea to contribute after-tax to a 401(k) unless the money goes into a Roth 401(k) or is immediately rolled into an external Roth IRA. The reason is that gains on that money in a traditional 401(k) get taxed at ones marginal income tax upon withdrawal. That tax rate will be higher than for example the tax on a Roth (0%) or in a taxable account (Long-term cap gains tax rate is almost also less than marginal income tax rate and can be as low as 0%).

OP could be self-employed and/or employer (i.e. himself) could contribute to 401(k), too. That is pre-tax money, so this is just fine.
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Old 06-25-2012, 06:52 PM   #14
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Clearly you are clearing a lot of cash every month. That suggests you are in a high tax bracket. One of the most tax efficient funds to use in a taxable account at Vanguard is the Vanguard Total Internationals stock index fund. You can probably get the Admiral or Signal share class of this fund in order to keep expenses low.

That's where I would start in order to dip feet and test waters. If you think you have too much international already, then exchange some existing international in 401(k) or tax-advantaged account into some other fund that fits your asset allocation.

Do NOT use LifeStrategy, Balanced, Wellington or any other fund with a mix of equities and fixed income in your taxable account as they would not be tax-efficient and you would get killed on taxes.

Check out Bogleheads Investing Advice and Info and their Wiki for lots of great info.

Please explain for me why VGTSX would be a good tax-advantaged investment choice, especially over a fund like VWELX? I'm certainly no expert, and that's why I'm asking because my initial opinion of VGTSX is that it is a volatile sub-performer. What am I missing or misinterpreting?
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Old 06-25-2012, 07:48 PM   #15
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Please explain for me why VGTSX would be a good tax-advantaged investment choice, especially over a fund like VWELX? I'm certainly no expert, and that's why I'm asking because my initial opinion of VGTSX is that it is a volatile sub-performer. What am I missing or misinterpreting?
I did not say VGTSX would be a good tax-advantaged investment choice. I said it would be a good choice for a taxable account.
Please read this and tell me if it helps:
Principles of Tax-Efficient Fund Placement - Bogleheads

However, I will also mention that VGTSX would be OK in a tax-advantaged account, too.

Finally, how can an index fund be a subperformer? That's impossible since it is an index fund.
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Old 06-25-2012, 08:23 PM   #16
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I did not say VGTSX would be a good tax-advantaged investment choice. I said it would be a good choice for a taxable account.
Please read this and tell me if it helps:
Principles of Tax-Efficient Fund Placement - Bogleheads

However, I will also mention that VGTSX would be OK in a tax-advantaged account, too.

Finally, how can an index fund be a subperformer? That's impossible since it is an index fund.
Yes, that did help. Thanks.
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Old 06-25-2012, 08:42 PM   #17
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OP could be self-employed and/or employer (i.e. himself) could contribute to 401(k), too. That is pre-tax money, so this is just fine.
winner-winner chicken dinner!

it's all pre tax money going into my 401k funded by our business.

back to the question at hand though...i am only asking what to do with my after tax surplus cash, not my pre tax money.
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Old 06-25-2012, 08:53 PM   #18
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You still need to look at your AA for all your investments in aggregate across all types of accounts (tax free, tax deferred and taxable).

Typically your after tax surplus cash would be in a low cost, index equity fund that would be tax efficient.
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Old 06-25-2012, 09:01 PM   #19
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winner-winner chicken dinner!

it's all pre tax money going into my 401k funded by our business.

back to the question at hand though...i am only asking what to do with my after tax surplus cash, not my pre tax money.
Answer is still the same: Vanguard Total International Stock Market Index fund in taxable. Then adjust all your assets so you still have the desired amount of international funds combined.
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