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Investments for your 30 year old
Old 05-15-2012, 04:23 PM   #1
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Investments for your 30 year old

Our DD and her DH have asked us to help them select investments for their Roth in Vanguard.

Their retirements accounts total about 70k currently, in Roth IRA's and 401's. They are 29 and 30 respectively, have a healthy equity balance in their home and a decent emergency fund. They fully fund IRAs each year and do 401Ks up to the match amounts.

We are thinking 75/25 stocks/bonds overall is a good mix right now and they are comfortable with that. What funds would you recommend within Vanguard if these were your kids? They want growth and hope to retire at 55! :-)
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Old 05-15-2012, 04:35 PM   #2
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First off... that is awesome they are asking you for advice. It means you must be doing something right!

As a 30 year old myself I'm not comfortable holding 75/25 in equity to bonds. I'm at 95/5. With at least 25 years till retirement, anything in bonds is simply trading better returns for less volatility in an account they can't (or shouldn't) access between now and then anyways. No 25 year period in history has had better returns in bonds than stocks.

That said, if a less volatile ride is required by them to stomach the market stretches like we've seen lately then it's worth it to keep them on track... some people simply cannot leave it alone when it goes down, so evening out the ride is more important than the overall return in the end just to keep them in the game. However, there is really no reason to have much in bonds until they get much to retirement age (maybe in 5 to 10 years shifting 2% a year to bonds)

Even Vanguard Target Retirement 2040 Fund (which they'd be looking at if they are aiming for retirement at 55)... has only about 10% in bonds.

Vanguard Target Retirement 2035 has 13% in bonds.
Vanguard Target Retirement 2030 has 20% in bonds.
Vanguard Target Retirement 2025 has 28% in bonds.

Following that trend is a good one

just my 2 cents...
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Old 05-15-2012, 04:47 PM   #3
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I respect that! We can't help but wonder if we are thinking too conservative for them. That is part of the reason we aksked, harder planning for them than us! ;-)

We made itout at 55, and I think they are off to a great start, but looking forrward to what others think..
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Old 05-15-2012, 04:53 PM   #4
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I respect that! We can't help but wonder if we are thinking too conservative for them. That is part of the reason we aksked, harder planning for them than us! ;-)

We made itout at 55, and I think they are off to a great start, but looking forrward to what others think..

It is a parents job to be conservative... and the kids job to be impulsive. In this case, it seems they are more mature than a typical set that age. They have a good start towards retirement (in this economy) and are already asking for help instead of trying to go at it on their own. I think they'll do fine no matter which direction you steer them... the most important thing tell them is to just keep saving!

As for Vanguard Funds:
(a larger percentage in these)
VGTSX - Total International Stock Index [International]
VTSMX - Total Stock Market Index [US]

(a smaller percentage in these)
VISGX - Small-Cap Growth Index [US: Small Cap]
VEIEX - Emerging Markets Stock Index [International]

Personally, I don't want to miss out if the rest of the world catches up to the US so that is why I have the emerging markets for 10% of my retirement. Small-Cap has had a rough millennium so far but is just starting to pick back up. I'm a strong believer in reversion to mean and I think Small-Caps are going to more than make up for it over the next decade. Historically they return much better results over very long periods than larger caps have.

Also the Target Retirement ones listed above are an easy solution... some just throw everything there and then there is no re balancing or bond shifting to worry about.
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Old 05-16-2012, 01:40 AM   #5
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70% Vanguard total stock market (VTI)
20% Vanguard Total International Stock Market (VEU)

And up to 10% in something fun, it can be anything from Facebook to Emerging Markets or microcaps, to stock in some of their favorite companies.

The point is something volatile which will behave different than balanced portfolio. What this really is a $7K experiment on risk tolerance. While monitoring this asset ask them at all time to pretend the actual amount in the risky asset is 10x (i.e. $70K) Do they get excited when goes up, depressed when it goes down. If it it goes up 50% do they want to move more money into how about when it goes down 50%.

Finding out early when they are only talking about $7,000 how they respond to volatility is valuable knowledge.
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Old 05-16-2012, 10:02 AM   #6
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I like Clif's advice and see a second benefit to the "fun" portion besides learning their risk tolerance: a potential lesson in the folly of trying to pick individual winners and time the market.

While they may hit a home run, if given 10% to "play" with, it's more likely that they'll learn that index funds are the way to go long term, based on the results of their fun money versus the rest.

This recent post from a blogger I follow is relevant to the OP's question: http://jlcollinsnh.wordpress.com/201...p-your-wealth/
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Old 05-16-2012, 10:32 AM   #7
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Originally Posted by EvrClrx311 View Post
First off... that is awesome they are asking you for advice.
Sorry - I don't agree. When are they going to grow up? (yes, I know I'll get a lot of "slams" on that comment, but I've been on my own since I turned 19, now at the age of 64...).

I learned "life" on my own, and I'm much better for it. My greatest mistake would have been to follow the "advice" of my (um) "parents"...

Just my simple POV, FWIW...
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Old 05-16-2012, 10:42 AM   #8
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perhaps you should buy them the boglehead's book. at the risk of sounding cliche, "give a man a fish/teach a man to fish." I would just model after a target date fund at this point to get them in admiral funds by buying separately (all except the bond fund, depending on their liking, which I would put in the $10k to get into the admiral fund). This can reduce the fees by at least 50%. Depends on how the money is broken up I guess...

I wouldn't do any tilts or anything until they figure out for themselves what they want to do. Otherwise, they'll be coming back for more advice probably more often than you would like, or worse, they will have a "friend" of a "friend" who is an adviser.
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Old 05-16-2012, 12:39 PM   #9
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I think it's fine to set them up with something reasonable at the start. Explain why it looks like that, how to maintain it, and where to learn more when they want to.

I like 100% equity, so I'd max out at 15% bonds at age 30, which can give similar or better performance if you faithfully rebalance. I also slice and dice with many funds, but for a start a target date retirement fund is simplest. Or three, domestic equity, foreign equity including emerging markets, and bonds. I like 50% foreign, but 25% to 50% is fine. Rebalance each year or when any allocation contains 10% more or less than it should. If they feel comfortable with that rebalancing, they can add more slices in the future to take advantage of additional rebalancing opportunities.
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Old 05-16-2012, 03:24 PM   #10
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Sorry - I don't agree. When are they going to grow up? (yes, I know I'll get a lot of "slams" on that comment, but I've been on my own since I turned 19, now at the age of 64...).

I learned "life" on my own, and I'm much better for it. My greatest mistake would have been to follow the "advice" of my (um) "parents"...

Just my simple POV, FWIW...
There is something to be said for making your own mistakes and learning from them... nothing sticks more then that. But with major things, like this - if a child is willing to listen and 'understand' (key word) it can be really beneficial to step in an offer assistance; to help them avoid the mistakes in the first place.

My parents are very much still involved in my life and I ask them for advice often when I hit new milestones. You can often learn a lot from those who have been there already and made their own mistakes... why repeat if you don't need to.
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Old 05-16-2012, 06:08 PM   #11
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Sorry - I don't agree. When are they going to grow up? (yes, I know I'll get a lot of "slams" on that comment, but I've been on my own since I turned 19, now at the age of 64...).

I learned "life" on my own, and I'm much better for it. My greatest mistake would have been to follow the "advice" of my (um) "parents"...

Just my simple POV, FWIW...
Well you'll get at least one slam.

"Experience is the best teacher, but a fool will learn from no other. ( Benjamin Franklin)"


While Googling for Ben's quote, I found this even better quote"Experience is the worst teacher. It always gives the test first and the instruction afterward. (Anonymous)"

Personal finance education is pretty awful in this country, it isn't really taught at any level of school (even in MBA programs. There is basically books, Jim Cramer, Dave Ramsey etc., or hiring a financial adviser. The alternative is learning by your mistakes and since luck plays such a large part of investment returns it is entirely possible that you learn the wrong lessons.Not to mention investment experience can be awfully expensive, I proposed taking 10% of their money to use as learning experience. That still is $7K a lot more than trying to fix your own plumbing problems.
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Old 05-17-2012, 12:18 AM   #12
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Originally Posted by rescueme View Post
Sorry - I don't agree. When are they going to grow up? (yes, I know I'll get a lot of "slams" on that comment, but I've been on my own since I turned 19, now at the age of 64...).

I learned "life" on my own, and I'm much better for it. My greatest mistake would have been to follow the "advice" of my (um) "parents"...

Just my simple POV, FWIW...
I suspect it depends on your parents and how you feel about them. Unless you are stating that you never listened to anyone "older and wiser" or considered advice, then I believe you are off base. It doesn't have to be parents, but one of the best lessons anyone can learn is to learn from other's experiences and mistakes. It just sounds like you came out poorly in the parent lottery. I did too, but hopefully my DD did not. See, I learned from their mistakes.
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Old 05-17-2012, 05:23 AM   #13
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Rescueme... I agree with you somewhat and I've learned life for most part on my own. Sounds like you did great on your own. Some people excel under such circumstances, but why not help where a parent can, when possible if not taken for granted or assistance ignored.

I think it's great they have that type of relationship. My FIL at age 72 bounces $$ items off me from time to time. The final decision is their's to make. Instead of just giving an answer straight, I would suggest an educating approach while discussing the topic and providing support for the thoughts... provide reading material on asset allocation by age group and risk while highlighting expense of funds, tax harvesting, rebalancing, etc.

If they take the advice blindly, it's Bizlady that needs to be aware of that for future advice.

As always... YMMV


Quote:
Originally Posted by rescueme View Post
Sorry - I don't agree. When are they going to grow up? (yes, I know I'll get a lot of "slams" on that comment, but I've been on my own since I turned 19, now at the age of 64...).

I learned "life" on my own, and I'm much better for it. My greatest mistake would have been to follow the "advice" of my (um) "parents"...

Just my simple POV, FWIW...
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Old 05-17-2012, 09:07 AM   #14
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the great Fred Schwed said something to the effect of, "somethings cannot adequately be explained to virgins either with pictures or words."

Again, I would help, but I wouldn't do anything fancy outside of helping them to reduce fees (if possible). And of course, explain they need to learn themselves good.
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Old 05-23-2012, 07:27 AM   #15
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Sorry - I don't agree. When are they going to grow up? ... I learned "life" on my own, and I'm much better for it.
+1.

While it's nice that the OP's daughter feels comfortable sharing financial information with her parents, she is an adult now and should make her own investment decisions (with the aid of a professional advisor if she doesn't currently have sufficient knowledge or confidence). Mom and dad will not be around forever, and she should make her own mistakes now while the amounts are relatively small. There is no substitute for personal experience.
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Old 05-23-2012, 08:58 AM   #16
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perhaps you should buy them the boglehead's book. at the risk of sounding cliche, "give a man a fish/teach a man to fish." I would just model after a target date fund at this point to get them in admiral funds by buying separately (all except the bond fund, depending on their liking, which I would put in the $10k to get into the admiral fund). This can reduce the fees by at least 50%. Depends on how the money is broken up I guess...
I'd agree with this recommendation for the most part. They need to learn, but nothing wrong with you starting them off with a Vanguard Target Retirement Fund appropriate for their age in the interim. If they want to develop a more sophisticated investment philosophy, and they may not for now or ever, they could a lot worse than a hands-off target fund. Whether it takes them 3 months or 30 years to take over their own investing, they'll do reasonably well in the meantime.

And if I were you, I'd ask myself, 'how will DD & DSIL react when the market hits the inevitable rough patch?' Will they hold you responsible, expect you to have warned them to sell off? Another reason I think handing off responsibility should be part of your approach. I don't agree with just letting them make their own mistakes, nor do I agree with you just picking for them - the best approach is some of both IMO.

If you decide to pick for them to start, I'd at least ask 'what would you pick and why?' and walk them through why the options as a learning experience.

These are still the best books I know of Investment Books

Best of luck, it is good they are asking instead of going to a costly FA or listening to non-investing friends/family. Unfortunately there's way more bad advice out there than good...
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Old 05-23-2012, 09:07 AM   #17
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Well you'll get at least one slam.

"Experience is the best teacher, but a fool will learn from no other. ( Benjamin Franklin)"


While Googling for Ben's quote, I found this even better quote"Experience is the worst teacher. It always gives the test first and the instruction afterward. (Anonymous)"

Personal finance education is pretty awful in this country, it isn't really taught at any level of school (even in MBA programs. There is basically books, Jim Cramer, Dave Ramsey etc., or hiring a financial adviser. The alternative is learning by your mistakes and since luck plays such a large part of investment returns it is entirely possible that you learn the wrong lessons.Not to mention investment experience can be awfully expensive, I proposed taking 10% of their money to use as learning experience. That still is $7K a lot more than trying to fix your own plumbing problems.
+1, heck I'm 62 and I still look for input from others, as do most on this forum. Learning by your own mistakes may not be the way to go in this area
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Old 05-23-2012, 09:56 AM   #18
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+1, heck I'm 62 and I still look for input from others, as do most on this forum. Learning by your own mistakes may not be the way to go in this area
+1

It's one thing to let a young adult stumble when it comes to grocery money or allowances... but to tell your child to "figure it out on their own" and learn these tough lessons on $75K at the age of 30 can be devastating to their financial future... assuming you stay close with your children the rest of their lives it can also come back to bite you later in life if someday you feel obliged to help them make up for those mistakes they made along the way... no matter what choices a child makes, no parent wants to see them working and struggling into their 60's and so it could become a burden later in your retirement to try and leave a little more for them (even if just on a subconscious level)

I can appreciate that those who feel otherwise are the types who clearly made it on their own without any help from their parents, which is awesome... and it is normal they would prefer an approach of "learn on your own" because it worked for them.

In this case however, taking into account the fact that OP's child is asking for advice and OP is most likely financially intelligent herself... this looks like a golden opportunity to help steer a child she's in a good relationship right away from the many potential cliffs they could fall of by saving the wrong way (too aggressive or too conservative).
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