Vanguard Funds

[TAnne]

Hi

We just moved our money to Vanguard and they offer a free consultation, which we had early this morning.

One of his suggestion is for the VDEQX Vanguard Equity Fund. I know it is an actively managed fund vs. index fund. I need input on this fund please.

He also suggested VBMFX for the bonds, as well as VTSMX for the US market and VGTSX for international.

I felt like he kind of steered me away from the admiral funds? We have enough money for them so that puzzled me.

Any input anyone can offer will be appreciated. Good, bad, or indifferent! LOL

I hope I put this in the right forum.

Thank you
TAnne

 

[Gpond]

Diversified Equity is a fund of funds. They currently have it loaded down with 3 dogs; Windsor, Morgan and U.S. Equity. Fund of funds is a great tool to push assets to funds that are not getting money rolling in.

You would probably be better off long term to look at Index ETFs.

 

[ziggy29]

Diversified Equity is a fund of funds. They currently have it loaded down with 3 dogs; Windsor, Morgan and U.S. Equity. Fund of funds is a great tool to push assets to funds that are not getting money rolling in.

You would probably be better off long term to look at Index ETFs.

That's the one thing I don't like about a lot of the "lifecycle" or "target" funds out there. Even if they provide the appropriate allocation, they often use some of a family's doggier funds.

 

[FIREd]

I am not excited about VDEQX. According to Morningstar, it's the "actively managed equivalent of VTSMX". I think you're better off sticking with the index. Plus VDEQX is twice as expensive as VTSMX. I honestly can't see what it's bringing to the party.

I think you are should go with VBMFX, VTSMX and VGTSX (I own all 3).

 

[travelover]

The Admiral funds are the same as their equivalent investor funds with a lower expense ratio. So, if you are investing 100K in any one fund you'd choose the Admiral version.

I like the index funds, others are not convinced. If you haven't yet, spend a little time at the Bogleheads and see if you like their Koolaid.

Bogleheads Investing Advice and Info

 

[Grep]

TAnne,

I'm surprised at that recommendation. Instead, I'd suggest going with the broadest and lowest-cost mutual funds such as VTSAX (total market admiral shares) if you can afford that. As Bogle (founder of Vanguard) says, "you get what you don't pay for." Owning entire markets in one or two funds also promotes tax efficiency.

Earlier you had the notion of a split between Total Market, Total Bond and Total Foreign (same as FireDreamer is suggesting). That remains a good, simple plan.

The percentages are up to you. "Age in bonds" is a reasonable rule of thumb (e.g., if you are 55, then 55% in bonds, which you would slowly adjust over the years). Then you can decide how much U.S. and foreign equity. Although the world is roughly 40/60 US/foreign, I'd suggest more like the opposite given that you live in the U.S.

Finally, you have to decide whether to put it all in now or spread it out over say 12 months, or split the difference somehow (e.g., half in now, and half spread out). No one can predict the future, but equity prices seem reasonable now by historical standards.

I'd also recommend keeping a few years (say 5 to 7) worth of core expenses in cash and a CD ladder. Dividends would augment that.

I could suggest a slightly more complicated portfolio, but this is very simple, which I sense is something you need.

Cheers.

 

[unclemick]

Well over at Bogleheads, I don't hit them with the old Wellesley BUT I do harp on Target Retirement.

So my first question is why? Suppose you pick your age range Target Retirement Series and convince yourself, ask that 'free' investment fella why you should alter what Vanguard research has produced as the proper lifecycle fund.

Me? Target 2015 cause I lie about my age and feel young at heart, AND if I take my Social Security/pension income times 25 - toss it in my Target and a few Norwegian widow stocks - I get 35/65 stocks/fixed - handgrenade close to an old your age in bonds rule of thumb - AND there's more - the SWR take out at 4% and my income stream match up pretty close.

So why not assume the research cats know what they are doing and pick your age in Target Retirement out of the can.

heh heh heh - we'll save the hormone issue til later. .

 

[TAnne]

Grep,
Yes, simple is better, you got that right for us at this point! However, could you humor me and also suggest the slighlty more complicated suggestion.
I have spent so much time reading books and reading blogs/groups and researching that I may soon be too blind to read anymore, LOL Thanks
T-Anne

 

[ziggy29]

I'm not sure what VDEQX would add to a portfolio with VTSMX, VGTSX and VBMFX. Seems to me you'd have the major bases covered with those three, though I'd be tempted to divide my fixed income between VBMFX and VIPSX (TIPS).

 

[Grep]

Grep,
Yes, simple is better, you got that right for us at this point! However, could you humor me and also suggest the slighlty more complicated suggestion.
I have spent so much time reading books and reading blogs/groups and researching that I may soon be too blind to read anymore, LOL Thanks
T-Anne

T-Anne,

I'd have to know a few things. One important but easy one is how is the money divided between taxable and sheltered, percentage-wise (e.g., all taxable, 50-50, etc.).

One concern I have with Total Bond fund is that Treasuries (a major component) are in a serious bubble by almost any standard. That might lead one to hedge bets on Total bond market, as Ziggy suggests.

I'd also be curious how much you need in yield before you would have to draw down principal. Avoiding the latter during the next few years is probably important (hence my suggestion for a CD ladder covering basic expenses).

 

[mickeyd]

Hey TAnnie,

Welcome here.

One of his suggestion is for the VDEQX Vanguard Equity Fund. I know it is an actively managed fund vs. index fund. I need input on this fund please.

He also suggested VBMFX for the bonds, as well as VTSMX for the US market and VGTSX for international.

I've had a few Vanguard meetings with one of their CFPs and they often include non-index funds as part of their process. As I am an indexer, I have never taken any of these suggestions and stick with the plain vanilla index funds that attracted me to Vanguard in the first place years ago. The planners usually come up with two portfolios for folks to consider. I find that the "integrated" portfolio that is closer to my asset allocation generally is better for me. But, look over all of it and if you don't select what works best for you, you can always change it.

Make your own decisions based on all of the information that you can accumulate and read about, including your encounter with the planner.

 

[TAnne]

Thank you everyone for the input, I have really appreciated the help. I will get back to you in a few days Grep. Right now I am sitting on the deck (we are traveling in the RV) at Palm Springs, CA and there is one heck of a storm headed our way and it is getting way too cold to sit here! LOL

TAnne

 

[TAnne]

Grep,
The monies in Vanguard are totally Roth IRAs and Traditional IRAs. We have other money we utilize for life events for now and probably into the next ten years so we don't have to drawdown any of this money until probably ten years from now.

TAnne

 

[Grep]

Normally, the advice is to put income producing funds (e.g., bonds) in sheltered accounts, and tax-efficient funds (e.g., total stock market) in non-sheltered.

Given that it is all sheltered money, you do not have to worry about tax efficiency. You have the option of going for higher-yielding stock funds. This could include value funds and REITs, for example.

Here is Bernstein's (Four Pillars, page 268) recommendations for "Sheltered Sam":

20% Vanguard 500 Index
25% Vanguard Value Index
5% Small Cap Index
15% Small Cap Value Index
10% Vanguard REIT Index
3% Vanguard Precious Metals Index
5% Vanguard European Stock Index
5% Vanguard Pacific Stock Index
5% Vanguard Emerging Markets Index
7% Vanguard International Value

This looks intimidating, and could easily be simplified if you wanted, especially if means you can fit more into Admiral shares. If you went with Total Stock market instead of the 500 index, you could skip the 5% in the small cap index. Maybe you would rather just purchase Total Foreign than chop up the foreign market yourself. Many would say including Small and Value stocks is justifiable, and Value pays better dividends. Maybe you would rather skip the metals index altogether (3% makes little difference anyway). REITs have been incredibly volatile recently, but they pay ~10% dividends at the moment.

So, a simplified version of "Sheltered Sam:"

25% Total stock market, VTSAX
25% Value Index, VVIAX
15% Small-Cap Value, VISVX
10% REIT fund, VGSIX
25% Total Foreign, VGTSX (or VFWIX, but some say VGTSX is the better choice for a sheltered account).

Not so bad! Mind you, this will be more volatile (riskier) than just going with the Total Stock Market, but it can also be expected (we hope) to perform better, especially since it will yield considerably higher.

As for bonds, I see a few problems with the Total Bond fund. One is that it is chock full of treasuries that are in a bubble. It is probably for this reason that the fund looks kind of expensive right now. Also, it combines assets that are taxable and tax advantaged. In a sheltered account, you usually want fully-taxable bonds, since they pay better. Finally, I'd prefer to keep the duration of my bond holdings low (you wouldn't buy a 30 year CD paying 3%, would you?).

For "Sheltered Sam", Bernstein recommends:

60% Vanguard short-term investment-grade corporate fund VFSUX
40% Long-dated TIPS (or perhaps VIPSX, inflation protected bond fund)

This is simple enough and should be a good choice. TIPS are inflation-protected government securities. You might need help buying individual long-dated tips. Instead, you could go with the VIPSX fund, which is perhaps not quite as good as scoring the right TIPS, but it's dead easy.

I hope this helps. It's nerve-wracking, but you are just a few clicks away.

 

[BUM]

Well over at Bogleheads, I don't hit them with the old Wellesley BUT I do harp on Target Retirement.

So my first question is why? Suppose you pick your age range Target Retirement Series and convince yourself, ask that 'free' investment fella why you should alter what Vanguard research has produced as the proper lifecycle fund.

Me? Target 2015 cause I lie about my age and feel young at heart, AND if I take my Social Security/pension income times 25 - toss it in my Target and a few Norwegian widow stocks - I get 35/65 stocks/fixed - handgrenade close to an old your age in bonds rule of thumb - AND there's more - the SWR take out at 4% and my income stream match up pretty close.

So why not assume the research cats know what they are doing and pick your age in Target Retirement out of the can.

heh heh heh - we'll save the hormone issue til later. .

what he said...

 

[Rich_by_the_Bay]

You should read Solin's book (click here). It's quick and basically makes the argument that with three funds you can beat most managers and probably get fine with virtually no effort. Hard to argue with his premise.

In return for that little nugget, what kind of RV are you living in (always iinterested in upgrading our TT)?