38 Year Old Military late investor

[768mph]

Hello all,

Late to the game but as they say, Better late than never.

Ive been used to going through vehicles as the fast car bug bit me hard. And traded more than I wanted.

As I’m approaching closer to 40, it was an eye opener on how much I need to save for retirement and invest more.

I was able to do some research on my own and read up on investments, to include this forum. And I was wondering if you all would look at these two portfolios to offer feedback, if warranted.

So far my IRA has seen 24% return this year, but this year wasn’t the best to judge the average market.


Roth IRA Portfolio-
Vanguard Target 2050 Fund (VFIFX)
Vanguard 500 Index (VFIAX)
Vanguard S&P 500 ETF (VOO)
Vanguard Extended Treasury Index ETF (EDV)

*Just built this IRA late summer...

Brokerage account Portfolio-
Vanguard Total Stock Market ETF (VTI)
Vanguard Total World Stock ETF (VT)
Vanguard S&P 500 ETF (VOO)
Vanguard Extended Market ETF (VXF)
IShared Silver Trust (SLV)

*This Portfolio is brand new and feel it should do well.

TSP-
Target 2050 Fund

*TSP has been there for over 10 years since I’ve been serving.


Thank you and look forward to being a part of this community.

 

[DrRoy]

You do not give the allocations of the various investments, so it is unclear what your positions really are. The VFIAX and VOO are redundant. You only need one or the other. Also, the VTI is redundant with VOO + VXF, except the latter two give you more control of the relative allocation to large caps and mid + small. I would view SLV as a casino dice roll.

 

[OldShooter]

@768mph, @DrRoy is right regarding duplication in your portfolio (and about SLV as far as that goes )

I think the issue may be a misunderstanding of the idea of diversification. Basically, the goal of diversification is attained by holding a fairly large number of stocks spread across company sizes, lines of business, geography, etc. The idea is that these stocks will zig and zag as stocks do, but that on balcance the zigs and zags will somewhat cancel each other out. How many stocks? I have seen arguments for as few as 60, but maybe 100 or more will be better for smoothing the ride. The academics would say it this way: " A diversified equity portfolio diversifies away individual stock risk, leaving market risk, which cannot be diversified away within an equity portfolio."

For most of us little guys, holding 100 diversified stocks is not realistic, so we buy broadly diversified mutual funds as you have. But the important thing to realize is that buying two funds that hold the same stocks does nothing at all for diversification. All it does is complicate the bookkeeping.

That said, here is some pseudo-math:

• VOO=VFIAX
• A holding of 80% VOO and 20% VXF = VTI
• As a practical matter VOO is almost equal to VTI. It holds 80% of the stocks that VTI holds but the remaining stocks are highly correlated, so the two funds produce essentially the same results.
• The US stocks + international stocks held by VFIFX = VT

There are some tax considerations here, too, with taxable accounts wanting to hold funds that don't pay interest and pay minimum capital gains, and tax-shelterd funds being a better home for interest-payers. You seem to have that pretty well under control.

Without knowing your asset allocation its impossible for anyone to comment, but I think you would find the general consensus here to be towards 100% stocks, given your age and especially the fact that there is probably a military pension and health care in your future.

One other note: The target date for a target date fund need not be your personal expected retirement date. Buy a later target date if you want a more aggressive portfolio and an early date for a more conservative portfolio. When figuring your asset allocation be sure to split out the fixed and equity portions of any target date portfolio and include them appropriately in your AA figures.

 

[MBAustin]

Welcome, 768mph, and thank you for your service! There are a number of military retirees here who may have some specific suggestions for your investments so that they complement your future pension. In the meantime, good for you to realize the benefits of investing wisely now.

 

[mickeyd]

Vanguard Target 2050 Fund (VFIFX)
Vanguard 500 Index (VFIAX)
Vanguard S&P 500 ETF (VOO)

OP, thank you for your service. Are you retired military that receives a pension? It's not clear. Pick one of these funds, there is a great amount of overlap and duplication above. No need for this. It only complicates AA. It does not make you more diversified.

Vanguard Total Stock Market ETF (VTI)
Vanguard Total World Stock ETF (VT)
Vanguard S&P 500 ETF (VOO)
Vanguard Extended Market ETF (VXF)

Same here. Pick TSM and Total International. All of the overlap does not help you.

 

[768mph]

Thank you all for your advice.

Oldshooter, DrRoy, and MB Austin,

Roth IRA Portfolio-
Vanguard Target 2050 Fund (VFIFX) 50%
Vanguard 500 Index (VFIAX) 40%
Vanguard Extended Treasury Index ETF (EDV) 10%

*Stocks 92%
Bonds 8%

Brokerage account Portfolio-
Vanguard Total Stock Market ETF (VTI)
Vanguard Total World Stock ETF (VT)
Vanguard Extended Market ETF (VXF)
IShared Silver Trust (SLV)

*1 share each, just playing the game in the beginning. Brand new to this account.

Recently sold the VOO ETF per prior guidance as it was redundant having the index fund in the same.

I’m still serving active duty, 11 years in and 9 to go. I plan on retirement with pension.

-First goal is to have a strong retirement IRA by playing high risk currently to attempt to catch up due to later start.

-Second goal for Brokerage account is for growth, dividends reinvested.

 

[768mph]

OP, thank you for your service. Are you retired military that receives a pension? It's not clear. Pick one of these funds, there is a great amount of overlap and duplication above. No need for this. It only complicates AA. It does not make you more diversified.



Same here. Pick TSM and Total International. All of the overlap does not help you.

TSM as in Taiwan Manufacturing?
Total International Index or ETF?

Are you referring to adding to my IRA or other growth fund?

Thank you.

 

[Bigdawg]

I’m still serving active duty, 11 years in and 9 to go. I plan on retirement with pension.

-First goal is to have a strong retirement IRA by playing high risk currently to attempt to catch up due to later start.

-Second goal for Brokerage account is for growth, dividends reinvested.

With 9 years to go I have to ask, are you on the new retirement system or the old system? You are in that window of servicemenbers who could choose which system they wanted to fall under. The reason I ask is because of TSP matching. The old system does not match, the new system has a match. If you chose the new system obviously contribute to TSP up to at least the government match.

"First goal is to have a strong retirement IRA". You understand that you will not have access to your IRA until you are 59.5 correct? If it is a ROTH you can access your initial contribution after 5 years but not the earnings. I think you should concentrate on the second goal of a taxable brokerage account.

This site has a sort of in house military retriement guru (Nords) who checks in periodically to help military members. You can search for him on these threads. Lots of great advice from that gentleman. I believe he is working on his second book. A collaboration with his military daughter.

 

[768mph]

With 9 years to go I have to ask, are you on the new retirement system or the old system? You are in that window of servicemenbers who could choose which system they wanted to fall under. The reason I ask is because of TSP matching. The old system does not match, the new system has a match. If you chose the new system obviously contribute to TSP up to at least the government match.

"First goal is to have a strong retirement IRA". You understand that you will not have access to your IRA until you are 59.5 correct? If it is a ROTH you can access your initial contribution after 5 years but not the earnings. I think you should concentrate on the second goal of a taxable brokerage account.

This site has a sort of in house military retriement guru (Nords) who checks in periodically to help military members. You can search for him on these threads. Lots of great advice from that gentleman. I believe he is working on his second book. A collaboration with his military daughter.

I am still in the legacy High Three retirement system. No Matching TSP contributions.

1-Understood the access to my IRA at 59.5. No plan on that.

2- I’d suppose best plan would be to attempt max out IRA and contribute to secondary account for as much growth as possible. But I just need to build a strong balanced ETF Portfolio. I’ll do my reach and with the helpful advice from you all.

I appreciate your advice and will be on the lookout for that member.

 

[Out-to-Lunch]

TSM as in Taiwan Manufacturing?
Total International Index or ETF?

Are you referring to adding to my IRA or other growth fund?

Thank you.

TSM = "Total Stock Market." There are a number of mutual funds or ETFs that fill this bill.

 

[Nords]

This site has a sort of in house military retriement guru (Nords) who checks in periodically to help military members. You can search for him on these threads. Lots of great advice from that gentleman. I believe he is working on his second book. A collaboration with his military daughter.

Thanks, Bigdawg!

(Our second book published in September 2020, and the audiobook was finally released in December. Sales have been gratifyingly strong-- it’s already earned back the editing & printing costs and the royalties have started flowing. I’ll have to convince my daughter to write more books together...)

2- I’d suppose best plan would be to attempt max out IRA and contribute to secondary account for as much growth as possible. But I just need to build a strong balanced ETF Portfolio.

I appreciate your advice and will be on the lookout for that member.

768mph, instead of picking a bunch of funds to see how they do, pick your asset allocation and pick a passively-managed index fund with low expense ratios. Then try to reach a high savings rate.

If your AA is “>90% stocks” then you could make your AA as simple as the TSP’s L2050 fund and a Vanguard total stock market index fund (either VTI or VTSAX but not both) in both your IRA and your taxable account. Those two funds hold over 3000 different stocks and already have all of the diversification you care about.

Vanguard’s 500 index fund holds stocks that are a subset of the total stock market index fund. The extended market ETF probably also replicates a subset of the total stock market index fund.

I don’t know much about Vanguard’s total world stock ETF, but it apparently holds a lot of the total U.S. stock market index (VTI) stocks and probably a lot of the extended market index as well. You can learn more about VT’s holding here:
https://investor.vanguard.com/etf/profile/VT

If you want more international stocks (which might be a good asset class and will certainly afford more diversification) then use a fund that doesn’t hold anything from the U.S. stock market (ex-US).

Instead of the extended Treasury index, you could broaden your bond exposure (and maybe raise the yield a little) with a total bond market index. Or you could just stick with the TSP’s L2050 fund.

You can add other assets (besides stocks & bonds) and pick individual stocks, but I’d suggest limiting all of that to a maximum of 10% of your overall asset allocation. 10% is big enough to move the needle if you turn out to be a brilliant investor, and it’s small enough to limit the damage if you’re... not.

You could read more about asset allocation at the Bogleheads Wiki:
https://www.bogleheads.org/wiki/Asset_allocation
https://www.bogleheads.org/wiki/Asset_allocation_in_multiple_accounts
and then greatly simplify your holdings.

You only control three aspects of your investments:
- the amount you invest (a high savings rate),
- the asset allocation, and
- the expense ratios of your investment funds.
The rest is up to market volatility and the growth of the economy.

When you use the words “strong balanced ETF portfolio”, that’s financial vocabulary for splitting your assets about 50-50 between stocks and bonds. (A financial advisor would do what you said instead of what you intended.) However as long as you’re receiving an active-duty paycheck, you could be very aggressive with a high allocation to stocks. 90%-100% total stock market index is a great way to “play high risk to catch up”... as long as you can tolerate the volatility and sleep well at night.

I’m still serving active duty, 11 years in and 9 to go. I plan on retirement with pension.

I get that a lot from military families, and it’s not necessary. You can reach financial independence on a high savings rate and you don’t even need the pension, let alone the cheap healthcare.

Instead, take it one obligation at a time and stay on active duty as long as it’s challenging and fulfilling. When the fun stops, then consider going into the Reserves or National Guard. You’d still be able to earn a lifetime inflation-adjusted annuity at age 60, and you’d have a much better quality of life. Here’s more details:
https://the-military-guide.com/dont-gut-20-leave-active-duty-reserves-national-guard/

 

[OldShooter]

... I don’t know much about Vanguard’s total world stock ETF, but it apparently holds a lot of the total U.S. stock market index (VTI) stocks and probably a lot of the extended market index as well. You can learn more about VT’s holding here: https://investor.vanguard.com/etf/profile/VT ...

FWIW VT and its vanilla mutual fund equivalent VTWAX are IMO the ultimate diversification. They hold basically all the investable stocks in the world on a cap-weighted basis. As of today's VG page, 8849 stock of which about 3600 are US stocks. The cap-weighted ratio of US to international changes as markets wax and wane; currently I think it is about 55/45.

"Vanguard Total World Stock Index Fund seeks to track the investment performance of the FTSE Global All Cap Index, a free-float-adjusted, market-capitalization-weighted index designed to measure the market performance of large-, mid-, and small-capitalization stocks of companies located around the world."

​

DW and I see no reason to hold anything else on the equity side.