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  • Newbie question about stock investing

    Just started investing on my own a few months ago. I have about $50k in an employer-sponsored 401k and another $22k in Roths after contributing for both my wife and I in 2017/18.

    Right now, I have 100% of this invested in a simple Vanguard Retirement Account target 2040.

    My question - is that a bad idea? If I just keep socking my money into that one fund, am I 'diversified enough?' Or is it a bad idea to have all of your money in one fund?

    For somebody new like me (and someone who favors simplicity and without a lot of knowledge yet) will this probably be ok at least for a few years?

  • #2
    Target retirement date funds are fine for tax deferred accounts.  That fund is well diversified already.  Keep investing there and don't think about it again.

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    • #3
      Thanks for the response!

      You indicated this is a fine strategy for tax-deferred accounts. Do you feel differently about taxable? Once I get to that point, where should I be looking?

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      • #4
        Target date is not great for taxable accounts because it forces you along a certain stock/bond allocation glide path.  For example, having 40% bonds (or whatever the target date fund says) in taxable in 20 years may seem OK right now, but you may feel differently in 10 years. By then, you may not want that particular allocation, so you may need to sell the target date fund, which will likely have taxable gains embedded.  Adjusting your allocation in tax sheltered is much easier since you don't pay cap gains taxes when you reallocate.

        Best to keep more flexibility in taxable by holding the individual funds and adjusting your allocation yourself, but having a target date fund in taxable isn't the worst idea either.

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        • #5


          For somebody new like me (and someone who favors simplicity and without a lot of knowledge yet) will this probably be ok at least for a few years?
          Click to expand...


          Until you read up and become knowledgeable, target funds or the 3 fund portfolio would be better than speculating. And may end up giving the best returns.

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          • #6
            TG funds are fabulous in your tax-deferred accounts; low cost, set-it-and-forget-it, well diversified, simple, automatic rebalancing done for you, less likely to alter your behavior. I use TG funds at Vanguard and Schwab; much prefer the Vanguard TG AA because they skew more heavily toward emerging market and foreign markets. My husband and are age 60, and will continue to use TG funds for post-retirement.
            For taxable accounts, they are not tax efficient. I've made this mistake myself 20 years ago. When you set up your taxable account AA, you will likely use munis, and ETFs which are more tax efficient.

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            • #7
              Vanguard has a group of "Life strategy" funds.  You can chose one with the asset allocation you want and they balance it and keep it diversified across asset classes for you.

              Another option is to go on a forum such as Bogleheads and learn about the three fund portfolio.  It is simple, low cost, and an effective long term strategy.

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              • #8
                That target date fund is likely fine for now.

                It is 1/2 US stock. 1/3 international stock. 1/6 bonds.

                You can shift to a different "retirement" year later if you want to change any of that.  It is best to not tinker with it though since people tend to move in the wrong direction at the wrong time.

                For taxable accounts, you could use the Tax-Managed Balanced Fund or a stock index fund if you don't want any bonds in that account.

                As WCI has pointed out, it is your savings rate that controls your outcome the most.

                 

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                • #9
                  This is absolutely ok. Over time, you will continue to read and may find that the asset allocation of the target-date fund is different than what you want. Or that you may be able to shave a few basis points (1 basis point = 0.01%) on expenses. But there is nothing wrong with holding a target-date fund forever.

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