Vanguard Roth IRA Asset Allocation

[JumpToTheMoon]

I am a 27 year old first year resident.  I've maxed out my Vanguard Roth IRA for 2016 and plan on doing so relatively quickly in 2017.  Currently, 100% of my assets are in U.S. Total Stock Market Index Fund (VTSMX), as the max yearly contribution for a Roth IRA is $5,500 and many Vanguard Index Funds have a minimum of $3,000.  On recommendations of others, I am avoiding target funds.

I'm planning on eventually having my assets split between the U.S. TSM and the International TSM (VGTSX) as well as the US Bond Market (VBMFX).  Keeping in mind the fund minimums, in 2017, should I prioritize distributing assets across three funds, ending up with about $5k in the VTSMX and $3k each in VGTSX and VBMFX, or should I go all in with the U.S. TSM and switch to the lower cost Admiral fund once I hit $10,000?  I would then add the other two funds in 2018.

I know this is a relatively minor question about strategy, but just wondering what is wisest.

[DarrVao777]

JumpToTheMoon wrote:

I am a 27 year old first year resident.  I’ve maxed out my Vanguard Roth IRA for 2016 and plan on doing so relatively quickly in 2017.  Currently, 100% of my assets are in U.S. Total Stock Market Index Fund (VTSMX), as the max yearly contribution for a Roth IRA is $5,500 and many Vanguard Index Funds have a minimum of $3,000.  On recommendations of others, I am avoiding target funds.

I’m planning on eventually having my assets split between the U.S. TSM and the International TSM (VGTSX) as well as the US Bond Market (VBMFX).  Keeping in mind the fund minimums, in 2017, should I prioritize distributing assets across three funds, ending up with about $5k in the VTSMX and $3k each in VGTSX and VBMFX, or should I go all in with the U.S. TSM and switch to the lower cost Admiral fund once I hit $10,000?  I would then add the other two funds in 2018.

I know this is a relatively minor question about strategy, but just wondering what is wisest.

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I don't think it makes a huge difference in the end. What I've been doing for my wife (who has just started with her Roth IRA) is contributing $5500 / year to each of the funds and then changing the % of annual contribution once I've hit the fund minimums.

[DoubleMDs]

Some would say you could stand to be more aggressive in your Roth space as it will likely be held the longest. Probably don't need any bonds at all in Roth space. I take a more aggressive approach in Roth space (small cap value, emerging markets, REITs) and have TSM and int TSM in tax deferred retirement accounts that have more total amount. As a resident you probably don't have access to such accounts yet though so you can't go wrong with simplified and the three fund approach just generally speaking. Would probably say just leave it all in TSM though to get to admiral shares and go from there.

[TheGipper]

Concur with DoubleMD.

With the (hopefully) long time horizon of your Roth, I'd argue for 100% equities.

And if you believe in tilting, your Roth is the ideal account to do it to maximize the higher expected return in tax free space.

My strategy:
My Roth: 50% small cap value, 50% REIT
Spouse Roth: 50% emerging markets, 50% international small cap.

Optimal strategy depends on what you have access to in your 401k.

If you don't believe in tilting, I like the idea of holding total US stock market and total international at a 50/50 ratio in Roth.

[Hatton]

I agree with most of the above comments.  At your age no bonds needed.  I would probably try to get to 10k to get the admiral shares on TSM.  Then I would do the same for the international fund and try to get to admiral shares.  Once you finish residency and have more money then tilting with small cap value and reits come into play. Good job for a resident to be so involved in personal finance.