Ready to dive into investing. Help please

[Smilinggirl]

I've currently got an IRA with a target fund of 2030. I max it each year. I've started working again, so I'm maxing out a 401k with Voya, again focusing on retirement in 2030. I'm rather risk adverse and as much as I wish I could understand the ins and outs of investing, I just don't. Now I'm ready to move some of my personal savings into an investment fund with Vanguard. I've been reading here and on the Bogle forum, but to be blunt, most of it is over my head. I need something pretty simple, so I'm thinking of maybe putting 10k into the 2030 target fund, another 10k into a 2040 fund and 10k into the 2020 target fund. I'll still have a good bit of money in my regular savings account, so may decide to put maybe another 3k into each of the accounts. I don't plan on needing this money for at least 10-15 years, and I'm trying to spread some of my risk potential.

Basically, I want to be financially smart and responsible, but I don't understand all the individual options, so this is what I'm leaning toward. I'm open to any advice, but please explain your thoughts in basic terms so I understand what you're saying. I really do appreciate this forum and what I've learned from it so far.

[kork13]

Love it, congrats on moving forward! For not knowing alot about investing, you're doing a great job! Maxing out your retirement accounts is a great way to go as you prepare for retirement. Target date funds are a very good option for someone who is still learning about investments, because they're composed of a very reasonable mix of other broad-market mutual funds, and it adjusts periodically to moderate your risk exposure as time goes on. As you learn more, you can either stock worth those, or broaden out from that.

My only advice would be to keep it more simple than opening 4 mutual funds that are really very, very similar.

If you look on Vanguard's site at each of those target date funds, you'll find that they all hold basically the same 4 mutual funds, just in different proportions:
1) Vanguard Total Stock Market Index Fund
2) Vanguard Total International Stock Index Fund
3) Vanguard Total Bond Market II Index
4) Vanguard Total International Bond Index Fund
The 2030 Target fund is balanced with 66% in stocks (#1/#2, to ensure that your money grows over time to stay well ahead of inflation), 33% in bonds (#3/#4, to stabilize your account & moderate fluctuations due to the stock market), plus 1% in cash. Those amounts will adjust toward more bonds/cash over time, and less stocks. For example, the 2020 fund has 48% stocks/52% bonds, while the 2040 fund has 81% stocks/18% bonds.

Remember that target date funds are designed to do just that: target your retirement date, and adjust your investments over time. By spreading your money across so many target date funds, you actually prevent your investments from doing what those funds are designed to do, because they all adjust at different rates & proportions.

So my only recommended change to your plan would be to pick just 1 target date fund. Likely the 2030 fund, but if you want more or less stock exposure, you could choose 2035 or 2025 instead.

You're doing great & asking the right questions! Keep at it, and keep learning -- you'll do very well for yourself.

[Smilinggirl]

Thanks Kork. That was actually my original plan, but I guess I let myself make it more complicated because I kept looking at other people who seem to have a little of this, a little of that. I felt like maybe I was missing something.

[kork13]

Thanks Kork. That was actually my original plan, but I guess I let myself make it more complicated because I kept looking at other people who seem to have a little of this, a little of that. I felt like maybe I was missing something.

Nope, not necessary with target date funds. Target date funds work best when they are the ONLY mutual fund that you own. Folks with more experience often prefer more control over their investments, so that's what leads to holding multiple different funds. But honestly, sometimes we just end up working against ourselves by overcomplicating everything!

[bjl584]

I think you are doing fine keeping your investments in the target funds.
They are pretty "set and forget"

Vanguard can link you up with an advisor who can take a look at your situation if you desire a second opinion.

[parafly]

Vanguard target date fund is a great strategy for someone who wants to keep it simple. Pick one target date fund close to your expected retirement year, set it, and forget it. It is an inexpensive way to invest, and it automatically adjusts and becomes more conservative as you reach and surpass your retirement year.

[disneysteve]

I agree with the others. A Target fund is fine, but only one is needed, not multiple (as kork13 explained). As for which year is best, that all depends on when you anticipate retiring and how aggressive or conservative you wish to be. If 2030 fits for you, stick with it.

[Jluke]

I would also suggest looking at Vanguard Balanced Index Fund (VBIAX) for your taxable account.

[Smilinggirl]

I decided I needed to do it already, so I went with the target fund 2035 for now. Once I feel more at ease with investing, I can always move things or add things later. Thanks for the input everyone!

[disneysteve]

How old are you? In what year do you anticipate retiring?

[Jluke]

I decided I needed to do it already, so I went with the target fund 2035 for now. Once I feel more at ease with investing, I can always move things or add things later. Thanks for the input everyone!

In a taxable account any transactions (specifically selling and dividends) may trigger a taxable event depending on your tax bracket.

be aware of this.

[Smilinggirl]

I’ll most likely retire in 2030, or around then, but I may not start to pull it out until closer to 2035.

[Smilinggirl]

In a taxable account any transactions (specifically selling and dividends) may trigger a taxable event depending on your tax bracket.

be aware of this.

So knowing this, rather than moving the money to another fund, I’d be better to leave it there and just make any new deposits into a different account if I want to put more in. It’s all rather confusing, but it’s got to be better than just letting it sit in savings earning almost nothing, right?

[kork13]

One more point I wanted to offer, in the way of encouragement... By starting with your $30k & maxing your IRA & 401k every year (not even counting "catch up" contributions if you're able to do those too, or any other investments), you can pretty reasonably expect to build up around $400k-$500k over the next 10-15 years. That amount would easily provide $20k-$25k of extra income every year.

Alot of folks worry about it being "too late to save for retirement".... That's a bunch of hooey. All it takes is 10-20 years of intentional investing, and anyone can easily do pretty well for themselves.

[Jluke]

So knowing this, rather than moving the money to another fund, I’d be better to leave it there and just make any new deposits into a different account if I want to put more in. It’s all rather confusing, but it’s got to be better than just letting it sit in savings earning almost nothing, right?

you can invest in multiple funds within your vanguard taxable account.

I just wanted you to be aware that there could be tax consequences if you choose to sell (gain or loss).

if you are maxing roth at 6k and 401k or similar at 19.5k chances are you will have to pay tax on gains if you sell anything in your taxable account. Whereas with Roth and 401k there are no tax consequences for moving funds around within that account.

the target date fund should be perfectly fine for you. The more funds just gets to be complicated.