Vanguard Index Investing:

[finalpsychyear]

I know very little about investing but I have been reading up on these quite a bit but i thought it might not be a bad idea to get some insight from the experienced docs on here.


What advice would you give a 35 year old doc who likely has a 10-20 year career ahead of him if he was ready to invest anywhere from 100k-1mil provided he has a 1 year emergency fund already set. I obviously being a relatively new grad don't even have the lower end of that range but am trying to understand if that really changes the investment equation as in sure if you have 100-200k just dump into the index fund vs if you have much more than that is too risky.

Can you go wrong throwing all your money at 35 yo in the vanguard total market index fund with that range of money above and leaving it alone even though this is an aggressive move going 100% in? I know timing the market might sound silly but maybe one would wait for a slight correct of 5-10% before jumping the gun?

Any insight appreciated.

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[southerndoc]

Do something like the "Gone Fishin' Portfolio" with Vanguard. Index investing is where it's at. There are many models, but that's probably one of the simplest. You can also do target retirement funds. Say if you're retiring in 2045, you'd select the target 2045 fund. Expense ratios are low (0.15%) and it's a set it and forget it type approach. They automatically balance the fund with stocks/bonds (increasing bonds as you near retirement to lessen the chance of market drops).

Vanguard has some of the lowest funds in the industry. Schwab, Fidelity, etc. also have low cost funds, but in general, Vanguard has more funds with lower expense ratios than the other brokerages.

If you are employed, you'll be limited to IRA's only. If you are self-employed/sole proprietor, then you can do a Solo 401(k) which I highly recommend over a SEP because you can do catch-up contributions after age 50.

 

[Stroganoff]

If you are self-employed/sole proprietor, then you can do a Solo 401(k) which I highly recommend over a SEP because you can do catch-up contributions after age 50.

Plus not having the backdoor Roth IRA contributions mess with the pro-rata rule.

 

[Stroganoff]

but am trying to understand if that really changes the investment equation as in sure if you have 100-200k just dump into the index fund vs if you have much more than that is too risky.

Risk tolerance and your desired asset allocation really shouldn't drastically change that much based on the value of your account. If you're not comfortable having $500k in a 90/10 stocks/bonds AA, for example, then it shouldn't change if you only have $50k or $5k.

It's a safer practice to really try to first understand your risk tolerance, because otherwise if you're too aggressive relative to your tolerance, it could potentially lead to making reactionary decisions based on market volatility or the next downturn, cementing the loss.

Can you go wrong throwing all your money at 35 yo in the vanguard total market index fund with that range of money above and leaving it alone even though this is an aggressive move going 100% in? I know timing the market might sound silly but maybe one would wait for a slight correct of 5-10% before jumping the gun?

Depends on your risk tolerance as well as your time horizon. If you plan on fully retiring in 10 years, for example, it's possible that a 100% equities AA would not have enough time to recover in 2029 to even match what you put in in 2019. Over a longer period, however, an aggressive 100/0 AA should do well. It's really your call.

One thing that helped me was -- and I can't find the article* -- someone did a study about how "the worst market timer ever" did in the long run. This hypothetical investor only bought when the market was at its highest. The study's conclusion was even that person's account grew over time. "Time in market vs. timing the market," if you will.

* [Edit: Found some examples: What if You Only Invested at Market Peaks? -- there's a ton of articles like this and stuff on YouTube.]

Personally? I got a late start in my mid-20s with a Vanguard Roth IRA and was 100% in the Target Retirement 2050 fund, which at the time was 90/10 stocks/bonds. 2008 happened, and the value got cut almost in half. Emotionally, since I knew I wasn't going to retire in my 20s, it didn't affect me. I just mentally thought, "Holy crap, stocks are on sale! Time to max out my $4000-5000/year contribution!" Now in my 30s, I'm behind where I want to be re: retirement, but I'm still comfortable with a 90/10 AA. I personally like Vanguard's LifeStrategy options -- slightly older than their Target Retirement series -- since they don't dynamically change AA with time and are consistent. Their most aggressive one is 80/20. With Fidelity, I like their Four-in-One index fund, which is 85/15. I'm happy with "all in one" "fund of funds" at this point until such time that I can Do-It-Yourself with the same AA in Admiral funds for lower expense ratios. Until then, I'm happy being a lazy, passive investor and letting the account be.

To directly answer the question:

I know timing the market might sound silly but maybe one would wait for a slight correct of 5-10% before jumping the gun?

Pretty much 100% of the long-term investing philosophies I've ever read say market timing is always wrong. I completely feel you, since I emotionally also feel like we're due for another recession or even depression based on historical 8-12 years between recessions. But apparently time in the market is a more powerful force to grow your nest egg, even if you take a 50% haircut soon. Just keep regularly contributing.

 

[redfish955]

Warren buffet says to invest in low cost etfs over fancy high cost funds. Vanguards are low cost. He also says to put the money in slowly over time and not to try to pick the all time lows. He also says to not try to pick stocks. Warren buffet is a really good investor with a very broad portfolio and even he got caught up in the Kraft fiasco.

 

[southerndoc]

Three funds are all you need. You can adjust to your own allocation. For most physicians, we have steady income and can tolerate higher risk (10-20% bonds).

Total Market Index Fund
Total International Index Fund
Total US Bond Fund

Fidelity offers the total market and total international for free with their Zero funds. Vanguard doesn't charge much (0.04% for admiral funds). That means you'll pay $4 for every $10,000 invested annually. Grow your portfolio to $1,000,000 in a particular fund, and it'll be $400 annually. Fidelity wouldn't charge you anything.

Keep that in mind as you're getting funds. Also keep in mind that Vanguard is owned by its investors and reimburses its profits into its investors and funds. Fidelity is owned by the Johnsons who keep their profits. They also have a venture capital fund that will purchase new investments, and because of this, Fidelity is prohibited from getting those investments initially.

 

[finalpsychyear]

Three funds are all you need. You can adjust to your own allocation. For most physicians, we have steady income and can tolerate higher risk (10-20% bonds).

Total Market Index Fund
Total International Index Fund
Total US Bond Fund

Fidelity offers the total market and total international for free with their Zero funds. Vanguard doesn't charge much (0.04% for admiral funds). That means you'll pay $4 for every $10,000 invested annually. Grow your portfolio to $1,000,000 in a particular fund, and it'll be $400 annually. Fidelity wouldn't charge you anything.

Keep that in mind as you're getting funds. Also keep in mind that Vanguard is owned by its investors and reimburses its profits into its investors and funds. Fidelity is owned by the Johnsons who keep their profits. They also have a venture capital fund that will purchase new investments, and because of this, Fidelity is prohibited from getting those investments initially.

I am 35 and am very aggressive minded. I have patience with money as in i am doing the live like a resident for 5 years and only into year 3 but holding steady.

I cannot go wrong with 100% in total market index fund even though its higher risk than the other 3 if i don't plan to touch it for 20 years it is the most likely to give the best returns??

Also, I may be doing a cash balance plan later this year so some have said that you can almost treat the money that goes into that as " bond allocation" since its very low risk.

 

[Stroganoff]

100/0 equities/bond AA is a personal decision dude. I'd at least consider diversifying with an international index fund. Maybe 60/40 US/International or whatever floats your boat.

 

[southerndoc]

Stroganoff is correct. You need to diversify with some international funds. How much depends on your risk tolerance. Many in the financial arena have repeatedly said that US markets are likely to return only 3-5% per year for the next 10-20 years. If that is the case, international funds may be needed to get better returns.

Of course nobody can predict what will happen in the future.

 

[redfish955]

Invest in low cost etfs
Diversify. I put 40% into an s&p fund, 30% into a small and mid cap fund, and 30% into an international fund.
Invest slowly over time and don't just hoard money waiting on the market to drop.
The more you invest at an early age, live like a resident in any profession for a number of years, the less you will have to save when your older to meet your retirement goals.

 

[Mman]

I am 35 and am very aggressive minded. I have patience with money as in i am doing the live like a resident for 5 years and only into year 3 but holding steady.

I cannot go wrong with 100% in total market index fund even though its higher risk than the other 3 if i don't plan to touch it for 20 years it is the most likely to give the best returns??

Also, I may be doing a cash balance plan later this year so some have said that you can almost treat the money that goes into that as " bond allocation" since its very low risk.

You are correct that you could do a 100% allocation to equities. It's just that you don't know yet how you would emotionally handle a large downturn in the market. Part of the reason for doing something like 80/20 or 60/40 is that it helps you ride out the lows on the long journey without making changes to your plan. I'd suggest if you go for 100/0 allocation that you almost never check your account, maybe once or twice a year at most. It's easier to "stay the course" if you don't notice bumps in the road. And while 100% equities probably will get you a slightly better return long term, it's also guaranteed to be a much bumpier road along the way.

As for money in a cash balance pension plan, you are correct to think of it like allocation to bonds.

 

[NITRAS]

Mutual funds have good diversity, but there isn't a reason to get even more diversity with large cap, mid cap, and small cap funds. I have some in international, but they have all pretty much underperformed for the past decade. I know Dave Ramsey recommends 25% in all the above, but I have a hard time putting that much in international.

I don't invest any in bonds. My horizon for investing is like 20 years, and I will get better returns. I don't have any cash balance plan at my work, and I wouldn't call my opinion really knowledgeable, but everything I've heart about them sound like they have really low rates of return. I'd rather just pay my taxes and put them in good investments.

In my retirement accounts, I actually try and get funds that outperform the standard indexes by a percent or so. The turnover is higher, the expense ratios are higher, but its been working out.

 

[Mman]

In my retirement accounts, I actually try and get funds that outperform the standard indexes by a percent or so. The turnover is higher, the expense ratios are higher, but its been working out.

The best evidence would say that the expense ratio is a better predictor of future returns than the past returns are. Outperformers tend to not outperform going forward and expensive funds tend to underperform. An expensive previous outperformer is fairly unlikely to continue that performance.

 

[finalpsychyear]

You are correct that you could do a 100% allocation to equities. It's just that you don't know yet how you would emotionally handle a large downturn in the market. Part of the reason for doing something like 80/20 or 60/40 is that it helps you ride out the lows on the long journey without making changes to your plan. I'd suggest if you go for 100/0 allocation that you almost never check your account, maybe once or twice a year at most. It's easier to "stay the course" if you don't notice bumps in the road. And while 100% equities probably will get you a slightly better return long term, it's also guaranteed to be a much bumpier road along the way.

As for money in a cash balance pension plan, you are correct to think of it like allocation to bonds.

Thank you for your thoughts. I recently received a breakdown for a 5 year cash balance plan that should be worth close to 500k if i were to max it out yearly and obviously nearly double if kept for 10 years. If i do end up doing the cash balance thats a lot of "bond" money even at the year 5 mark.

Even if i theoretically had 500k laying around in cash and went 100/0 equities, i feel having the cash balance in addition to some iras which i admit i will also be starting from scratch (solo 401k, backdoor roth, hsa) feels like a lot of "buckets" even to the point if that 100/0 equity (vtsax) 500k went to 0 dollars i would still be ok and i don't think its possible for 500k to go to 0 over 20 years unless aliens take over the planet.

 

[Mman]

Thank you for your thoughts. I recently received a breakdown for a 5 year cash balance plan that should be worth close to 500k if i were to max it out yearly and obviously nearly double if kept for 10 years. If i do end up doing the cash balance thats a lot of "bond" money even at the year 5 mark.

Even if i theoretically had 500k laying around in cash and went 100/0 equities, i feel having the cash balance in addition to some iras which i admit i will also be starting from scratch (solo 401k, backdoor roth, hsa) feels like a lot of "buckets" even to the point if that 100/0 equity (vtsax) 500k went to 0 dollars i would still be ok and i don't think its possible for 500k to go to 0 over 20 years unless aliens take over the planet.

The risk isn't that your 100/0 allocation goes to 0 over 20 years, it's that it takes a 30% tumble in 12 months or 40% over 24 months and you check the balance every day and panic more and more and more and then sell a bunch of it at the bottom and miss the inevitable run back up. Investing successfully is more about understanding your own temperament and how it impacts future decisions you will have to make in unknown situations. If you can honestly just ignore your balance/performance for a few decades, just dump it all into stocks and open the account in 30 years and you will have done quite well. Most investors are unable to do that, so having some allocation to bonds helps prevent them from making bad decisions during bear markets.

edit: just like everyone else I think I'm an emotionless robot that can make perfectly rational decisions at all times. I had a little bit of money during the 2001 dive and a little more during the 2008 race down and I managed to sit still and do nothing. But now that I have a bunch of money I think having a 30-40% bond allocation helps insure against making a bad decision that would cost me a ton. The relative performance loss from going 100/0 to 80/20 or even 60/40 is actually fairly small and the potential benefit if it can prevent you from panic selling is large.

 

[finalpsychyear]

The risk isn't that your 100/0 allocation goes to 0 over 20 years, it's that it takes a 30% tumble in 12 months or 40% over 24 months and you check the balance every day and panic more and more and more and then sell a bunch of it at the bottom and miss the inevitable run back up. Investing successfully is more about understanding your own temperament and how it impacts future decisions you will have to make in unknown situations. If you can honestly just ignore your balance/performance for a few decades, just dump it all into stocks and open the account in 30 years and you will have done quite well. Most investors are unable to do that, so having some allocation to bonds helps prevent them from making bad decisions during bear markets.

edit: just like everyone else I think I'm an emotionless robot that can make perfectly rational decisions at all times. I had a little bit of money during the 2001 dive and a little more during the 2008 race down and I managed to sit still and do nothing. But now that I have a bunch of money I think having a 30-40% bond allocation helps insure against making a bad decision that would cost me a ton. The relative performance loss from going 100/0 to 80/20 or even 60/40 is actually fairly small and the potential benefit if it can prevent you from panic selling is large.

You have been a huge help. My final question to you is i know you can't really time the market. However, if you were in a position where you had a ton of cash needing investing be it 100k,500k, 1 mill etc and you were going to do the 100/0 equities, would you buy slowly over the year on market dips or just go all in at once considering where the market is right now on this tremendous bull run?

I just feel the market is really high and we are due for a slight correction in the next 1-1.5 years. If i have waited this long it might be worth waiting a touch longer?

Thanks again and have a wonderful weekend.

 

[southerndoc]

If you can pile money into stocks when they go down instead of selling what you have, that's when you make money. People who did this during the recession made out like bandits when the stock market recovered.

 

[finalpsychyear]

If you can pile money into stocks when they go down instead of selling what you have, that's when you make money. People who did this during the recession made out like bandits when the stock market recovered.

Absolutely. It would just be crummy to start investing now with my savings built up and knowing we are probably due for a slight recession and it hits. I was not ready to invest in nov-dec period recently otherwise i would have gone all in.

I am not sure if its a great buy time now.. .the stock market is at nearly an all time high. I know you can't time the market but most likely there will be a 10% correction at some point this year and that would be the time to buy at least a little if not all in on a major dip.

 

[Bsb2015]

Plus not having the backdoor Roth IRA contributions mess with the pro-rata rule.

With backdoor Roth IRA: if you have a traditional IRA can you roll that money into your 401k to have a zero balance, then contribute to the traditional Ira to later convert to Roth?

 

[Mman]

Absolutely. It would just be crummy to start investing now with my savings built up and knowing we are probably due for a slight recession and it hits. I was not ready to invest in nov-dec period recently otherwise i would have gone all in.

I am not sure if its a great buy time now.. .the stock market is at nearly an all time high. I know you can't time the market but most likely there will be a 10% correction at some point this year and that would be the time to buy at least a little if not all in on a major dip.

You claim you want the 100/0 allocation, but you keep talking about how emotionally hard it would be and wanting to buy at a lower point. Those are not the thoughts of someone that would do well with a 100/0 allocation. My suggestion would be to go 80/20 or 60/40 and if you want to be even more even keeled about it just do it in equal amounts every quarter for 4 quarters.

 

[southerndoc]

Absolutely. It would just be crummy to start investing now with my savings built up and knowing we are probably due for a slight recession and it hits. I was not ready to invest in nov-dec period recently otherwise i would have gone all in.

I am not sure if its a great buy time now.. .the stock market is at nearly an all time high. I know you can't time the market but most likely there will be a 10% correction at some point this year and that would be the time to buy at least a little if not all in on a major dip.

The stock market is almost always at an all time high. Trying to time the market doesn't work.

 

[Stroganoff]

With backdoor Roth IRA: if you have a traditional IRA can you roll that money into your 401k to have a zero balance, then contribute to the traditional Ira to later convert to Roth?

Yes, but only if the 401k accepts incoming IRA rollovers. Some do, some don't.

 

[southerndoc]

This is what I did. Fidelity accepted the rollover of my SEP. Now I'm in the process of moving my 401k to Vanguard with a Roth option.

 

[Trogghunter]

I know very little about investing but I have been reading up on these quite a bit but i thought it might not be a bad idea to get some insight from the experienced docs on here.


What advice would you give a 35 year old doc who likely has a 10-20 year career ahead of him if he was ready to invest anywhere from 100k-1mil provided he has a 1 year emergency fund already set. I obviously being a relatively new grad don't even have the lower end of that range but am trying to understand if that really changes the investment equation as in sure if you have 100-200k just dump into the index fund vs if you have much more than that is too risky.

Can you go wrong throwing all your money at 35 yo in the vanguard total market index fund with that range of money above and leaving it alone even though this is an aggressive move going 100% in? I know timing the market might sound silly but maybe one would wait for a slight correct of 5-10% before jumping the gun?

Any insight appreciated.

Don't make any drastic moves into stocks now. Valuations in the market are very high and indicators are pointing toward economic slowing. You're young and have time and cash to invest. When the opportunity arises, you want a wheelbarrow not a thimble to catch falling stocks. Make a list of good companies you'd like to own if they fall below certain levels that also pay decent dividends and can grow. Some staples like McDonalds, J&J, Disney, Pepsi are decent examples of companies that you could get return on for years if you buy them at a decent price.

If you must invest in anything, healthcare stocks/mutual funds have been beaten down over the past few months due to political headwinds, and their valuations are quite attractive. I'd buy some pharm, med tech/device, maybe UNH and save the rest for when we get a correction in the broader market.

You need to be patient, even if it takes months or years for an opportunity to come up. Until then, keep that cash in a money market or buy some liquid (high volume so you can get rid of them quickly) bond funds.

 

[Mman]

Don't make any moves into stocks now. Valuations in the market are very high and indicators are pointing toward economic slowing. You're young and have time and cash to invest. When the opportunity arises, you want a wheelbarrow hot a thimble to catch falling stock prices. If anything, healthcare stocks and mutual funds have been beaten down over the past few months due to political headwinds, and their valuations are quite attractive. I'd buy some pharm, med tech/device, maybe UNH and save the rest for when we get a correction.

You need to be patient, even if it takes months or years for an opportunity to come up. Until then, keep that cash in a money market or buy some liquid (high volume so you can get rid of them quickly) bond funds.

you could have made this post >90% of the time since 2011.

Don't time the market.

 

[southerndoc]

you could have made this post >90% of the time since 2011.

Don't time the market.

EXACTLY! Timing the market is a bad idea. Investing over time (dollar cost averaging) is best.

 

[southerndoc]

Here's a nice article that talks about what happens if you only bought at the top of the market (but never sold at its crashes): What if You Only Invested at Market Peaks? - A Wealth of Common Sense

You still end up coming out pretty good.

 

[Stroganoff]

Here's a nice article that talks about what happens if you only bought at the top of the market (but never sold at its crashes): What if You Only Invested at Market Peaks? - A Wealth of Common Sense

You still end up coming out pretty good.

Heh, posted that in Post #4 in this thread.

 

[Trogghunter]

you could have made this post >90% of the time since 2011.

Don't time the market.

Generally no, but after a selloff in an an otherwise strong sector yes. Buying UNH this cheap is a rare opportunity.

 

[Mman]

Generally no, but after a selloff in an an otherwise strong sector yes. Buying UNH this cheap is a rare opportunity.

United's stock is only 15% off it's all time high so while it is cheaper than it was previously, not much.

 

[321931]

EXACTLY! Timing the market is a bad idea. Investing over time (dollar cost averaging) is best.

I 100% agree with you that market timing is bad. But I would dollar cost average in- instead of doing large lumpsums now. We are in a 10+ year bull run with political and economic headwinds. Investing now-a-days is based on twitter. If positive- pump we go- if negative- we going to revisit december lows. This isn't normal. The thing is right now, stocks like Visa can literally "go up everyday for .3, .015, .5% a day...but if the drop happens it will go down 3-5% in a day. Basically its staircase up- elevator down in the stock market.

Anyways, I'm just dollar cost averaging in...but if theres a big dip...I have alot of cash to buy.

 

[finalpsychyear]

Don't make any drastic moves into stocks now. Valuations in the market are very high and indicators are pointing toward economic slowing. You're young and have time and cash to invest. When the opportunity arises, you want a wheelbarrow not a thimble to catch falling stocks. Make a list of good companies you'd like to own if they fall below certain levels that also pay decent dividends and can grow. Some staples like McDonalds, J&J, Disney, Pepsi are decent examples of companies that you could get return on for years if you buy them at a decent price.

If you must invest in anything, healthcare stocks/mutual funds have been beaten down over the past few months due to political headwinds, and their valuations are quite attractive. I'd buy some pharm, med tech/device, maybe UNH and save the rest for when we get a correction in the broader market.

You need to be patient, even if it takes months or years for an opportunity to come up. Until then, keep that cash in a money market or buy some liquid (high volume so you can get rid of them quickly) bond funds.

Im glad i waited over the week and likely will stay conservative. WIth the way us china trade is going i am expecting another 5-10% drop in us stocks.

 

[Entadus]

Don't make any drastic moves into stocks now. Valuations in the market are very high and indicators are pointing toward economic slowing. You're young and have time and cash to invest. When the opportunity arises, you want a wheelbarrow not a thimble to catch falling stocks. Make a list of good companies you'd like to own if they fall below certain levels that also pay decent dividends and can grow. Some staples like McDonalds, J&J, Disney, Pepsi are decent examples of companies that you could get return on for years if you buy them at a decent price.

If you must invest in anything, healthcare stocks/mutual funds have been beaten down over the past few months due to political headwinds, and their valuations are quite attractive. I'd buy some pharm, med tech/device, maybe UNH and save the rest for when we get a correction in the broader market.

You need to be patient, even if it takes months or years for an opportunity to come up. Until then, keep that cash in a money market or buy some liquid (high volume so you can get rid of them quickly) bond funds.

A physician of the future investing in McDonalds and Pepsi? How do you reconcile that ethically, considering for example the tactics being used in the third world. Indian fast food items with 2-6x the saturated fat as the European versions, etc

 

[321931]

Im glad i waited over the week and likely will stay conservative. WIth the way us china trade is going i am expecting another 5-10% drop in us stocks.

You know the market is irrational when the entire Jan-May run-up was based on "trade deal" tweets that may happen. What ended up happening last week is that no trade deal occurred. America imposed more Tariffs. China Retaliated with more Tariffs. And now we are going the route of banning Huawei phones...

And yet with ALL THIS BAD INFO- we still end up reaching towards All Time Highs. The sell off was reversed via a tweet that "auto tariffs maybe delayed" and all is good again.

The yield curve inverting, the fed pausing their rates, unemployment at its lowest and literally stocks like shopify doubling from 135 $ a share to 270$ a share in the span of 5 months....just screams irrational exuberance.

It just makes zero sense to me to be bullish right now.

 

[Mman]

You know the market is irrational when the entire Jan-May run-up was based on "trade deal" tweets that may happen. What ended up happening last week is that no trade deal occurred. America imposed more Tariffs. China Retaliated with more Tariffs. And now we are going the route of banning Huawei phones...

And yet with ALL THIS BAD INFO- we still end up reaching towards All Time Highs. The sell off was reversed via a tweet that "auto tariffs maybe delayed" and all is good again.

The yield curve inverting, the fed pausing their rates, unemployment at its lowest and literally stocks like shopify doubling from 135 $ a share to 270$ a share in the span of 5 months....just screams irrational exuberance.

It just makes zero sense to me to be bullish right now.

you should probably stick to medicine

 

[Baron Samedi]

Time The Market Game

Are stocks due for a crash? Is it a good time to buy low? Can you time and beat the market?! Click the "Start" button below to start the clock on a

www.personalfinanceclub.com

For those interested in "waiting for a dip to buy"

 

[redfish955]

Time The Market Game

Are stocks due for a crash? Is it a good time to buy low? Can you time and beat the market?! Click the "Start" button below to start the clock on a

www.personalfinanceclub.com

For those interested in "waiting for a dip to buy"

The key is to always make sure your portfolio is well balanced. Every time you have a bull balance it out and every time you have a crash balance it out.

 

[ThoracicGuy]

You can't time the market.