20 year old new investor - one fund VT, VTI, VOO or other?

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phase03
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20 year old new investor - one fund VT, VTI, VOO or other?

Post by phase03 »

Hello Bogleheads,

I sure wish I found you all earlier in my life. I am 48 and have been a good saver my whole life but paralysis by analysis has prevented me from investing and just accumulating cash. With help from this forum over the past couple months I have finally felt comfortable in coming up with a plan. I am still working on it. I look forward to sharing it all with you in one of those detailed portfolio posts but I'm still thinking it through and determining what works best for us.

In the meantime I have a question about my daughter. She is soon to be 21 years old, has an AA degree in culinary arts, and is already the pastry manager at a small business bakery. She has a great work ethic and her mother and I are very proud of her. She is a chip off the old block when it comes to minimizing expenses and saving money. She is still living at home and will probably continue to do so for another year or two to save even more. So far, she has accumulated $35,000 and that should grow pretty rapidly.

We've been talking about the power of long term investing and she is excited to get started. She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her. At this point anyway, she doesn't want to make any investment decisions. She just wants to deposit and forget.

From the little I've learned recently, I think 100% VT (Total World), VTI (Total US), or VOO (S&P 500) would all be good choices for her. I would love to hear what you all would choose. Is there another obvious choice that would be better for her? I sure wish my parents turned me on to this nearly three decades ago. Thank you to all who participate in this forum. I believe it to be a great service.
homebuyer6426
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by homebuyer6426 »

If I could only choose one ETF right now for a long time horizon, I would go with VTI.

VT isn't a bad choice but I don't expect the returns to be as high. Maybe suggest VXUS in a few years.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by retired@50 »

Welcome to the forum. :happy

In the IRA I'd suggest a target date fund, like 2060, or something like that. Simple, and always appropriate, regardless of her age.

If she also wants to invest in a taxable account, then she should use VTI and VXUS.
Keeping the US stock index separate from the international stock will be helpful from a tax perspective.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by illumination »

For a retirement account and for a person that wants to treat it like a savings account and make it simple as possible, I actually think a mutual fund version of something like total stock or the S&P500 might be best. You could just specify the exact amount in dollars and drop it in. Just takes a lot of the negative human psychology out of the equation. Depending on the brokerage, they almost all have some "house" mutual fund that is a total market.

But if you think she has no issue trading an ETF during trading hours (most don't have any problem) , something like VTI is perfect.
For taxable accounts, I personally think you should only use ETFs.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by iraconfused »

20 yrs old. Max out a Roth IRA every year until 60 yrs old. Put money into VIMAX & VSIAX 50/50. Gets a job with a 401k do company match either in S&P 500 or total stock.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by exodusNH »

phase03 wrote: Fri Sep 17, 2021 2:39 pm Hello Bogleheads,

I sure wish I found you all earlier in my life. I am 48 and have been a good saver my whole life but paralysis by analysis has prevented me from investing and just accumulating cash. With help from this forum over the past couple months I have finally felt comfortable in coming up with a plan. I am still working on it. I look forward to sharing it all with you in one of those detailed portfolio posts but I'm still thinking it through and determining what works best for us.

In the meantime I have a question about my daughter. She is soon to be 21 years old, has an AA degree in culinary arts, and is already the pastry manager at a small business bakery. She has a great work ethic and her mother and I are very proud of her. She is a chip off the old block when it comes to minimizing expenses and saving money. She is still living at home and will probably continue to do so for another year or two to save even more. So far, she has accumulated $35,000 and that should grow pretty rapidly.

We've been talking about the power of long term investing and she is excited to get started. She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her. At this point anyway, she doesn't want to make any investment decisions. She just wants to deposit and forget.

From the little I've learned recently, I think 100% VT (Total World), VTI (Total US), or VOO (S&P 500) would all be good choices for her. I would love to hear what you all would choose. Is there another obvious choice that would be better for her? I sure wish my parents turned me on to this nearly three decades ago. Thank you to all who participate in this forum. I believe it to be a great service.
If this is in a taxable account, splitting between VTI and VXUS is more efficient.

I don't know what brokerage she's looking at, but Vanguard doesn't allow automated purchases of ETFs. You can only do that with the mutual fund equivalents, VTSAX and VTIAX. If she has $3,000 she can put into each, she could buy those funds, then set up automatic purchases. 60%/40% is the roughly the market weight, though not everyone wants international at that level. Once she's got the $3,000 in each (which is 50/50), she can then contribute at her desired allocation with new money. Eventually she'll reach the desired allocation without having to manually adjust.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by Robert20 »

VTI + VXUS (whatever % allocation you are fine with)
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by whereskyle »

phase03 wrote: Fri Sep 17, 2021 2:39 pm Hello Bogleheads,

I sure wish I found you all earlier in my life. I am 48 and have been a good saver my whole life but paralysis by analysis has prevented me from investing and just accumulating cash. With help from this forum over the past couple months I have finally felt comfortable in coming up with a plan. I am still working on it. I look forward to sharing it all with you in one of those detailed portfolio posts but I'm still thinking it through and determining what works best for us.

In the meantime I have a question about my daughter. She is soon to be 21 years old, has an AA degree in culinary arts, and is already the pastry manager at a small business bakery. She has a great work ethic and her mother and I are very proud of her. She is a chip off the old block when it comes to minimizing expenses and saving money. She is still living at home and will probably continue to do so for another year or two to save even more. So far, she has accumulated $35,000 and that should grow pretty rapidly.

We've been talking about the power of long term investing and she is excited to get started. She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her. At this point anyway, she doesn't want to make any investment decisions. She just wants to deposit and forget.

From the little I've learned recently, I think 100% VT (Total World), VTI (Total US), or VOO (S&P 500) would all be good choices for her. I would love to hear what you all would choose. Is there another obvious choice that would be better for her? I sure wish my parents turned me on to this nearly three decades ago. Thank you to all who participate in this forum. I believe it to be a great service.
VT for one simple reason. It presents the least behavioral risks.

There's nothing you're missing and there's no bets you're making. No position or rationale to defend. It's a great feeling.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by Taylor Larimore »

phase03:

Welcome to the Bogleheads Forum!

I believe the Bogleheads' Three-Fund Portfolio could be an ideal portfolio for you and your daughter. You can read about its many benefits and many endorsements here:

The Bogleheads' Three-Fund Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan."
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by Wiggums »

I have the three fund portfolio. If you really want a single fund, it’s not unreasonable to go with a target date fund. It’s fine for an IRA with the amount of money she is working with.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by Rainmaker41 »

New investors opening an IRA should start with a Vanguard Target date fund appropriate for their age, and focus on regular automatic contributions. If they never do anything but contribute to it and never tinker, they’ll be fine. If they learn more later on, they might realize it is still a good choice.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by kelway »

retired@50 wrote: Fri Sep 17, 2021 3:13 pm In the IRA I'd suggest a target date fund, like 2060, or something like that. Simple, and always appropriate, regardless of her age.
I don't agree that over 9% fixed income for a 21 year old saving for the long term is appropriate...For my teenage kids and their long term investments, I've suggested a VTI/SLYV/VXUS/VSS mix.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by UpperNwGuy »

100% VTI. No fixed income investments.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by FoundingFather »

I think that a broad market index fund, or a target date retirement fund, would all be fine options. There are details that may cause an investor to choose one over another, but in your daughter's case, a set it and forget it, diversified, single fund like VOO, VTI, or VT all sound great.

The below offers some perspective on what $500 a month would have become over the last ~8 years. While there is a difference between how a broad US index fund, a broad international index fund, and a 2060 target date retirement fund have performed over the last few years, the point of this graph is to illustrate just how well any of these choices would have served your daughter.

Image

What a happy moment for a father!

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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by ivgrivchuck »

Primary choice: a target date fund from vanguard

Secondary choice: VT (except in taxable: 60% vti + 40% vxus)
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by retired@50 »

kelway wrote: Fri Sep 17, 2021 9:50 pm
retired@50 wrote: Fri Sep 17, 2021 3:13 pm In the IRA I'd suggest a target date fund, like 2060, or something like that. Simple, and always appropriate, regardless of her age.
I don't agree that over 9% fixed income for a 21 year old saving for the long term is appropriate...
Well, I was trying to be considerate to what the OP had written in the original post.
phase03 wrote: Fri Sep 17, 2021 2:39 pm She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her.
I've given up on talking people out of things that really aren't harmful. And I don't think an age-appropriate target date fund is harmful at all.
In this case a simple target date fund also seems to fit with the OP's stated goal.

The important thing is to invest, not to try and dictate an asset allocation for someone else.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by kelway »

retired@50 wrote: Fri Sep 17, 2021 11:31 pm
I've given up on talking people out of things that really aren't harmful. And I don't think an age-appropriate target date fund is harmful at all.
In this case a simple target date fund also seems to fit with the OP's stated goal.

The important thing is to invest, not to try and dictate an asset allocation for someone else.
Well, for sure she could do worse than a target date fund, but the 10% non-equity portion would be quite a drag on growth over the long run... I think VT is the best one fund recommendation... I also think one fund is too few, but I hear you.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by MattB »

phase03 wrote: Fri Sep 17, 2021 2:39 pm Hello Bogleheads,

. . .

In the meantime I have a question about my daughter. She is soon to be 21 years old, has an AA degree in culinary arts, and is already the pastry manager at a small business bakery. She has a great work ethic and her mother and I are very proud of her. She is a chip off the old block when it comes to minimizing expenses and saving money. She is still living at home and will probably continue to do so for another year or two to save even more. So far, she has accumulated $35,000 and that should grow pretty rapidly.

We've been talking about the power of long term investing and she is excited to get started. She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her. At this point anyway, she doesn't want to make any investment decisions. She just wants to deposit and forget.
Hi Phase03,

I have two thoughts.

First, I suggest that your daughter open and fund a Roth IRA for at least the first few years of her career. You (and she) can read about the differences between a Roth IRA and a Traditional IRA here, on the wiki: https://www.bogleheads.org/wiki/Roth_IRA But the most important point to understand is that the returns on her investments in a Roth IRA can be withdrawn tax free once she reaches 59.5 years old.

Your daughter will hopefully earn more as she progresses in her career. But for now, provided she is in a low to moderate tax bracket, there is nothing so advantageous as investing in a Roth IRA.

Second, really any of the broad market index funds are great options. That includes VTSMX/VTI, VT, VOO, etc. My personal choice, and where I had the bulk of my own money invested for the first fifteen years of my investing life, was VTSMX, Vanguard's total market index mutual fund. The benefit of that fund, over the ETF equivalent, is that I could make automatic regular contributions in a way that I could not with an ETF.

Best of luck with your own investing, and your daughter's.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by 1789 »

100% VTI should work.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by HanSolo »

As others have noted, there are various choices of funds, and also choices around asset allocation. A good starting point would be to take a look at the Bogleheads Investment Philosophy on the wiki, which includes links to further articles, such as "asset allocation" and "risk tolerance". After considering the issues presented, different people will come to different conclusions about what's right for them.

That being said, I'd agree that an age-appropriate target date fund is a good generic suggestion for someone starting out (or not just starting out), if you don't already have reasons to do something different from that, and especially if you're interested in a one-fund solution. I'd only add that the indexed ones might be preferable to the actively-managed ones (as the costs are lower). Vanguard's target date funds are all indexed. Schwab has both indexed and actively-managed.

I'm noticing that lately (within the past year or so) it's become trendy here on the forum for people to recommend 100/0 asset allocations (stock/bond allocation), i.e., an all-stock no-bond portfolio. I'm not going to say that it's wrong, as it's probably right for some people. I'll just say that, traditionally, it's been considered a good idea for some amount of bonds to be included in an investment portfolio, and that's touched upon in the above-mentioned wiki articles.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by nisiprius »

I think "one fund" is a good idea. I believe a Vanguard target-date retirement fund, presumably Target Retirement 2065, is both the obvious choice and a good choice.

For those who think all young people ought to have the risk tolerance for 100% stocks, most target-date funds are pretty darn close to 100% stocks and I think it's some kind of greed or absolutism to quibble about it. Stocks do not love you and are not going to know or care if you are displaying 100% commitment to them.

Vanguard Target Retirement 2065 is:

Vanguard Total Stock Market Index Fund Investor Shares 54.30%
Vanguard Total International Stock Index Fund Investor Shares 36.40%
Vanguard Total Bond Market II Index Fund Investor Shares 6.70%
Vanguard Total International Bond Index Fund Investor Shares 2.10%
Vanguard Total International Bond II Index Fund 0.50%

Compared to VT, VTI, or VOO, this has the virtue of being easily understood as "someone's recommendation for a retirement savings portfolio." As she develops an interest in investing, she will notice what is inside the fund and have the opportunity to investigate what each of the four asset classes are and how they have behaved. Since it is in an IRA if she develops her own preferences and wants to go to something else, like 100% VT, she can just make an exchange with no tax consequences.

She really ought to be involved in the decision herself... somehow.

Yeah, she ought to be aware that

VT has an 0.28% 0.08% expense ratio;
Target Retirement 2065 0.15%
VTI 0.03%;
VOO 0.03%.

But she should do the math on how much that is in dollars on the size of her investment.

I would say that VT, VTI, and VOO as single-fund investments are all perfectly reasonable, but that she should make the choice herself, based on whatever partly-formed ideas she has already.

Not VOO unless she has heard so much about the S&P 500--Warren Buffett's off-the-cuff remarks, or hearing it on the news all the time--that it is "the" brand name in indexing to her.

It should be explained that VT means putting half your money overseas, and VTI means putting absolutely all of it in one country. My personal guess, but of course it corresponds to what I am doing myself, is that she might well say "I don't feel comfortable putting as much as half of it overseas but I don't feel comfortable putting absolutely all of it in the US."
Last edited by nisiprius on Sun Sep 19, 2021 11:03 am, edited 1 time in total.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by kelway »

nisiprius wrote: Sat Sep 18, 2021 6:00 am
VT has an 0.28% expense ratio;
Target Retirement 2065 0.15%
VTI 0.03%;
VOO 0.03%.
Just a note that VT is .08%
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by kelway »

HanSolo wrote: Sat Sep 18, 2021 2:38 am I'm noticing that lately (within the past year or so) it's become trendy here on the forum for people to recommend 100/0 asset allocations (stock/bond allocation), i.e., an all-stock no-bond portfolio. I'm not going to say that it's wrong, as it's probably right for some people. I'll just say that, traditionally, it's been considered a good idea for some amount of bonds to be included in an investment portfolio, and that's touched upon in the above-mentioned wiki articles.
You're probably right, although we are not in a 'traditional' interest rate environment. I'd personally never suggest that my teenage kids plow money into fixed income at their ages.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by ruralavalon »

Welcome to the forum :D .

phase03 wrote: Fri Sep 17, 2021 2:39 pmIn the meantime I have a question about my daughter. She is soon to be 21 years old, has an AA degree in culinary arts, and is already the pastry manager at a small business bakery. She has a great work ethic and her mother and I are very proud of her. She is a chip off the old block when it comes to minimizing expenses and saving money. She is still living at home and will probably continue to do so for another year or two to save even more. So far, she has accumulated $35,000 and that should grow pretty rapidly.

We've been talking about the power of long term investing and she is excited to get started. She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her. At this point anyway, she doesn't want to make any investment decisions. She just wants to deposit and forget.

From the little I've learned recently, I think 100% VT (Total World), VTI (Total US), or VOO (S&P 500) would all be good choices for her. I would love to hear what you all would choose. Is there another obvious choice that would be better for her? I sure wish my parents turned me on to this nearly three decades ago. Thank you to all who participate in this forum. I believe it to be a great service.

A target date fund is more diversified than any of the other funds you mention.

I think the obvious and best one fund portfolio for a 20 year old new investor is a target date index fund in an IRA at a low cost fund provider like Vanguard, Fidelity or Schwab.

Vanguard Target Retirement 2060 Inv (VTTSX) ER 0.15%;
Fidelity Freedom® Index 2060 Fund - Investor Class (FDKLX) ER 0.12%; or
Schwab Target 2060 Index Fund (SWYNX) ER 0.08%.

Using an allocation fund seems to inoculate the investor against behavioral errors, and so give higher investor returns. Morningstar (4/15/2019), "Mind the Gap 2019", link.

If she later goes to a company with a 401k or similar plan then there are other target date funds (e.g. BlackRock LifePath) offered in institutional plans which she might use in a work-based plan. Morningstar (3/18/2021), "The Best Target-Date Funds for 2021 and Beyond", link.
Last edited by ruralavalon on Sat Sep 18, 2021 8:47 am, edited 1 time in total.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by lostdog »

whereskyle wrote: Fri Sep 17, 2021 6:55 pm
phase03 wrote: Fri Sep 17, 2021 2:39 pm Hello Bogleheads,

I sure wish I found you all earlier in my life. I am 48 and have been a good saver my whole life but paralysis by analysis has prevented me from investing and just accumulating cash. With help from this forum over the past couple months I have finally felt comfortable in coming up with a plan. I am still working on it. I look forward to sharing it all with you in one of those detailed portfolio posts but I'm still thinking it through and determining what works best for us.

In the meantime I have a question about my daughter. She is soon to be 21 years old, has an AA degree in culinary arts, and is already the pastry manager at a small business bakery. She has a great work ethic and her mother and I are very proud of her. She is a chip off the old block when it comes to minimizing expenses and saving money. She is still living at home and will probably continue to do so for another year or two to save even more. So far, she has accumulated $35,000 and that should grow pretty rapidly.

We've been talking about the power of long term investing and she is excited to get started. She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her. At this point anyway, she doesn't want to make any investment decisions. She just wants to deposit and forget.

From the little I've learned recently, I think 100% VT (Total World), VTI (Total US), or VOO (S&P 500) would all be good choices for her. I would love to hear what you all would choose. Is there another obvious choice that would be better for her? I sure wish my parents turned me on to this nearly three decades ago. Thank you to all who participate in this forum. I believe it to be a great service.
VT for one simple reason. It presents the least behavioral risks.

There's nothing you're missing and there's no bets you're making. No position or rationale to defend. It's a great feeling.
+1

Well said. Perfect explanation.
Stocks-80% || Bonds-20% || Taxable-VTI/VXUS || IRA-VT/BNDW
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by ruralavalon »

lostdog wrote: Sat Sep 18, 2021 8:39 am
whereskyle wrote: Fri Sep 17, 2021 6:55 pm
phase03 wrote: Fri Sep 17, 2021 2:39 pm Hello Bogleheads,

I sure wish I found you all earlier in my life. I am 48 and have been a good saver my whole life but paralysis by analysis has prevented me from investing and just accumulating cash. With help from this forum over the past couple months I have finally felt comfortable in coming up with a plan. I am still working on it. I look forward to sharing it all with you in one of those detailed portfolio posts but I'm still thinking it through and determining what works best for us.

In the meantime I have a question about my daughter. She is soon to be 21 years old, has an AA degree in culinary arts, and is already the pastry manager at a small business bakery. She has a great work ethic and her mother and I are very proud of her. She is a chip off the old block when it comes to minimizing expenses and saving money. She is still living at home and will probably continue to do so for another year or two to save even more. So far, she has accumulated $35,000 and that should grow pretty rapidly.

We've been talking about the power of long term investing and she is excited to get started. She plans to open and maximize annual contributions to an IRA. For the sake of simplicity, I think a one fund portfolio would be best for her. At this point anyway, she doesn't want to make any investment decisions. She just wants to deposit and forget.

From the little I've learned recently, I think 100% VT (Total World), VTI (Total US), or VOO (S&P 500) would all be good choices for her. I would love to hear what you all would choose. Is there another obvious choice that would be better for her? I sure wish my parents turned me on to this nearly three decades ago. Thank you to all who participate in this forum. I believe it to be a great service.
VT for one simple reason. It presents the least behavioral risks.

There's nothing you're missing and there's no bets you're making. No position or rationale to defend. It's a great feeling.
+1

Well said. Perfect explanation.
100% Vanguard Total World Stock ETF (VT)??? For a 20 year-old new investor with no ideas about risk this is a bad idea.

Target date or other types of allocation funds present little or no behavioral risk. Morningstar (4/15/2019), "Mind the Gap 2019", link.

100% stocks is an atypical asset allocation at any age. graph, stocks versus age
Last edited by ruralavalon on Sat Sep 18, 2021 12:05 pm, edited 1 time in total.
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phase03
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by phase03 »

Thank you all for your thoughtful and informative replies. Not surprisingly, I learned some more. My daughter and I will go over all the suggestions together and talk about the pros and cons. My number one message will be that all those choices are good choices and what matters most, by far, is her consistent willingness to add to it over the years.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by retired@50 »

phase03 wrote: Sat Sep 18, 2021 11:33 am . . . what matters most, by far, is her consistent willingness to add to it over the years.
:thumbsup
For sure, this is what matters most ^^^^.

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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by ruralavalon »

phase03 wrote: Sat Sep 18, 2021 11:33 am Thank you all for your thoughtful and informative replies. Not surprisingly, I learned some more. My daughter and I will go over all the suggestions together and talk about the pros and cons. My number one message will be that all those choices are good choices and what matters most, by far, is her consistent willingness to add to it over the years.
It is a good idea to talk this over together.

I totally agree that consistent contributions are paramount.

Establishing a high rate of contributions is the most important investing decision she can make, forum discussion.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by kelway »

ruralavalon wrote: Sat Sep 18, 2021 8:57 am 100% Vanguard Total World Stock ETF (VT)??? For a 20 year-old new investor with no ideas about risk this is a bad idea.
Oh come on - VT or Target Date 2060 is in fact not so different...
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by Blue456 »

kelway wrote: Sat Sep 18, 2021 1:12 pm
ruralavalon wrote: Sat Sep 18, 2021 8:57 am 100% Vanguard Total World Stock ETF (VT)??? For a 20 year-old new investor with no ideas about risk this is a bad idea.
Oh come on - VT or Target Date 2060 is in fact not so different...
There maybe behavioral difference. Someone who has zero knowledge about investing might be more persuaded by target date retirement.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by HanSolo »

kelway wrote: Sat Sep 18, 2021 7:25 am
HanSolo wrote: Sat Sep 18, 2021 2:38 am I'm noticing that lately (within the past year or so) it's become trendy here on the forum for people to recommend 100/0 asset allocations (stock/bond allocation), i.e., an all-stock no-bond portfolio. I'm not going to say that it's wrong, as it's probably right for some people. I'll just say that, traditionally, it's been considered a good idea for some amount of bonds to be included in an investment portfolio, and that's touched upon in the above-mentioned wiki articles.
You're probably right, although we are not in a 'traditional' interest rate environment. I'd personally never suggest that my teenage kids plow money into fixed income at their ages.
Everyone gets to decide what they want, and that's fine. I just thought it'd be worth pointing out that Jack Bogle's asset allocation recommendations were intended as all-weather, not something to jump in and out of when this or that asset class is wildly overvalued (in this case, bonds). It's not that I want to play the "more Boglehead than thou" card, this is just to remind newcomers that some of the recent trendiness is a departure from Bogle's teachings, even if one has reasons (and people always have reasons for their departures, tilts, timing behaviors, etc.). Right now, both bonds and stocks are wildly overvalued, and whether one wants to eschew one, the other, or both, is a personal decision.

Bottom line, it should be understood that these are deviations from the Bogleheads Investment Philosophy as it has been documented. Not that deviating from that philosophy is "wrong"... it's just another available choice.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by teejw123 »

As a 20 year old myself who has been wondering some of the same things i can relate. Personally if we are talking solely in retirement accounts then i would do a 70/30 split in VTSAX and VTIAX, that currently how i have my Roth IRA setup and i prefer it over the World fund because i like to have the control over my US/International ratio. If you're going for simplicity i would say a Total World fund is absolutely an option.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by 000 »

I'd use VT but VTI/VXUS in taxable to get foreign tax credit.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by BL »

VTSMX vs VTSAX primarily differ in that VTSMX is a closed fund. ... VTSAX is an admiral index fund that has a $3,000 minimum initial investment and a lower expense ratio.
There is essentially no longer a VTSMX and now the admiral fund has the same 3000 minimum as the other one used to be and has a lower ER. The other choices in the title are fine as well.

There is a lot to be said for putting everything into a low-ER target date fund at 0.1 to 0.2% ER rates. Just keep adding and don't even think about it for a while.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by ruralavalon »

HanSolo wrote: Sat Sep 18, 2021 6:39 pm
kelway wrote: Sat Sep 18, 2021 7:25 am
HanSolo wrote: Sat Sep 18, 2021 2:38 am I'm noticing that lately (within the past year or so) it's become trendy here on the forum for people to recommend 100/0 asset allocations (stock/bond allocation), i.e., an all-stock no-bond portfolio. I'm not going to say that it's wrong, as it's probably right for some people. I'll just say that, traditionally, it's been considered a good idea for some amount of bonds to be included in an investment portfolio, and that's touched upon in the above-mentioned wiki articles.
You're probably right, although we are not in a 'traditional' interest rate environment. I'd personally never suggest that my teenage kids plow money into fixed income at their ages.
Everyone gets to decide what they want, and that's fine. I just thought it'd be worth pointing out that Jack Bogle's asset allocation recommendations were intended as all-weather, not something to jump in and out of when this or that asset class is wildly overvalued (in this case, bonds). It's not that I want to play the "more Boglehead than thou" card, this is just to remind newcomers that some of the recent trendiness is a departure from Bogle's teachings, even if one has reasons (and people always have reasons for their departures, tilts, timing behaviors, etc.). Right now, both bonds and stocks are wildly overvalued, and whether one wants to eschew one, the other, or both, is a personal decision.

Bottom line, it should be understood that these are deviations from the Bogleheads Investment Philosophy as it has been documented. Not that deviating from that philosophy is "wrong"... it's just another available choice.
I agree.

A significant fixed income allocation has always been a feature of Boglehead-type investing at any age and in any "interest rate environment".

bar graph for 2007, 2011 & 2015. There was little change in the wake of the 2008 market catastrophe and in the prolonged low interest rate environment which followed.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by burritoLover »

If I were 20 again, I would be at:
50% Vanguard VT (Total World)
25% Avantis AVUV (U.S. small cap value)
25% Avantis AVDV (Intl small cap value)

100% VTI is a massive bet on a single country's large cap stock returns.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by nisiprius »

kelway wrote: Sat Sep 18, 2021 7:18 am Just a note that VT is .08%
:oops: Fixed. Thanks.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by nisiprius »

kelway wrote: Sat Sep 18, 2021 7:25 am
HanSolo wrote: Sat Sep 18, 2021 2:38 am I'm noticing that lately (within the past year or so) it's become trendy here on the forum for people to recommend 100/0 asset allocations (stock/bond allocation), i.e., an all-stock no-bond portfolio. I'm not going to say that it's wrong, as it's probably right for some people. I'll just say that, traditionally, it's been considered a good idea for some amount of bonds to be included in an investment portfolio, and that's touched upon in the above-mentioned wiki articles.
You're probably right, although we are not in a 'traditional' interest rate environment. I'd personally never suggest that my teenage kids plow money into fixed income at their ages.
Benjamin Graham (Warren Buffett's guru) said in the 1973 edition of The Intelligent Investor that "the investor should never have more than 75% of his[sic] funds in common stocks," with the rest in bonds. I have been criticized for quoting this on the grounds that 1973 was a long time ago, but the reason I bring it up is exactly because he said so during a period of rising interest rates. Not even a period when people thought interest rates might rise, but when they had already been rising for thirty years.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by blueberrypi »

Another vote for VTI and VXUS or mutual fund equivalents.
Can buy through M1 for auto rebalance feature if that appeals.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by frugalor »

Congrats on knowing enough to even ask this question here. I wish I was 20 again and planning out on investment. I am 45 now and I have lost so much money listening and investing with money managers, etc.

If I can go back, I would just put all my money into VTI.

You will be financial independent sooner than most people. And then you can just withdrawal enough for your living expenses and pay no tax because all your income is long term capital gains.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by TurtleBeatsHare »

Total World. With Total US, you are betting that the US—25% of global GDP—will outperform the rest of the world. I don’t think that’s a good bet because the US has historically high P/E ratios, comparatively high P/E ratios to other markets, substantial long term currency risks because of its debt and financial mismatch between its spending policies and taxation policies, is only 25% of World GDP in an average to below average growth region—and is facing increasing competition from China, which still has yet to open about 50% of its market to foreign investment. I don’t think that’s a good bet—but I said the same thing ten years ago and I have been wrong for 10 years (largely in my estimation because there’s a high correlation between the Federal Reserve’s balance sheet and equity markets and so QE has inflated US returns and deleveraging that QE will, in my opinion, be a drag on future returns).

However, the default approach to investing the core portfolio in my opinion is to have a broadly diversified world equity purchase. Each portion of the portfolio—US and non US—hedges the other. It protects against mean reversion and QE deleveraging risks, inflation and currency devaluation risks, low future growth, and selection errors. This last part is often overlooked—I don’t recall the exact numbers, but over very long periods of time, a relatively small percentage of companies account for a large percentage of long term appreciation. If you’re only in the US, your carving out a lot of companies that operate in areas of the world that high growth. It seems likely to me that you’re cutting out the future Apple, Facebook, etc. You can check Vanguard’s research on this as well. Last I looked at the graphs, I think their volatility graphs showed that a 70/30 portfolio is optimal because it reduced volatility without sacrificing return, and they recommend up to 60/40 US/non-US.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by GAAP »

VT for the following reasons:

A potential 40+years before the money is needed means that a lot can change. VT provides diversification against failures of any individual economy, including the USA while none of the others do.

Any of the answers involving more than one fund immediately introduces the complexity of allocating between those funds. VT is simpler.

If she is truly "set and forget", then the psychological/emotional value of "bond safety" (a misnomer) won't matter, so short-term fluctuations won't matter. VT also tends to have less fluctuation than other broad equity indexes since changes in those indexes tend to net out inside VT.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by Beensabu »

Vanguard LifeStrategy Growth Fund (VASGX). All-in-one. 80/20. ER 0.14%

Vanguard LifeStrategy Moderate Growth Fund (VSMGX). All-in-one. 60/40. ER 0.13%

Vanguard LifeStrategy Conservative Growth Fund (VSCGX). All-in-one. 40/60. ER 0.12%

She's 20 years old and has $35k cash saved. That's a lot for her. She worked hard to save that.

It's not her age that matters, but her risk tolerance.

Show her the table in Note 2 at that link -- it's based on a 50% decline in equities.

What amount of her savings would she be comfortable losing for weeks/month/years without knowing exactly when it's going to come back? That will help her determine her starting asset allocation.

Perhaps, she will later become more comfortable with potentially losing more.

Or perhaps she is comfortable with that now. I don't know. And neither do you. But she does.

It's her money, and it's her decision to make. Do not allow people on this forum to determine your daughter's asset allocation for her.
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by azurik »

Maybe my brain is slow this late at night, but why would having both funds in the same account be helpful from a tax perspective?
retired@50 wrote: Fri Sep 17, 2021 3:13 pm Welcome to the forum. :happy

In the IRA I'd suggest a target date fund, like 2060, or something like that. Simple, and always appropriate, regardless of her age.

If she also wants to invest in a taxable account, then she should use VTI and VXUS.
Keeping the US stock index separate from the international stock will be helpful from a tax perspective.

Regards,
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by One More Thing »

I am glad that I found this thread before I asked a nearly identical question. I find it difficult to decide between VTI and VT. Both of them seem to be superior choices over VOO in the long run but I cannot decided between the two of them. They both seem to have strong cases. VTI has outperformed most recently but does the balance between the US and ex-US have a history of mean reversion between them?
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by retired@50 »

azurik wrote: Mon Sep 20, 2021 9:00 pm Maybe my brain is slow this late at night, but why would having both funds in the same account be helpful from a tax perspective?
retired@50 wrote: Fri Sep 17, 2021 3:13 pm Welcome to the forum. :happy

In the IRA I'd suggest a target date fund, like 2060, or something like that. Simple, and always appropriate, regardless of her age.

If she also wants to invest in a taxable account, then she should use VTI and VXUS.
Keeping the US stock index separate from the international stock will be helpful from a tax perspective.

Regards,
Keeping US and International stock index funds separate allows one to take advantage of the foreign tax credit served up each year by the purely international fund. Often times, when investors choose a "world" fund like VT, the foreign tax credit isn't available to investors in that fund.

See link: https://www.bogleheads.org/wiki/Foreign_tax_credit

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by One More Thing »

retired@50 wrote: Mon Sep 20, 2021 10:48 pm Keeping US and International stock index funds separate allows one to take advantage of the foreign tax credit served up each year by the purely international fund. Often times, when investors choose a "world" fund like VT, the foreign tax credit isn't available to investors in that fund.

See link: https://www.bogleheads.org/wiki/Foreign_tax_credit

Regards,
How much can one expect to save on taxes from a VTI/VXUS split that is balanced as per VT?
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by retired@50 »

One More Thing wrote: Tue Sep 21, 2021 2:35 pm
retired@50 wrote: Mon Sep 20, 2021 10:48 pm Keeping US and International stock index funds separate allows one to take advantage of the foreign tax credit served up each year by the purely international fund. Often times, when investors choose a "world" fund like VT, the foreign tax credit isn't available to investors in that fund.

See link: https://www.bogleheads.org/wiki/Foreign_tax_credit

Regards,
How much can one expect to save on taxes from a VTI/VXUS split that is balanced as per VT?
The dollar amount of the savings would depend on your total investment in the VXUS fund, the amount of foreign tax paid, and your particular income tax situation. The details are discussed in the wiki link above. If you do your own taxes you might delight in learning about Form 1116, or not... :shock:

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: 20 year old new investor - one fund VT, VTI, VOO or other?

Post by One More Thing »

retired@50 wrote: Tue Sep 21, 2021 3:14 pm The dollar amount of the savings would depend on your total investment in the VXUS fund, the amount of foreign tax paid, and your particular income tax situation. The details are discussed in the wiki link above. If you do your own taxes you might delight in learning about Form 1116, or not... :shock:

Regards,
Well, time to delve it looks like.
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