Vanguard Roth- exchange funds from TD50 to VTSAX or ?

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boogs5150
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Joined: Wed Sep 22, 2021 1:04 pm

Vanguard Roth- exchange funds from TD50 to VTSAX or ?

Post by boogs5150 »

Hi all, first post here and have been investing since I was about 25 into a Vanguard Roth IRA 100% into the Target Retirement 2050 fund. I have since realized I would like to take more risk since I am 32 years old and have more control over my money. I have about 50k in my Roth. I think I want to move 50-100% of the TD 2050 fund into VTSAX and maybe a dividend fund like VHYAX. My question is should I wait until December (to sell the TD funds to buy VTSAX) when I collect my dividends for the TD fund or should I just go ahead and sell/exchange for VTSAX now? I think I am OK for tax reason since I am in a ROTH to do all of this and my gains/loss's should be OK since I am still investing in stocks? I welcome answers and suggestions for other funds as well. Thank you everyone.
Silk McCue
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Re: Vanguard Roth- exchange funds from TD50 to VTSAX or ?

Post by Silk McCue »

Welcome to Bogleheads!

The dividends do not matter at all and are not a consideration from a timing perspective. Share prices drop basically by the same amount when dividends are issued so there is no free money there. There are also no tax consequences related to any trades within a Roth and their are no taxes or penalties upon withdrawal unless you do so prematurely according to IRS guidelines.

The target date funds provide you with global equity which I would recommend not abandoning at your age. We are 60/62 and hold our equities in Vanguard Total World. That would be the move I would recommend if you can stay the course when the markets crash. And they certainly will.

The TD 2050 fund is 90/10 equities/bonds There will likely be only a minor performance difference between that and Total World over a similarly long period of time,

Cheers
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David Jay
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Re: Vanguard Roth- exchange funds from TD50 to VTSAX or ?

Post by David Jay »

Welcome to the forum!

In a retirement account it is likely that a dividend-focused fund will not outperform the market, so I would not recommend choosing VHYAX.

The conventional wisdom is that a 5% allocation is not enough to change the trajectory of your account. Moving half of your money from the TD fund to VTSAX will effectively lower your bond percentage from 10% to 5%, not enough to make a real difference.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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boogs5150
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Re: Vanguard Roth- exchange funds from TD50 to VTSAX or ?

Post by boogs5150 »

My whole bigger picture was that I would think since I am still young that VTSAX will outperform the target date for sure.
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David Jay
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Re: Vanguard Roth- exchange funds from TD50 to VTSAX or ?

Post by David Jay »

boogs5150 wrote: Wed Sep 22, 2021 2:08 pmMy whole bigger picture was that I would think since I am still young that VTSAX will outperform the target date for sure.
We teach that the primary "control knob" for potential gain versus stability is one's asset allocation (AA), the ratio of stocks to bonds. Moving from a 90/10 to a 95/5 ratio is so insignificant that one is unlikely to detect the difference.

The secondary question is US versus International. I do not know which supplier of TD account you have, but most include some international holdings. Looking at a 5 year (or even a 10 year) back-test only tells one that the US market has been on a tear since the financial crisis of 2009. One can fully expect that at times in the future the international market will outperform the US market. That is the reason why it is included in the TD fund. Reducing your international holdings by 50% (which is what you are doing if you switch 50% of your balance to VTSAX) amounts to a "bet" on the continued outperformance of the US market which has already been "on a tear" for 12 years.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
boogs5150
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Joined: Wed Sep 22, 2021 1:04 pm

Re: Vanguard Roth- exchange funds from TD50 to VTSAX or ?

Post by boogs5150 »

Thank you for the help!
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