I wanted to do something with my cash instead of just keeping it in an Ally savings account and being inspired by the simple lazy portfolio type of investing, I decided to buy some index funds from Vanguard. Why Vanguard and not another service like E-Trade? E-Trade is a broker and does not actively manage any funds, which means you end up paying more fees. This may be fine if you decide to purchase specific stocks, but if you are planning to buy only index funds, then it’s better to use a service like Vanguard. Vanguard actually manages the index funds so you will pay for the management fees only instead of both the fund management fee plus transaction fee. E-Trade needs to put the trade to Vanguard or another fund management company (depending on which fund you purchase) and therefore needs to pay a transaction fee. But by buying directly from Vanguard, you get to skip the third party transaction fee.
Vanguard has a $3,000 purchase minimum for the 3 index funds I’m looking at, which are the same as the boglehead article I mentioned above.
- Vanguard Total Stock Market Index Fund (VTSMX)
- Vanguard Total International Stock Index Fund (VGTSX)
- Vanguard Total Bond Market Fund (VBMFX)
My current plan is to keep purchasing each fund whenever I have enough cash beyond my safety net, depending on which fund is below the target allocation.
Vanguard has a default stock versus bond allocation suggestion depending on your age. As you can see, it suggests an 80% target of stocks and 20% target of bonds for someone of my age, which I plan on following. Since my current stock allocation is 75.60% and lower than my 80% target, and my current bond allocation is 24.40% and greater than my 20% target allocation, I plan to purchase $3,000 in a stock fund next.
How do I decide whether to buy domestic or international stocks? By checking out the stock detail pie chart! As of now, I am thinking of keeping my domestic and international allocations to 50/50.
Overall I am feeling good about my Vanguard account. Do any of you follow the lazy portfolio allocation strategy? What do you guys think so far? How about the allocation percentages? Do you do a 50/50 allocation for domestic and international stocks?