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Vanguard Total Stock Mkt Idx Message Board

  • helladg20 helladg20 Nov 29, 2012 1:31 PM Flag

    Trouble deciding between two vanguard funds, please help..

    I have 5,000 in my Vanguard Star Fund, (VGSTX), which is about 65% stock and rest mainly bonds. I have it automatically done where 5,000 comes out each year into this ROTH IRA. I'm just wondering if I should switch over to this fund, (VTSMX). I am 23 and look to max out in this IRA until I retire and then reep benefits in dividends and gains. Wondering if anyone could help me because I am thinking about switching to the total stock market index. Thank you!

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    • First I commend you for investing early in your adult life and particularly for investing in a ROTH over a "regular" IRA (foregoing the immediate deduction in favor of a TAX FREE investment).
      That said, I think either choice should do well. VGSTX has been less volatile given its fixed income holdings, but in the very long run, I would expect VTSMX to outperform. That said, I just reviewed both funds' performance 11/30/92 - 1130/12:
      VGSTX Total return: 407.16
      VTSMX Total return: 387.73
      Of course, past performance is not indicative of future performance.
      VTSMX is heaviily weighted with large cap US stocks while VGSTX has about 18.5% in INTERNATIONAL equities via two Vanguard funds--one growth and one value--split evenly.
      Having a portion of its portfolio in fixed income presumably aided VGSTX's returns over the last decade (when rates decline, bonds increase in value).
      If you're only going to own one fund in your ROTH, I say stay with VGSTX given it is more diversified via international holdings and that it holds both equities and fixed income.
      Besides making annual contributions to your ROTH, some day you should invest in a taxable account as well. VTSMX might be a good choice in a taxable account--it is VERY TAX EFFICIENT, since the portfolio has very low turnover and thus few taxable events (not including its quarterly dividends).
      Bottom line: I think either fund will do well over the long run and probably better than most managed mutual funds.
      You've taken the first key step by investing in a ROTH. Now the key is to be disciplined and to contribute to your ROTH every year!!!

      • 2 Replies to wooglin_kai
      • Agree with Woglin....either should do fairly well. Vanguard is a good choice because of their low fees. Either way you go, your decision to save money is commendable. Remember your ROTH contribution for 2013 is up to $5500 depending on your income. $5000 for 2012 if you haven't done your contribution yet. You can do 2012 up until tax day of 2013.

        If you're married, and if your wife doesn't work, your wife can also have a ROTH based on your income only. Thus you can contribute another 5000 for her (2012) and 5500 for 2013.

        If I had a gun to my head I'd pick VTSMX though.

      • How and where did you go to compute the total return like that?

        "VGSTX Total return: 407.16
        VTSMX Total return: 387.73 "

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