Thriftygal’s Money Strategy

By | October 21, 2013

I like simple. I have about three months of living expenses in a checking account and every bill is paid out of that account. My paychecks deposit a little more than half my average monthly expenses into that checking account twice a month. The rest is spent buying a Vanguard Index Fund, specifically VTSAX.


You can read pages and pages of why VTSAX is the cat’s pajamas, but in a nutshell:

  • When you buy a Vanguard fund, you become a shareholder of Vanguard. When Vanguard makes money, you make money. Vanguard is the only investment company that I know of that uses this model. This is in comparison to a company like Fidelity. When you buy into a Fidelity fund, you’re a customer of Fidelity. When Fidelity makes money, only Fidelity makes money.

  • Hence Vanguard has the lowest fees. And fees matter.

Quick chart.

Ambrose invested $20,000 with his friend Cornelius. Cornelius promised to get Ambrose a return of 7% per year and his fee would be .05% per year. Bartholomew  invested $20,000 with Cornelius as well. Cornelius promised the same 7% return per year, but the fee he charged Bartholomew was 1% per year.

Ambrose’s effective rate of return is 6.95%. Bartholomew’s effective rate of return is 6%. Here’s where they stand after 20 years. 

Ambrose has $76,673.59 and Bartholomew has $64,142.71. Ambrose and Bartholomew invested in the same exact item, but the cost to invest for Bartholomew was more than $12,500 higher than Ambrose’s cost to invest. That’s 63% of the initial investment. Even tenths of a percent matter given compound interest and time.

  • So now you understand my loyalty to Vanguard. My specific fund of choice is VTSAX. Here is what VTSAX’s prospectus says about this fund’s investment strategy:

The Fund employs an indexing investment approach designed to track the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq.

Emphasis mine. So basically, you always hold some of every stock available to buy in the United States.

This is, quite possibly, my favorite chart of all. The entire history of the stock market.

This is what I’m investing in with VTSAX. I’m betting on the United States, on civilization. This chart covers the crash of 1929, the Great Depression, two world wars, the dotcom bust and the latest recession, 128 years and counting.

When I buy VTSAX, I own a piece of every U.S. company it is possible to buy. Some companies lose money, go bankrupt and drop out of my fund. Other companies make money hand over fist and distribute it to me in the form of dividends.

Nobody has consistently beaten the market. A buy and hold strategy is the best PROVEN method to consistently make money in the stock market. An actively managed mutual fund or a day trader can have a lucky year and beat the stock market occasionally, but it is impossible to do so as consistently as a buy and hold strategy in an index fund. And when you do use an actively managed mutual fund or day trade, the expenses nibble at your returns in the good and bad years. I just showed you the chart of greedy Cornelius charging 1%. Imagine the chart of some funds that charge 3% in expenses.

When the market dips, which I guarantee it will, I happily notice that VTSAX is on sale. And as a thrifty person, I love sales. I put money in every month and celebrate the “sales” when it dips and the “returns” when it’s up. Slowly, but surely my net worth goes up.


*Of course I’m in my early thirties and have a strong stomach. I can afford it when the market drops. In fact, I’d LOVE if the market fell hundreds of points over the next few months. Clearance sale!

58 thoughts on “Thriftygal’s Money Strategy

  1. Renee s

    Hi! Thanks for the post–I came from JLCollins…I just have a question about how you invest..if you don’t mind. I am 25 (close to your age-I think). I have no debt and I max out my Roth IRA, put at least 200 dollars into a 403b account (tax deferred) and I also have taxable accounts…how do you do it? I am worried about the taxes that I will have to pay on my taxable accounts (one with ETFs from vanguard and one with a few stocks from fidelity)…any thoughts?

    1. Thriftygal Post author


      I max out my 401(k) each year (it goes through Vanguard, so I happily signed up) and the rest goes into the Vanguard Index Fund I mention above.

      I think your strategy is mostly sound. Does your employer match any of the money you put in your 403(b)? If so, consider contributing enough to the 403(b) to get the match. I personally would not invest in single stocks with Fidelity due to the extremely high likelihood of receiving lower returns than if that money were in an index fund and the guaranteed additional fees, but Roth IRAs are the way to go and I plan to open one in the future. JLCollins must have read your mind because he just put up a fantastic piece on taxable accounts.

  2. Kim

    Just found your blog from JLC and like what I see so far. I have 95% of my money with Vanguard. Please help me understand something though. I get the concept of Ambrose and Bartholomew above. It makes sense. My spouse wants to invest in an index fund with Schwab which has outperformed the same type Vanguard fund (VTSAX). However the Schwab has a higher fee, let’s say 1% versus the .05% of VTSAX. How can you compare these because if you make higher return with Schwab doesn’t that beat VTSAX no matter the expense ratio? I’m getting a headache just thinking about it!

    1. Thriftygal Post author

      Hi there! That’s a really good question and this is how I like to think about it.

      There are thousands and thousands and thousands of funds out there to pick from. In any given year, maybe 20% of the funds out there will beat my Vanguard fund despite their fees. However, the odds of any fund beating my Vanguard fund reliably and consistently year after year after year after year are laughably tiny. Any money manager who DOES consistently beat out my Vanguard fund would become famous (e.g. Warren Buffett) and there is no way to figure out which fund will be the Warren Buffett fund beforehand.

      So I figure my choices are: (i) a fund that is pretty much guaranteed to beat out most funds most years and is absolutely guaranteed to not charge high fees or (ii) a fund that may possibly beat out fund (i) some years, but is guaranteed to charge high fees regardless of how it does.

      That being said, you are only talking about 5% of your money here. If you and your spouse agree to play with that money somewhere else, that could be a fun experiment to see if you’ve picked the Warren Buffett fund. 🙂

  3. Mark

    I too just found your site courtesy of JLCollins.

    Great concise article on why Vanguard is awesome and the power of keeping things simple with VTSAX.

    I’ve added your site to my Feedly reader and look forward to reading more! (Oh, and “cat’s pajamas”… brilliant!).

  4. Thriftygal Post author

    Thank you! I took a wander through your website though and I think you have a pretty good handle on the subject. I look forward to reading more!

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    1. Thriftygal Post author

      Thank you! That explains the spike in traffic. I’m a big fan of Bogleheads, so this is very exciting for me.

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  8. Amanda

    Hi Thrifty Gal! Saw a link to you on bogleheads, nice info here! I have a question about your various accounts if you have a moment to respond. You mentioned that you max out your 401k which is through Vanguard – are you also exclusively using VTSAX there, or a different combo of funds? And is your only other account a taxable account, or do you have an IRA/Roth? Do you hold any other asset classes like bonds or REIT’s, or is it just VTSAX and 3 months cash in checking account?

    I have always been frugal, but have just recently begun to really organize all my finances, and currently am maxing my 403b and my husband’s 401k in Vanguard’s Target 2045, as well as maxing our HSA with an approx. of the total stock market. We’re in our early 30s too, toying with just going all in to VTSAX as Jim Collins suggests for the “accumulation phase” – do you have any recommendations? (btw target 2045 is 90% stock, 10% bond). Thank you!

    1. Thriftygal Post author


      Thanks for stopping by and the questions! Here is exactly how my net worth is broken down (as of May 2014)
      VTSAX – 43%.
      VTIVX – 42%. This is the Vanguard Target 2045 you mentioned. 19% of that is a rollover from an old 401(k) pre law-school and 22% is my current contribution. I do not receive any matching amounts from my employer, unfortunately, but I max it out each year to lower my taxable income.
      VGSLX – 7.4%. This is the Vanguard REIT Index Fund. This is leftover from a year ago when I was trying to diversify and before I believed in the superiority of VTSAX. The percentage will go down as I no longer contribute to this.
      VBTLX – 4.6%. This is the Vanguard Total Bond Market Index Fund and another leftover.
      Cash – 3%. This amount is a bit high and I will buy more VTSAX with this when I see a sale. 🙂

      So, I agree with your strategy of maxing out your 401k and 403b with the Vanguard Target 2045, especially if you receive matching funds from your employer. Anything over the max, I would buy VTSAX during the accumulation phase. The expense ratio for the Target 2045 is a relatively low 0.18%, but it’s still not as good as the 0.05 of VTSAX.

      I don’t currently have any Roth accounts unfortunately as my income has been too high to qualify (a good problem to have). After I reach target “retirement”, I will likely up my cash reserves a bit and convert some of my 401(k) to a Roth IRA. I plan to keep as much VTSAX as I can and cash out the other accounts before I think about touching my favorite investment, but will likely readjust my strategy and thinking as I get closer to actual retirement.

      I hope that helps!

  9. Amanda

    Oh, one more thing! Do you have a plan for gradually shifting into more conservative allocation over time, or will you stick with 100% VTSAX until retirement? Thanks again!

  10. Amanda

    Thanks so much for taking the time to respond! I really appreciate all the info. One more question re: your 401k…You mentioned you max it out and use the Target 2045 fund – is this because VTSAX is not offered through your plan, or do you prefer to use it since it has a bond allocation and will progressively get more conservative over time?

    My husband and I actually both have the option of VTSAX in our 403b/401k in addition to the Target funds – do you think we should switch to this since we are in the accumulation phase or keep it as is? (These are the accounts that we contribute the most to – 17,500 each – and we want to maximize our future returns, willing to accept short-term volatility for long-term growth etc.) Although I have read on bogleheads that having at least a small bond allocation can actually improve returns w/rebalancing, hmm….

    Thanks again!

    1. Thriftygal Post author


      The only reason I buy the Target Retirement Fund is because VTSAX is not an option with my 401(k) plan. If I could buy that, I most definitely would. I’ve read the Boglehead’s Guide to Investing a couple of times and it’s one of my favorite investing books and where I take most of my investing advice. I see the value in having a small bond allocation, but we’re both so young that I would err on the side of accumulating more stocks than bonds at this stage. If I were you, I’d go all in with the VTSAX, not only because I dislike bonds for people in our age range, but also because the expense ratio is more than 3 times lower.

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  13. Scott

    Small nit: The DJIA graph you show is very different from VTSAX. A huge part of why VTSAX is awesome is the “approximately 100%” part you mention. The DJIA is very much the opposite of that, since it’s 126.8 times smaller, with only 30 stocks instead of VTSAX’s 3804 (as of 2014-11-30).

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  15. Nish

    Hey Thriftygal,
    Great post and thanks for your net worth break down. My Q is how do you allocate these? Does the VTSAX go into your taxable account or IRA or Roth IRA or all? Considering there’s a limit to IRA contributions, I believe majority of the chunk would reside in a taxable account, right?

    Also, what do you do once your account has more than $250K considering the FDIC only insures up to that amount?

    How’s Australia? Did you catch any of the World Cup Cricket games? 🙂

    1. Thriftygal Post author

      Hello Nish,

      I was just doing some research earlier this month actually on whether I should open a Roth IRA and that spiraled into a lot of research on taxable versus nontaxable accounts. I had plans to make an actual post about what I found, but I really suck at updating this thing and making time to write for it. The long and the short of it is: I make too much money to open a traditional Roth IRA. I could do a “backdoor IRA” where I invest $5500 (the maximum in 2015) in a regular, nondeductible IRA account and then immediately convert it to a Roth, but I decided against that. I already have about ~$100k in an IRA that I rolled over from a 401(k) at an old job (so the money was a deductible contribution). I cannot just open a new, separate IRA for the $5500. I would have to roll over the entire $105k, which would present me with a large tax bill. I will likely roll over that money at some point – when I’m not working and my tax rate is much lower.

      So, to answer your question: yes, my VTSAX is in a regular, taxable account. I never considered the FDIC insurance limits, but that is now on my list of things to research.

      And Australia is great! I’m not a cricket fan, but do plan to go watch an Australian Football League game soon.

  16. Neil

    Hi Thriftygal,

    Awesome blog ; )

    Great information, but i just have a question on your investing. You mentioned that you max out your 401k (the target fund). Does that mean that you put the maximum amount in that 401k for the year? Meaning $17,500 (i believe that is the maximum, although i could be wrong and it might be a little higher or lower)?

    Also, you say that you also have the VTSAX fund in addition to the 401K. Now from a previous post, you mentioned that you put like 30k (or something like that) in this in one month. But how were you able to do that if there is a limit of 17,500 per year? Or is the VTSAX in a taxed account (not a retirement account)? And did you open this taxed account (if it is a taxed account) so that you could, in fact, put as much as possible into that account (no maximums)? I look forward to your reply. Thanks!!

    1. Thriftygal Post author

      Hi Neil,

      Thanks for the comment! You are correct that the maximum amount you can put in a 401(k) is $17,500 in 2014 (and $18,000 in 2015). I do max that out every year to reduce my taxable income. The VTSAX account I have is not specifically an official retirement account – it’s a regular old taxed account that I opened to invest as much of my money as possible. There’s no limit on that.

  17. Cassie

    Thirftygal and Nish … investment accounts are not FDIC insured, only bank accounts. That is one of the reasons the Madoff scandal bankrupted lots of people and there was no ‘bailout.’ Everything in investment accounts — 401k, 403b, IRA, taxable, hedge funds — are all at your own risk.

  18. Neil

    Hi Thriftygal,

    And thank you for answering my question above. I just have one final question,

    Since you own VTSAX in a taxable account, why did you choose VTSAX as the taxable account instead of the VTI, which is the ETF for the Total Stock Market index? Just curious. Thanks and i look forward to your reply,


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  21. Leo

    One question: To open a VTSAX account, one needs a minimum of $10k, correct?

    1. Thriftygal Post author

      Yes. You can open a VTSMX account which has the same shares if you have $3k. It has a slightly higher expense ratio, but they automatically transfer you to VTSAX when you hit $10k.

  22. Nicole

    Hey, there! Found your blog through MMM, and I’m also a female living in Chicago. While I don’t have student loans, I do have an $88K mortgage loan – I bought a small, 1 BR condo just north of Irving Park and against at the lake. I did this for the same reason you had a roommate – keeps my monthly commitment ~$800. Seems like we’ve led similar lifestyles in Chicago: biking everywhere, minimizing expenses and throwing as much cash as possible in to investments. Question: have you ever looked at a Betterment account and how that compares to Vanguard? I keep my e-fund and property reserves in that account, and have a Roth with Vanguard so can watch the earnings on both. I only recently opened the betterment accounts, shifting the dollars from a savings account. I’m interested to hear your thoughts, and way to go on FI! If you’re ever back visiting chicago, would love to chat money in-person!

  23. Edwin

    Hi Thriftygal!

    Investing is a new subject for me (and my whole family really) and I have a few questions as a true newbie to all of this. I’ve recently paid off my student loans and eliminated my debt and now looking to invest. I’ve read the John Bogle book, the Ramit Sethi book, and follow several financial blogs (MMM, Simple Dollar, Get Rich Slowly, yours).

    However, one thing that doesn’t seem clear to me is how do I actually go about buying the actual fund. I looked at VTSAX on the Vanguard website and it is listed at $47.72 with a minimum investment of $10k. Does this mean I need the 10k to start and then I can start buying as many $47 chunks I want? Also, what about withdrawing or selling. Assuming I build my investments enough to where I now have 25x my living expenses and ready to live off the 4%, do I then simply log on to the Vanguard and start selling a certain number of the $47 chunks I purchased before. If so, is there any occasion where I can’t sell it at will.

    I’m sorry if these questions are really basic, I just haven’t found a clear answer. Any insight you can provide is much appreciated. Thank you!

    1. Thriftygal Post author

      Edwin – if you have $3k, you can buy VTSMX which has the same shares as VTSAX. It has a slightly higher expense ratio, but it will rollover automatically to VTSAX when you hit $10k. There won’t be an occasion where you can’t sell it.

  24. bahatinda

    Hi. I really enjoy your blog. Thanks for the interesting ideas and approaches. I live in Canada and am retired. Should have done what you are doing but didn’t. I have $23k which I can invest somewhere. Would you suggest the VTSMX or VTSAX might be a good place? Thx Susan

    1. Thriftygal Post author

      Hi Susan. I’m not familiar with the rules in Canada, but if you’re able to buy VTSAX, that’s what I recommend and where I invest my money.

  25. Simon Kenton

    Ms Gal, you might want to have a look at if you think of implementing a bond/real estate/peer-to-peer component into your mix. Basically it’s hard-money lending institutionalized, with a first lien on the properties. Incidentally this obviates one of the problems of Prosper – collections were slack and had to be, whereas here, the mortgage and high loan-to-value ratio make collections less necessary and more feasible.

    I’m not associated with the company and see two problems with the concept, one generic and one particular and personalized, but I am thinking of funding an account with them just to try it out.

  26. Tammo

    Can I ask,
    Why tracking a US index instead of a worldwide one like the worldwide MSCI ?
    Maybe I understood it wrong.


    1. Thriftygal Post author

      @Tammo – VTSAX has a lower expense ratio and the US companies in it have a global presence, so there is international exposure.

  27. Michelle

    Hi Thriftygal!

    Found you over at MMM, way to keep up the good work! I am currently 31 and working to retire in just under 2 years if all goes according to plan. My question is how do you withdraw your funds to live on if they are in 401k accounts (since there is a penalty for early withdrawal), or do you have enough money in other funds that you can withdraw or cash out the dividends? Just curious, because I am hesitating on putting more into 401k because I would need to access it in early retirement for the 4% withdrawal rate.

    Thanks in advance!


    1. Thriftygal Post author

      @Michelle – I always maxed out my 401(k) for the tax benefits. I don’t plan to cash that out anytime soon though as I have the cash and the pure investment accounts first. I do include the 401(k) in my accounting for the 4%, but as I’m spending well under the amount I need, I don’t anticipate it being a problem.

  28. Katie

    Hello Thrifty Girl,

    Just wondering…is VTSAX a mutual fund or ETF?
    I have about $50k that I want to invest for my daughter’s college education. She is 20 months old. I am 40 years old. Would VTSAX a good one to invest in? TIA!!

    1. Thriftygal Post author

      @Katie – VTSAX is a mutual fund. I think there are 529 plans that allow you to invest in education better? I’m sorry, I’ve never looked into it.


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