More of your questions answered! By me! Mostly about VTSAX.
VTSAX is, of course, my one true love and where I invest the majority of my money. It’s the total stock market index fund from Vanguard. Read the post I’ve linked above if you’re still confused.
Should I wait to buy VTSAX until it’s on sale?
Yes. You should absolutely 100% wait until the price of VTSAX is on sale to invest your money. That’s when it makes the most sense mathematically.
Except you will have no idea when that time will be. Maybe my faith in humanity is misplaced and maybe something absolutely catastrophic will happen in early November and maybe the market will crash and maybe there will be a prolonged sale.
Or, maybe Google will unveil a seriously world-changing new artificial intelligence product tomorrow and maybe *today* is the lowest point of the market for the next 140 years. I don’t expect the price of VTSAX to ever go back down to $20/share, but nobody knew when the last day of that $20 price was.
You can spend hours looking at 52 week highs and lows, studying charts and trying to find patterns, poring over financial disclosures and guessing on timing and prognosticating which companies will be desired and ground-breaking. And people do! They tout their investment knowledge and charge people money to use their guesses.
If you knew when to time the market, you’d be a fast billionaire. And psychic.
I found my navel ring using a pair of my earrings.
My advice? Throw it in as soon as you can and practice the fine art of shrugging. Yes, maybe the market will drop, but you’ll still be getting dividends in the interim. And the point is that you’re still contributing to it as you build your early retirement sanity account. You’ll get the sale if it goes down and, if you don’t need the money in the short-term, you’re not really losing anything.
I know that’s easier said than done because, hey, it’s your money! You spent a lot of time earning that money! You could buy so much ice cream with that money! But that’s the difference between normal people and people like you and me. We think long term and big picture.
I don’t have $10,000 to invest in VTSAX.
VTSMX is the same as VTSAX and you can buy it if you have $3,000. It has a slightly higher expense ratio, but Vanguard automatically transfers you to the cheaper VTSAX when you have $10,000. Because Vanguard is a gentlemen like that.
What’s the difference between VTSAX and VTI?
The only difference between VTI and VTSAX is how you buy it. I found VTSAX simpler, so that’s what I went with. My money strategy was to set it up and forget about it. VTI doesn’t let you transfer money straight from your paycheck, but my darling VTSAX does. VTI also doesn’t let you buy fractional shares. I didn’t want to deal with cash sitting around in my account or doing math. No math with VTSAX!
Luray caverns
VTSAX only contains U.S. companies. Don’t you want something international?
Many U.S. companies have international subsidiaries, customers, workers. It’s a global economy. Synergy. Other buzz words. Seriously though, I am happy with the amount of international exposure I have with my sweet VTSAX.
What about retirement accounts and tax implications? Do you recommend buying VTSAX in a Roth IRA?
Sigh. Taxes are boring and I’m too lazy to do research for things that don’t affect me. I’m sorry. Working as a lawyer, I didn’t qualify for a Roth because of my income.
My gut says yeah, use all the tax stuff you can. Roth sounds like a great deal. You pay taxes on it up front and your money then grows tax-free. And VTSAX is my favorite, so if it’s possible for you to use that, I have no objection.
I didn’t have a Roth, but I loaded up my 401(k) every year I worked to lower my taxable income. Not with my gorgeous VTSAX because it wasn’t an option through my employer, but with Vanguard Target 2045 Retirement Fund, which was. Good enough.
Broad, obvious advice: if your employer matches anything, take advantage of that. Free money, right? You are all probably sophisticated enough to know this already.
Are you a shill for Vanguard?
A shill? Ha! I wish! That would be so fun. But, no. No. We’re not even in the same league. If we were in high school, Vanguard wouldn’t even notice me, much less ask me to dance. I looked up the word shill to make sure I understood the question.
How do you track your expenses? What do you think about Mint?
I tried Mint years and years ago, but I found it didn’t categorize my expenses correctly and it couldn’t link to all my accounts. I use Google Docs Excel. Check out this post if you want to see the actual spreadsheet template.
Smoking a Cuban in Cayman. Spoiler: It was disgusting.
It seems kind of risky to invest your money in just one place.
But my one place is one very special place. With VTSAX, I’m betting on everything. I’m betting that civilization prospers and that people will continue to invent and create and strive. That’s my optimism.
Everyone has different levels of risk assessment. Personally, I find alternative strategies risky. I’ve investigated and dismissed the alternatives. I’m not going to buy gold bars and a safe deposit box. Real Property doesn’t appeal to me even a tiny bit right now. Bonds might sound fun in a couple of decades. Cash will only dwindle.
The riskiest idea of all: paying someone else to guess the future. I may hand over a few dollars to a persuasive reader of palms at a carnival for laughs, but I’m not going to pay someone to guess which investments are going to perform well. Actually, I probably wouldn’t even do the carnival thing.
A rising tide lifts all boats and a tsunami destroys all ships. If VTSAX were to collapse, there is something seriously bad happening in the world and I’m guessing I’ll have bigger things to worry about.
I can’t tell you what to do, only tell you what I do. If it helps, cool beans. John Bogle
As I grow older, I too am moving more and more to low cost indexing, set it and forget it, ain’t nobody got time for timing… 🙂
“ain’t nobody got time for timing” indeed!
I just started my VTSAX about a week ago. I am so excited to finally be saving for my future after spending years on debt repayment and saving for a house! I also agree with you on mint, and have had the same problems with personal capital. It’s easier to use a spreadsheet.
Woot! We’re VTSAX buddies!
Anita – Pay attention to the tax code! Tell me sweet nothings about how you’re converting some of your pre-tax money into a Roth IRA right now. You could be doing so and paying no taxes on the conversion since your income is so low. Take advantage of being poor. Google “Roth IRA Conversion Ladder”.
I have looked into Roth IRA Conversion Ladder and dismissed it in the past, but I’ll add it to my list of things to check again.
i could be wrong, but to fund a Roth or any IRA, there has to be actual ‘earned income’? but i guess you could fund the IRA w/the Amazon book review windfall.
Windfall. LOL. I’ll tell you guys all about it when I update my charts in January. 🙂
I also don’t know the answer about the Roth. Another boring thing to Google!
You would need earned income in order to contribute to one, but not to convert an existing traditional account to a roth account. No google needed.
you might consider googling the term “back door Roth” if your income exceeds the Roth limit. i read John Bogle’s reminder just this morning that the investing triangle is risk, return, and COSTS. Taxes are a cost worthy of your attention.
Sigh. I know you’re right. I wish I weren’t so freaking lazy though!
…and you can invest in an after tax IRA every year, then back door convert it to roth before it earns too much taxable income. Make it an annual event!
Instead of plunging into Vanguard, wouldn’t it be wiser to dollar-cost-average in?
Meh, you can, but I don’t think it’s worth the effort. I’m pretty lazy, you see.
If you have a big lump sum of cash, you’re also mathematically more likely to do better by dumping it all in at once than by dollar cost averaging it in over time. I forget what the exact numbers are, but I think something like 2/3 of the time you are better off putting it all into the market at once, based on historical data. There’s a Vanguard paper around somewhere that discusses this, I believe.
So not only is dollar cost averaging more work, more likely than not it will reduce your returns. It does have a psychological benefit, though, and if I had a really large lump sum to invest, I might dollar cost average it into the market myself. Despite the fact that I’m perfectly well aware that’s likely to be suboptimal. I definitely wouldn’t do it over any time period longer than a year, though. There are limits to how irrational I’m willing to be. 😉
(And maybe I’d convince myself to be rational. I’m planning on withdrawing my pension soon, when I leave this job, and dumping $60K into Vanguard as a lump sum. I have no issues with investing that amount all at once. Half a million might be harder. Alas, it’s a hypothetical question for me; no such amounts are coming my way!)
I <3 this comment.
40% of the time DCA wins, 60% of the time lump sum wins. Nobody can tell you what will win today.
DCA has the advantage of helping some people sleep at night, or simply not yank their money out when they lump sum in and the market drops.
Know yourself and your ability to handle the drops.
I couldn’t agree more with your point of view that investing in VTSAX is making a bet on the advancement of humanity. Also, the random unrelated photos in the article are thoroughly entertaining. Awesome post!
Well, people kept complaining about the related clipart. So unrelated pictures I find in my phone it is!
that’s a good enough idea to steal. thank you.
You are most assuredly welcome, kind sir.
I like your investing strategy of simple and comprehensive index funds. The only thing I would consider adding is Total International. (Perhaps Total Bond if you are less aggressive). While I agree that most “US” companies are multinational, and may even conduct more business internationally than locally, you are still missing out on the smaller international markets (not to mention the more risky emerging markets).
Or… you could just forget everything I said above, and just invest in Total World Stock 😀
Meh, I dislike the expense ratio of Total World Stock. I’m pretty happy with my VTSAX.
“A rising tide lifts all boats and a tsunami destroys all ships. If VTSAX were to collapse, there is something seriously bad happening in the world and I’m guessing I’ll have bigger things to worry about.”
Investing in a nutshell… Prepping, hoarding, zombie apocalypse tools, beating or timing the market… all require suspension of disbelief. ‘Yep, I’LL be ready!’
Diversification & low expenses… compounding. Up front miracles for all to see.
I bet you could make decent money selling zombie apocalypse tools.
Thanks for the post; it’s helpful for my wife and me! We hope to add $60k over the next two years to a VTSAX, per your and MMM’s recommendation. My only question is: if we, for some reason, end up needing the money we have invested into Vanguard, how much of a hassle is it to pull the money out? Will there be penalties? Can I pull the 60k out and any earnings?
Can you point me in a direction (blog or website) that goes in to further detail?
Thanks in advance!
No penalties if you pull it out. It’s not a tax deferred account, it’s your money and you can take it out without hassle. At least, that’s my understanding.
Hi Anita!
I’m curious. In the back history of your posts, (I’m a weekly reader!) I know you had a very high paying job for a relatively short period of time, and with yearly investing cap limits, I’m curious how you managed this process to retire so quickly. Outside of your tax deferred accounts, did you then just purchase more of the same virtually over the counter to maximize your investment in VTSAX?! I ask because I am trying to invest $1000 a week tax deferred for a year and having trouble filling out the year. I’m close but not all the way there.
Thanks in advance!
Todd
Pretty much. I bought $17,500 or $18,000 in my 401(k) and each month, I would invest maybe $10k-$12k in VTSAX. $1000 a week is a very impressive amount! I’m not sure what you mean by filling out the year though?
Filling out the year with 52 weeks of tax deferred investments. That’s my goal but proving difficult to get there.
speaking of palm reading at carnival shows, do you think VTSAX will do better with Donald Trump or Hillary Clinton as POTUS?
Look at how the markets coped with Brexit. I predict the same sort of thing: dire warnings beforehand, the election, market meltdown (if Trump wins) and just as fast rebound (if Trump wins). OR markets continue slightly up (if Clinton wins). AFTER the inauguration, we’ll see pretty much more of what we’ve seen with Obama if either wins. Want me to read your palm now?
No politics talk because I don’t want to moderate those types of comments, but I would think my preference is obvious. I like Steve’s comment though.
We bought 30k worth a couple months ago in a taxable account. It has since thrown a dripped dividend that we will have to pay taxes on, and is worth less than 30k, but we’re in for a longer haul. I will probably add another 10k in a month or two.
Dripped dividend? I’ll need to google that.
You reinvest the dividends in the same stock for a discount. https://nicoleandmaggie.wordpress.com/2011/02/03/dripping/
Whats the difference between VTSAX and a similar fund (SWTSX) from Charles Schwab? Should I move into Vanguard or stay with Schwab?
It looks like it’s a very similar concept. The expense ratio for SWTSX is 0.09, which is higher than VTSAX’s of 0.05. Some years its returns beats VTSAX, but some years VTSAX wins. With VTSAX though, you always pay the lower expense ratio.
It’s a small enough difference I could see being lazy and not switching it over.
The only negative about index funds is that with Exxon, and Apple being so highly capitalized, they figure prominently, like 10% of the total weight. I love Apple, but hate Exxon, so this conflict has been gnawing at me within, but there seem no good workarounds. I really appreciate Thriftygal’s way of seeing things, as “investing in the entire civilization”, which I suppose includes the good players, as well as the bad.
Totally agree with and understand your angst here. When solar power or electric vehicles or whatever is discovered to replace oil in the future, it will knock Exxon off eventually. Hopefully.
It’s the world we live in though. We use energy for everything and that’s not cheap.
Congrats on the site Thriftygal and thanks for sharing your knowledge and experiences. Very useful.
If I understood correctly, you have all of your funds invested in a VTSAX and enough cash to cover your expenses for 3 months. I guess you withdraw a percentage of your funds each month? Or perhaps you use the dividends ? How would you handle a big drop in the stock market? Would you still withdraw the same amount?
I have about a year’s worth of expenses and haven’t dipped into my VTSAX yet. Next year, I plan to withdraw a few months of expenses at a time. That amount is low enough that I’d still probably take it out despite a drop in the market. Flexibility is key.
You inspired me to invest in VTSAX. Finally bought my first $10K. How do you track the VTSAX sale and how often did it happen before?
I’d love to purchase some at the starting of every month rather than wait till it goes on sale. Again, I’m completely new to taxable investments and starting to learn a bit lately.
When I say VTSAX sale, I just mean the price of VTSAX has dropped. Just google VTSAX and it’ll tell you the day’s price. It fluctuates. Yes, you should just buy it and not worry about the sales. 🙂
Enjoyed this nice witty post. I have been with vanguard for a while now and I must agree it is a solid company. They charge low fees and still provide great service. When in doubt go vanguard.
Hi, I’m a fan of your blog and also a fan of the VTSAX index fund. Recently I found out Charles Schwab has a similar index fund with an expense ratio that is now lower (0.03%). If the expense ratio is lower for the same type of index fund (entire US stock market) as VTSAX, do you think it is worth moving funds from VTSAX to the Schwabb index fund? Thanks!
I’m too lazy to move my funds to Schwabb, but if I were still working and contributing, it would be something I would seriously consider looking into. That’s crazy low! Thanks for the heads up.
I realize this is probably a stupid question, but I CAN NOT find the answer anywhere. I invest in an account like this, are there any penalties for if I have to withdraw money early? Like if I had an emergency and required the finances for said emergency? Thanks!
Nope. As long as it’s not in an IRA or 401(k), no penalties.
Short term gains (if held less than one year) will be taxed at the normal tax rate (like 22% or 24%). If held longer than 1 year and then withdrawn, the tax rate is at the capital gains rate.
Thanks for the clarification! You’re right. 🙂
I have to disagree with you on one point, VTSAX doesn’t protect you from country specific risk. I know it sounds impossible, but the US could be on the bad end of a global trade war or sanctions.
I have VTIAX to balance out that risk, and to take advantage of growth in the rest of the world. Just my 2¢
Very true. The United States isn’t invincible and could go the way of Rome.
Thriftygal,
Thank you for creating this insightful transforming platform. As a young 40 something woman who just starting out on my investment FI journey. I want to say your posts has made a real difference in my life. I created my Vanguard account and made a decide to buy into VTSAX today. Your contributing thoughts are very ery much appreciated! Keep them coming 🙂
That’s a lovely comment! Thank you. 🙂
Over the long haul, your one true love has been outperformed by numerous low fee indexes with more small cap exposure, including VIEIX, VSMAX, FSSNX and NAESX.
What international exposures you have in VTSAX is correlated to US markets, which defeats the purpose of investing overseas.
VTSAX is certainly not a bad fund, but there are far better options or strategies.
That’s entirely possible!