What we own and why we own it

What we own and why we own it

In the simple path to wealth I created for my young daughter nine basics guidelines.

Readers noticed that the plan called for only one investment:  VTSAX — Vanguard Total Stock Market Index Fund. 

Here’s why:

1.  VTSAX is an Index Fund at Vanguard and that means rock bottom costs.  It is surprisingly critical to keep costs low to succeed in investing.

2.  VTSAX provides broad diversification.  It holds every publically tradedUS based company.

3.  VTSAX provides international diversification.  Most large US companies are multi-national in scope.   They, and you as a shareholder, benefit from the growing world economy.

4.  Stocks, over time, provide the highest return of any investment class.

5.  Stocks are, over time, a fine inflation hedge. People forget that stocks are not just pieces of paper.  Stocks are pieces of ownership in operating businesses. Sales, inventory, plants, equipment, brands et al.  All of which rise in value with inflation.

6.  VTSAX, like the total stock market index it reflects, is self cleansing.  A company, and its stock, can experience extremes.

The worst that can possibly happen:  It loses 100% and the value falls to zero.  Then it drops from the index and is replaced with a new company.

The best that can happen:  The company becomes wildly successful.  Its value and stock price could rise 100%.  Or 200%.  Or 1000%.  Or 1,000,000%.  Or some unlimited percent.

This is one of the key reasons that while the stock market and VTSAX can and do have violent swings down, the march over time has been relentlessly up.

Can it really be this simple?  Yep.   My core belief is not only should investing not be complicated, simple gets better results.   Complicated, of course, pays Wall Street better.  If you are worried about them.

this is for these guys

Remember this is for my 19-year-old and other folks with decades ahead of them.   Basic #7 in the Simple Path points out that to make this work you have to be able to ignore the panics, stay the course and let the decades work for you.  Easy to say and very tough to do.  Especially when all the experts are lining up on window ledges.

100% stocks, even in the broadly diversified VTSAX is considered very aggressive.  High short term risk (read: gut wrenching drops) rewarded with top long term results.  Perfect for those who can handle the ride and have the time.

But it’s not for everybody.  Maybe you don’t want to deal with this level of risk.  Maybe a bit more peace of mind is required.  As you get older you might want to smooth the ride a bit, even at the cost of lower overall returns.   You have to sleep at night.

Now that I’m kinda, sorta retired and we have F-you Money, me too.  My wife and I hold some other stuff in our portfolio.  But not much.   Here it is:

45-50% = VTSAX is our core holding, for all the reasons listed above.

25% = VBTLX 

This is the Total Bond Market Index Fund.  Bonds provide income, tend to smooth out the rough ride of stocks and are a deflation hedge.  Deflation is what the Fed is currently fighting so hard and it is what pulled theUS into the Great Depression.  Very scary.

5% = Cash.  Cash is always good to have in hand.  You never want to have to sell your investments to meet emergencies.  We keep ours here:  VMMXX.

But keep in mind the actual amount will depend on your net worth and projected needs.

5% of a million is $50,000 after all, and that might be excessive.
5% of $10,000 is $500, and that might not be enough.

Understand your potential needs and aim for that amount, rather than a fixed percentage.

25% = Real Estate.  VGSLX  This is an Index Fund that invests in REITs (Real Estate Investment Trusts). Please note — I no longer hold VGSLX. Please see Addendum #1 below.

The Fed has mounted a massive effort fighting deflation.  Another way to say it:  They are working hard to ignite inflation.  In our current situation a little inflation would be a very good thing.  But the Fed almost always over shoots.  My bet is sometime soon we will see a strong inflationary rebound.  VGSLX is my inflation hedge.

While, as  noted above, over time stocks are a fine inflation hedge they tend to get wacked in the beginning.  Real Estate will respond to inflation much faster and stronger.  VGSLX is the safest and easiest way to own it.

 As you’ll hear in a future post, your personal home is a terrible investment  But if you feel you must own a home, now is a great time to be a buyer.

Investment real estate is an entirely different thing.  You can, and I used to, buy individual properties and do very well.  But that’s a part time job.  VGSLX does the same with no effort and much broader diversification.

Finally, we have a checking account at our local bank for ready cash and paying bills.

So, that’s it.  Four Index Mutual Funds and a checking account.  A core holding, an inflation hedge, a deflation hedge and cash for daily needs and emergencies.  Low cost, effective, diversified and simple.

This is still pretty aggressive, but it suits us.

Want a smoother ride?  Willing to accept a lower long term return?  Just increase the percent in VBTLX.

In the interest of full disclosure,  I do still have a few other investments left in old 401k plans and from my many misguided attempts to pick stocks and fund managers.  Boy howdy, I’ve made a lot of mistakes swinging for the fences.  That’s a subject for another post.

Here’s the other stuff:

HAINX.  Harbor International Fund.  I own this in the 401k from the job I just left.  It is an actively managed fund and, as such funds go, it has relatively low costs.  It also has performed very well over the 5-6 years I’ve owned it.

So, I got lucky.  But that’s what it is:  Luck.  Actively managed funds can and do outperform their indexes.  This one has for me.  But rarely for the long term.  Meanwhile, the higher expenses are always there.  Now that I can, I’ll be rolling this over to Vanguard.  It’s been a nice run.  No great hurry, but no sense pressing my luck either.

CGMFX.  CGM Focus Fund.  This is a very aggressive fund run by Ken Heebner.  Heebner is a super-star fund manager and Focus was, a few years back, the best performing fund there was.  Or close to it.

The last few years?  Not so much.  I’ve gotten killed in it.  Did Ken get stupid?  I doubt it.  Will he get his mojo back?  Who knows.  The take away here is fund managers don’t get any better or smarter than Heebner.  But the index has still left him in the dust.  Beating the index year after year is vanishingly hard, even for guys this good.

 I also have a very few dollars in a handful of stocks.  Not gonna name them ’cause it’s a bad idea to have them.  But I like to play.

 What can I say.  I’m a slow learner.


Update:  HAINX, CGMFX and all individual stocks are now gone.

Addendum 1:  Please note — I no longer hold VGSLX. Please see Stepping away from REITs for a discussion as to why.

Addendum 2:  What if you can’t buy VTSAX? Or even Vanguard?

Addendum 3: This is a great example of the right way to use and think about VTSAX

Addendum 4: The Path to 100% Equities

Important Resources:

*These are affiliate links and should you chose to do business with them, this blog will earn a small commission.

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Of course, you don’t want to do this just to enter a contest. That’s not the jlcollinsnh way! :-) But if you are thinking of giving them a try anyway, now is a good time. Good luck!

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  1. reggie
    Posted December 16, 2011 at 7:30 pm | Permalink

    I agree with you in principle…but in reality I do not.

    I think things need to be more actively managed…to a level well within an armchair investor’s ability. Look at it this way:VTSAX (your core stock holding), as well as SPY (S&P500) have returned ~ 0% over 10 years…deadly to those who are retired and have been withdrawing monthly.

    • Posted December 16, 2011 at 8:50 pm | Permalink

      Hi Reggie….

      Welcome aboard and thanks for your comment.

      No question stock returns over the last decade have been, ahem, disappointing. Historically they provide the greatest return of any asset class, but certainly not without risk.

      This is why for my 19-year-old daughter with decades ahead they make sense at 100%. But, as I tell her, you have to be able to ride the downs without losing sleep.

      This is also why, for us retired folks, it is only half of the mix. Admittedly this is still very aggressive but I’m comfortable with riding the declines. Even the mega tsunami of 2008-9. But then, my “stash” has also grown large enough to weather such storms without impacting my lifestyle. Due of course, to having taken the ride.

      My concern with your suggestion that things need to be more actively managed is the underlying assumption your armchair investor would have done better than a 0% return over the last ten years. It is, of course, entirely possible to do far worse than 0% return.

      Research indicates the vast majority of individual investors do, in fact, far worse than the index. So do the majority of professionals who make investing their life’s work. It is vanishingly difficult and that’s why those who can do it are household name superstars like Warren Buffet.

      If one chooses to be an active manager (something BTW I choose for many years) it is well to be keenly aware of the extraordinary challenge being undertaken.

      Asset allocation is the more reliable tool, and that’s why we have bonds and RIETS and cash.



  2. J
    Posted December 27, 2011 at 11:41 am | Permalink

    Hey JC,

    Hello from a fellow New Englander; this is a great article/blog!

    What’s your split amongst taxable accounts and retirement accounts?

    For a 27 yr old looking to achieve FIRE asap with his fiancee, what would you recommend the split be?


    • Posted December 27, 2011 at 2:12 pm | Permalink

      Hi J…

      Welcome and thanks for the very kind words. Glad you are enjoying the blog and finding it of some value. How did you come across it?

      Regarding our split, it is roughly 50/50 taxable v. IRAs. Mostly because we keep the dividend paying REIT and Bond funds in the Tax sheltered IRAs and the VTSAX in the taxable account. But this info doesn’t really address your question.

      We maximized our contributions to Roths, IRAs, 401ks as aggressively as we could. But with a 50% savings rate we were also able to build assets outside as well. Remember, our goal was never to retire early but rather to have F-you money so we could step back whenever we choose. My wife did it for 10-12 years to be a stay-at-home mom and, as I’ve described elsewhere I’ve done it 3 or 4 times for periods ranging from three months to 5 years.

      If you and your fiancé plan to hang up working for money at, say, 35 you’ll want more of your assets available in taxable accounts. IRAs/401k are typically unavailable without penalty until you are 59.5 years. (although you can access them earlier with an equal annual distribution process. but that locks you in.)

      So here are some considerations:

      Anytime your employer offers a “match” with the 401k, grab it. The instant 100% gain outweighs other considerations.

      Fund Roth IRAs next. They have no immediate tax deduction but your contributions plus everything they earn are free of income tax going forward. Importantly, there is no required distribution when you are 70.5. These will be your longest held investments.

      Given your situation, beyond these I’d focus on aggressive savings and building your taxable investments so you’ll have ready access to your $$.

      Traditional IRAs depend on your tax bracket. If your earnings are low you might be better off keeping the money in taxable accounts. Especially if you’ll be tapping it before 59.5.

      If you’ll be living on your investments from 35 until 59.5 (when you can access IRAs without penalty) you’ll want to have non-IRA investments available.

      Hope this helps!

      • J
        Posted December 27, 2011 at 6:25 pm | Permalink

        Thanks for your insight, JC! I came across your blog by surfing the comments over at the triple M. I admire the perspective of your posts, keep up the good work!

        Your reply has helped clarify. Given my age, positioning my retirement account all within VTSAX seems most wise since I won’t touch it for years to come & for keeping costs low.

        I guess I’m scratching my head over allocation within the taxable account. Given the volatility of VTSAX year over year, it will be hard to rely on if living off the assets.

        A balanced fund like, like a VBINX, would provide a growing-but-semi-stable $$ to use up. Yet, the dilemma is that bonds aren’t the most tax-efficient assets especially if their in a taxable account. Your thoughts?


        • Posted December 27, 2011 at 7:09 pm | Permalink

          Hi J….

          Makes sense. I’ve noticed an influx of readers from over there of late.

          Basically you want to keep bonds, REITS, and high div stocks in 401k/IRAs. protects the dividends from the tax man.

          stock funds, like VTSAX, provide most of their gain with capital gains at a lower tax rate. so they can go in your taxable account.

          VBINX is a fine fund and will do the job, but as you point out the bond component makes it less tax efficient. It also has a slightly higher expense ratio. This is way I choose VTSAX and VBTSX. I can put them where I want and pay lower expenses. Still VBINX does it all for you and makes it even simpler.

          Where is your $$ now, what is your savings rate and when is your retirement target? If you don’t mind my asking….


          • J
            Posted December 28, 2011 at 11:05 am | Permalink

            Thanks JC.

            I’ve been in the accumulation/learning phase; similar starting out as to how Jacob began…sad to say, it is all still sitting in a savings acct as I’ve been reading up on all the classics the last year and blog surfing before making the leap. My current rate is at 60%. Regarding target, I’m still contemplating as to whether the best goal to aim for is a full FIRE fund (at current living expenses) or to buy an income property(live in it) while continuing same savings rate to reach a smaller FIRE fund faster since living costs would lessen, plus have additional stream of income and be further diversified aside of ‘paper’ assets.

            I suppose what is ultimately desired is best summed from “The Richest Man in Babylon”, ‘…a golden stream that continually floweth into thy purse and keepeth it always bulging…an income that continueth to come whether thou work or travel.”


          • Dtree
            Posted May 30, 2013 at 11:00 am | Permalink

            Hi Jim.

            Question: Lets say one had 20k per year to invest and had a couple of decades before 59.5. You say above that it makes sense to invest REITs in tax sheltered accounts since they pay dividends. With that, would it make sense to put $5500 only into REIT fund, and then invest the rest into VFINX in a taxable account?

            Thanks for your advice!

  3. chemistay
    Posted February 3, 2012 at 1:09 am | Permalink

    I’m a little late to the party (I’ve just found your blog and am catching up on all old posts) but I was wondering…..how did you choose specific index funds to invest in?

    I’m just a few years older than your daughter and have finally realized that I’m ready to start ‘thinking’ about it all but I’m still overwhelmed by all the choices. For example, you have 25% in VBTSX but over at MMM he’s recommended VFSTX for bond based index funds but I don’t have the knowledge to accurately distinguish pros/cons between the two.

    Does anyone have recommendations for a good in depth guide to things like risk factors, expense ratios, and capital gains? I can find tons of resources that gloss over investing but so far nothing that’s both approachable and thorough.


    • Posted February 3, 2012 at 2:15 am | Permalink

      Welcome Chemistay…

      …glad you found your way over here. From you comment I’m going to guess you are around 22. It is awesome that you are turning you attention to investing so early. Nothing is more powerful than the compounding of your investments over time and the sooner you start the faster and further you’ll go. Kudos.

      I come to my choices by trial and error over literally decades. Fortunately you don’t have to do that. If you haven’t already, take a moment to read:


      In it you’ll find what and why I recommend to my daughter and, by extension, other young people starting on this path. Keep in mind, this is a very aggressive approach. It only works if you have the time horizon and the guts to ride out the gut wrenching drops like we had in ’08. Over the next 50-60 years of your investing life you can expect to go thru several more. You’ll also see incredible bull markets. Don’t let yourself be made frightened by the one or giddy by the other.

      VFSTX is a short-term bond fund. Typically people buy these to earn a bit more interest, with a bit more risk, than a money market fund on the cash they want to have readily available. Details here:

      It serves a very different role than VBTSX. This is a total bond market fund providing broad-based exposure to bonds of all terms. VBTSX is a better fund to hold for the long term. It compliments the Total Stock Market Index (VTSAX) which does the same for stocks. This gives broad diversification over both.

      For good, clear no-nonsense info on investing check out Vanguard’s website. You can also compare VFSTX and VBTSX on their site, looking at yields, expenses et al.

      Good luck and stop back anytime with more questions.

      • Posted February 3, 2012 at 1:19 pm | Permalink

        Thanks for your quick reply!

        My situation is slightly less straight forward than your daughter’s, unfortunately. (Also, I still feel like I’m 22 most days but I’m pretty close to birthday #25…definitely time to get my financial life in order!)

        I’m currently a graduate student which means I’m making some money but I also have some deferred college loans that I want to pay back in about two years when I graduate (before they start accruing interest). I’ve saved up the ~$12,000 that I owe but its just sitting in a savings account and I’d like to put it in something relatively stable but with slightly more potential for growth than my bank account which is why I’m trying to figure out the differences between bond based index funds.

        At this point, I’m thinking I should open a Roth and max out contributions (before April 17th) at $10,000 in something like VFSTX and use the remaining $2000 to open up a taxable account (In something similar? Safe but lowish growth?). My plan would be to pull out the principal without penalty when the loans become active and keep anything it makes as a nice little future tax-free bonus. Anything else I save from this point on will be free to go into a higher risk, longer term investment. I keep going back and forth on the best way to do this though because I don’t quite understand the tax implications for things like a Roth IRA vs. taxable investment and bonds vs. stocks etc. I feel like I should max out my Roth but I don’t make enough (yet!) to save $5000 every year and I need that $12000 to be available when I graduate so I don’t have to pay the evil loan company any more than I borrowed to get my degree.

        Luckily, these funds are above and beyond what I need to live each month and I still plan on having around $2000 in a savings account for any surprise expenses. Up until now I’ve been terrified to put any money in investments but I’ve finally seen the light and realized that this attitude is actually hurting the future me.

        Any advice? I’ll definitely do some more snooping around the Vanguard website as well.

        • Posted February 3, 2012 at 4:34 pm | Permalink

          1st, big time kudos for having the cash set aside to cover your student loans the moment you graduate. That tells me you’re a fiscally disciplined guy, and that in turn colors my answer.

          let me give you two answers: what you should do and what I personally would do.

          What you should do is put the 12k into VFSTX. This is short term money you are investing and stocks and intermediate and long bonds are long term investments. Greater returns with greater short term risk.

          VFSTX is perfect for this application because it is a short term bond fund. It will give you a better return than a money market fund with very little addition risk.

          Moreover, I am a huge fan of Roth IRAs and believe everyone should max them out whenever possible. Since $5000 is the annual limit I assume you’d place the 10k with your 2011 (which you can add up until April 15) and 2012 contribution allowances.

          You mention then withdrawing the 10k without penalty in two years to pay the loan. Since I don’t know the law on this I’ll assume you’ve done your homework and it’s possible. If it is, I like it. This is a little fancy for my taste, but given your evident discipline, go for it.

          The extra 2k you can keep in the same fund but in a taxable account. Then, when you graduate and begin working switch the Roth to VTSAX for the long haul and keep adding to it.

          Now, here’s what I’d do. 1st this is based on a few assumptions:
          You have a high risk tolerance like me
          Your job prospects when you graduate are good
          You are planning to save 30%+ percent of your income

          As before, 10k into the Roth but in VTSAX. This will be the start of your long-term wealth building. The 2k into VFSTX for safety, liquidity and a bit of extra return.
          Upon graduating, I’d then pour my full efforts into getting the loan paid thru my income and funding the 5k per year into the Roth. Plus funding, if offered, any 401k at least up to any company match.

          As an alternative, and if VTSAX grows over the next two years, you could also follow your plan of pulling the 10k, leaving the money earned and paying off the loan. But if you are as disciplined as you appear, I wouldn’t bother. Just focus on paying them agressively out of income.

          You’re asking all the right questions. Good luck!

          • Posted February 7, 2012 at 1:57 pm | Permalink

            Thanks for your take on things! I’ll probably end up going the more conservative route since I’m still weighing my options for life after graduate school.

            One more quick question: why do you have your cash in a low yielding money market account at Vanguard rather than a higher interest savings account like Ally and ING offer?

            I’m really enjoying your blog and looking forward to future posts!

          • Posted February 7, 2012 at 8:37 pm | Permalink

            Thanks Chemistay…

            glad you are enjoying and I appreciate your participation. although now you’ve asked me an embarrassing question. 😉

            The answer is habit, and I have yet to check out online accounts. Interestingly, I was just reading about them here and added my own comment:


            Seems Ally is favored over there.

            Since I tend not to keep much cash and usually am planning to deploy it in short order, my Vanguard Money Fund is simply more convenient.

          • Posted February 11, 2012 at 6:04 pm | Permalink

            I understand! I opened an account at ING before Ally was around and have been very happy with it but would seriously consider Ally if I was starting out now for a few perks like being able to scan in checks rather than sending them by mail (or having to keep a physical bank account to transfer money). Once you open an account though, you can link it to Vanguard easily. (This is what I did when I took the plunge and opened my Roth IRA this week…yeah!)

          • Posted February 11, 2012 at 9:20 pm | Permalink

            cool beans! one of the great things about the comments section is I get to learn new stuff too.

            I’d be very interested in hearing the details:
            your assessment of Ally v. ING
            how to open these
            interest rates
            linking to Vanguard

            Want to do a guest post? If so, write it up and shoot me an email. it will be the 1st on the blog!

  4. Fuji
    Posted March 9, 2012 at 5:01 am | Permalink

    Thank you so much for sharing this information – it’s so useful! I’ve jumped around many of Vanguard’s funds and admit 2008 and scared me. I know have most everything in the Wellesley Fund and I know it is considered conservative. With a 10-15 year horizon do you think it is TOO conservative?

    • Posted March 9, 2012 at 9:20 am | Permalink

      Don’t feel bad, Fuji. 2008 scared everybody. It had me biting my nails, too. It was a real test of my “ride out the storms” mantra. Yet here we are, closing in on those levels once again a few short years later.

      Years ago I remember looking at Wellesley and my impression is very positive. Your question prompted me to revisit it. It is a great fund and I don’t even like actively managed funds. :)

      Very impressive long term performance and a very reasonable .25% expense ratio. This is a “balanced” fund, meaning it holds both stocks and bonds. So the road to that strong performance has likely been much smoother than with my favorite, VTSAX.

      Going to the Vanguard site, there is a useful tool to compare funds:


      (just noticed the link above comparing the the funds I choose is not working. if it does’t work for you go here: https://personal.vanguard.com/us/funds/vanguard
      select Wellesley, or any other fund, and when you get to it’s page on the upper right-hand side you’ll see a button marked ‘compare.’)

      Using it I pulled up Wellesley, VBINX (the index fund equivalent benchmark) and VTSAX. Wellesley looks might fine. It consistently has outperformed VBINX and even has a slightly cheaper expense ratio.

      In the 1, 5 & 10 year categories it soundly trounces VTSAX, taking a back seat only in the 3-year measure. It is important to think a bit about why.

      The last 10 years have been exceptionally difficult for stocks. Since Wellesley in a balanced fund that also holds bonds, this outperformance makes perfect sense.

      Within this 10 year period, stocks have been in a bull market coming off their bottom since 2009. So VTSAX taking the lead for the 3-year period also makes perfect sense.

      So, to your question: Is Wellesley TOO conservative for the next 10-15 years? Nope. I think you’ve found yourself a great investment here. It is certainly more conservative than VTSAX, but with their track record you’d not be giving up much to get the smoother ride of a balanced fund.

      Wellesley also pays a close to 3% dividend. Very handsome. But also taxable, if you are holding it in a taxable account.

      Normally, Wellesley being an “actively managed” fund, I’d be steering you away. Outperformance is very hard to maintain and the past is no guarantee of the future. That said, like most things, Vanguard does “actively managed” differently, and better, than other fund companies.

      The difference lies in the avoidance of star fund managers. Vanguard’s are managed by groups that focus on basic styles and principle that match the fund’s stated goals. Since these are consistent and not dependent on the acumen of specific individuals , fund performance is more likely to be consistent thru the years.

  5. Steve
    Posted June 9, 2012 at 7:22 pm | Permalink

    I have just read your article on MMM and found it a fantastic read,although parts of your life and investing styles do mirror my own strategy.
    I started investing before I was 16 I have tracker funds for my wife and 2 children (although not Vanguard as it’s a newcomer here and not easy to access).
    I have income from 3 properties that just give that stability that shares sometimes lack,but any spare money goes into the stock market at the moment including my dividends.
    Financial freedom is a goal worth achieving!
    Your advice to newcomers is probably the best I have seen

    • Posted June 9, 2012 at 9:14 pm | Permalink

      Wow, high praise indeed, Steve. Thanks!

      Where are you located?

      • Steve
        Posted June 10, 2012 at 6:53 pm | Permalink

        Vanguard do operate here and I would have changed over to Vanguard but to start with you needed £200,000 for them to take you as a direct client, this has now dropped to £100,000 but is still quiet a lot,
        You can invest in Vanguard trackers through platforms (alliance trust,Hargreaves Landsdown) but these have a monthly fee attached and that makes me feel like I would be at the mercy of there platform fee’s.
        Vanguard have just introduced some low cost ETF’s in the uk and I might use these in the future FTSE 100 = VUKE, FTSE all world GBP= VWRL , USD=VWRD .
        I am sorry to hear your property dealings didn’t turn out well,and many people here in the uk have been stung by buying to high or buy to let disasters but owning property can be a very good investment.
        I was lucky and seemed to buy at just the right time, my properties were bought in the 1990s when property was bombed out and now the boom and bust has happened it has left a lot of owners with properties they have over payed for,but here in blighty, land is very scarce, planning permission isn’t given easily and property is still on very tight supply.
        Property prices haven’t come down as much here as I expected but because of short supply and buy to let people paying to much for there property rental incomes/rates are very good indeed ,and I suppose the Bank’s asking for a 20% deposit helps.
        Trackers are good but if you put £100,000 in a tracker at the top of the market then I suppose it would have the same effect as buying a house at the top of the market.
        The good thing about trackers (and possibly essential thing) is that you can put monthly amounts in and use pound cost averaging to help you along.


        • Posted June 10, 2012 at 10:56 pm | Permalink

          Great info, Steve….


          In answering a question for an Aussie reader I did some research and it seems the ETFs Vanguard offers are the way to go for interested non-USA folks.

          I have had a couple of properties that worked out well, but I haven’t written about those. :)

          My condo disaster seemed the more entertaining story.

  6. Jay
    Posted June 11, 2012 at 10:08 pm | Permalink

    In looking at the Vanguard funds, it’s apparent you need a minimum of $10,000 to invest in each. If a guy doesn’t have $10k like that, what is he to do?

  7. Posted June 29, 2012 at 12:57 pm | Permalink

    If I want to open up an account and start investing, do I open up an IRA?

    My company doesn’t offer a 401k match or anything. (I work two part-time jobs). I make about $20,000 per year right now.

    I mainly just want to start saving that 50%, putting it in a reliable fund, and being able to retire early. When I went to sign up on Vanguard I got a little confused with all the options.

    I have a Checking account with a local bank, ING Savings account, and Charles Schwab Checking/Investing (Don’t use it, but if I travel I’ve heard good things about Schwab).

    • Posted August 15, 2012 at 12:30 pm | Permalink

      Hi TJ…..

      I’m going to guess you’re a young guy and this money would be invested for the long term.

      At 20k per year your tax bracket is already low and so the tax benefits of a regular IRA or 401k don’t offer much to you.

      A Roth IRA is perfect for you. No immediate tax benefit (which you don’t need) but it and everything it earns for you will be tax free when you’re a geezer like me. But you can only put in 5k per year and there are early withdrawal penalties and taxes.

      If you have more to invest, you can open a regular account.

      Oh, and I’d use Vanguard.

  8. zero
    Posted July 19, 2012 at 7:19 pm | Permalink

    Hey Jim,
    Great posts, excellent and entertaining stuff. I think I followed Jacob of ERE fame and MMM over to your site. Given your penchant for sound advice I’m keen to get your thoughts on market timing.
    I know, stupid question, but here it goes.

    I’ve been 90% cash for 2 years, over 100K losing to inflation everyday. Reason being I thought I should be picking stocks and have had… less than stellar luck with that so far (15% down). Now you, MMM, and others have very convincingly converted me over to indexing, and I want to jump in. I can buy admiral shares in VTSAX and other indexes no problem. I work outside the US but am a citizen so my tax situation is a little different (for example I don’t get access to Roth contributions) but my taxes are nil since I make less than the exclusion trigger.

    The question is, I’ve been sitting out for this run up from 700 to 13000. It seems that re balancing from cash to the whole market right now would be “buying high”, same for RIETs, same for bonds. I’ve thought of dollar cost averaging but wince when I look at the run up for all these classes. Is there an asset class that is down to take advantage of? Should I just accept I’ve missed the boat and jump on one that is riding high now, or wait for a 8-10% pull back… I have a good track record for waiting.

    Please be harsh,

    • Posted August 15, 2012 at 12:23 pm | Permalink

      Hi Zero….

      Welcome and thanks for the kind words.

      Yours is an excellent, and tough, question. We are sitting at the top of an extraordinary bull run from the crash bottoms. I can appreciate your concern. Truth is, no one knows what the next year or two will bring. But the next decade or two will be further up. So….

      A lot depends on your age and time horizon. If you are young and looking a decades ahead, I’d just drop it into VTSAX (stocks) and plan to add more as I could. Even at these high levels my daughter is about to make her annual Roth contribution to VTSAX. Will it dip after she does? Who knows? Will it be higher decades from now? You bet!

      As I’ve said elsewhere, as a geezer, I now hold 50% stocks, 25% bonds and 25% REITs. In fact I just rebalanced. With this recent climb in stocks, that meant selling some VTSAX and buying more bonds.

      Sorry. I couldn’t think of anything to be harsh about…. :)

    • Posted August 15, 2012 at 12:24 pm | Permalink

      BTW, where is your overseas posting?

  9. Andrew
    Posted August 10, 2012 at 2:22 pm | Permalink

    Probably too late to this discussion but it appears VGSLX is closed to new investors. Is simply buying Vanguard REIT Index the same thing? Help, I really like the idea of working on the bounce back this way but dont want to jump in with two feet and have missed something important!

    • Posted August 15, 2012 at 12:11 pm | Permalink

      Hi Andrew…..

      As far as I can tell, VGSLX is still open to new investors, but it does require a minimum investment of $10,000.

      VGSIX is the same fund with a $3000 minimum and a slightly higher expense ratio. You can switch to VGSLX when you balnace gets large enough.

      You can also buy it as an ETF. Ticker: VNQ

      • Eduardo
        Posted December 23, 2013 at 11:58 pm | Permalink

        Hi jlcollinsnh
        Follow up question, what would be the difference of owning the ETF or VGSLX?


        • jlcollinsnh
          Posted January 3, 2014 at 9:12 am | Permalink

          Hi Eduardo…

          Mostly it is in the way you buy them.

          ETFs are bought and sold like stocks over an exchange. You can buy and sell instantly. Because of this, some like them as trading vehicles.

          This also means you have to be careful of trading commissions.

          VGSLX is a fund and it is bought thru Vanguard. Trades don’t happen until the end of the day and Vanguard typically restricts trading in its funds. Fine for us long-term investors.

          Both have similar expense ratios and they hold the same portfolio.

          Since those last two are most important, you can hold whichever you prefer.

          Hope this helps!

  10. Prob8
    Posted September 27, 2012 at 10:00 pm | Permalink

    Ha! I also got killed in the CGM Focus Fund. One year, 80% return. The next, I’m curled up in the fetal position and chanting “Say it ain’t so, Ken.” In fact, very few of my well known managed funds have beat my index fund (VTSAX).

  11. D
    Posted April 23, 2013 at 9:34 am | Permalink

    Hi JC,

    First of all many thanks for this wonderful blog which I only recently discovered. What I like most is the fact that it is not “just” a personal finance blog, but covers the entire concept of life. I am a young father in his mid-30s and I find a lot of your shared experiences inspiring.

    I am stopping by from Europe and as I empathise a lot with your comments and investment “advice”, I wonder if you can help me out with the implementation of the strategy over here.

    Unfortunately, Vanguard has a tiny offering over here and their solution for my equity bit that I would like to be covering the MSCI World is not very compelling.

    ishares has the much broader and better offering here in Europe. Would you recommend to avoid them due to the reasonson mentioned in your post?

    Thanks so much for your reply!

    All the best,

    • jlcollinsnh
      Posted April 26, 2013 at 10:02 am | Permalink

      Welcome D….

      As it happens I’m in Europe at the moment: Prague.

      I very much appricate your comment about enjoying the non-finacial parts of the blog. I struggle with this. While I enjoy writing those pieces I do sometimes wonder if my readers are saying “yeah, yeah, but where’s the $$$ stuff I came for??” So your thumbs-up is welcome.

      As to your question, when I started this blog I never dreamed it would enjoy the international readership that has developed. In fact a full 18% are from the UK. Very cool, I think.

      In the comments section you’ll find, especially in the Stock Series, numerous comments and repies addressing your concerns from European readers who are figuring out the same things. Unfortunately, I have no expertise to offer in the unique aspects of investing outside the USA, but many readers do.

      I am planning a post on this very subject, but in short I’d offer these guidelines:

      1. Use only low-cost index funds. While I favor Vanguard, other companies have good examples.
      2. Look for broad-based funds that track a large index. Were I outside the USA I’d be looking at a World Fund. By definition it would have solid coverage of the US market as well as the EU and other parts of the world. As the world becomes more global the wiething of large internationals will serve well.
      3. Use as few funds as possible. I have only three: Stock, Bond & REIT.
      4. Because I don’t know the opportuities available with REITS internationally, I might go with an even simpler stock/bond mix. Maybe 75/25% for an agressive investor like me. Add more bonds if you want a smoother ride.

      Hope this helps!

  12. Tammy
    Posted April 30, 2013 at 4:06 pm | Permalink

    Hi Jim –

    I’m late to this blog and late to investing. But I hope it’s never to late to start. I’m going to follow up on a question I saw..well, somewhere. Between you and MMM, I’m starting to absorb a lot and become a bit overwhelmed. :)

    The gist was..Cody asked when to start diversifying. And your reply, in short was, when you want to start living off your dividends (and you can’t contribute as much)…take it Vanguard admiral stocks and begin with the bonds/REITs at that point. If I understood you right.

    Here is my question for you along those same lines regarding my situation:

    What if you are a bit late to this party and do not have your “eff you” money as yet? Would you still be as aggressive and sink it all into the big stock admiral fund (the acronym is escaping me).

    My situation, at present, is as follows:

    1. I’m 45.
    2. No debt save for a house and a car.
    3. I’ve got a Principal 401k that I presently contribute 16% of my income to worth about 66k (need to reallocate I’ve now realized)
    4. I’ve got a Fidelity IRA (not a Roth) woth about 92k at present (They manage it for me)
    5. I’ve got a bare bones Money Market savings sitting at 3k
    6. I just opened a Vanguard investor account at 5k (their stock account that I can flip to the Admiral account when it reaches 10k)

    The main question I have is, given my age, would you still invest so aggressively? i.e., I’m considering if I should flip that account to the Admiral account and stay with the stocks or begin diversifying now with the bonds/REIT (and not reallocating those 401k and roths for that matter). I can get it up to the 10k fairly quickly given that I save around 600 to 1000 a month from my paycheck right now. There is also the option of paying off more debt (the car) then worrying more about investing.

    For what it’s worth, I would retire tomorrow if I could. 😀

    • jlcollinsnh
      Posted April 30, 2013 at 8:19 pm | Permalink

      Hi Tammy….

      ..and welcome!

      No, it’s never too late to start and, at 45, you are still very young. With good health you could easily have 40+ more investing years ahead. Plus you’ve already built a nice base of around 166k so you are not starting from scratch.

      How aggressively to invest is more tied to your goals and tolerance for risk. Very personal considerations.

      Since you say you’d like to retire tomorrow, that speaks to a high risk/reward strategy of all stocks in something like VTSAX. But only if you are absolutely sure you can handle gut wrenching drops without panic and selling out at the bottom if they happen. For more on this, if you haven’t already and before you do anything, please read the stock series on this blog. Once you understand the principles in it, you can decide if you can tolerate the ride.

      If I were in your situation, I’d have your same goal. Understanding that I have a very high tolerance for risk and know I’ll stay the course, here’s what I’d do personally:

      1. Get rid of the car debt.
      2. Unless your mortgage rate is around 4% or less, I’d either refinance or pay it off as my top priority. Maybe even sell the house.
      3. I’d cut my expenses to the bone to free up as much money as possible to earn my financial freedom. 50% minimum.
      4. I’d pour this money into VTSAX each month.
      5. I’d celebrate market increases as they get me closer to my goal.
      6. I’d celebrate market declines as they allow my dollars to buy more shares.
      7. I’d make sure my Fidelity IRA was in one of their low cost total stock market index funds.
      8. Once 4% of my assets could cover my expenses, I’d consider myself FI.
      9. At that point I’d start living off that 4%.
      10. At that point I’d decide if I wanted to keep working. If I did, I’d invest 100% of my salary to increase my assets.
      11. As those assets continued to grow, so would the dollar amount the 4% represents. With this I’d feel free to expand my lifestyle and spending.
      12. When I decided I was done working, I’d diversify into 25% Bonds and 25% REITS.

      If I had less tolerance for risk, I’d follow the same plan but using an allocation of 50% stock, 25% bond and 25% REITS from the start.

      Hope this helps! Please keep us posted!

      • Tammy
        Posted May 1, 2013 at 11:33 am | Permalink

        Thanks very much for your reply. That helps a lot.

        Re: #1 and #2 and the house and car.

        Paying off the car earlier is definitely something I can work on now.

        As for the house…I did refinance when the rates plummeted and I’m now sitting at 3.5%. That’s the good news. The bad news is, much like other owners, there is no equity and selling now would result in a considerable loss of money. I’m also in the DC area so I’m looking at around a 250k payoff at the moment. Paying it off early seems like a momentous task to me (I should mention it’s just me and we are looking at a single income here). So I have a hard time picturing this.

        I do not have a hard time picturing cutting my debt a bit more and putting more into the fund when I can however. Thanks again for your thoughts. :)

        • jlcollinsnh
          Posted May 1, 2013 at 12:21 pm | Permalink

          My pleasure, Tammy…

          That’s a tough one with the house. The good news is housing does seem to be recovering. Maybe you can hold on until you can sell without loss and unload it then. For a single person disciplined in saving, renting is the better option.

          Good luck and stay in touch!

  13. Jeff
    Posted June 19, 2013 at 10:35 pm | Permalink

    Can you help me understand the REIT index concept. If this is a collection of many REITs, how does the expense ratio work. Does each REIT in the collection charge it’s own fees and then vanguard adds its own (small fee) on top of the others? Or do they somehow eliminate the fees on the underlying REITs?
    By the way, I have been really enjoying the blog and your insight.
    It helps me as I work on my own challenges and planning. I see retirement in the next 5-10 years, with perhaps a slow down phase a bit sooner. Most of my investment has been in 401k plans with somewhat limited fund choices. I had been rather aggressively paying down my 2.75% mortgage just because I prefer to be out of debt, though it has prevented me from doing much non-retirement investing. Am considering a more balanced approach combining more investment with a little less mortgage paydown. I do appreciate your approach, it certainly simplifies the process by limiting yourself to the three funds. Keep up the good work and enjoy your Ecuador experience.

    • jlcollinsnh
      Posted June 19, 2013 at 10:48 pm | Permalink

      Hi Jeff….

      The Vanguard fund, and really any fund that owns REITS, basically owns them the same way you do if you’d bought them directly. That is, any expenses the REOT charges still apply. Of course, any dividends also get paid thru.

      At 2.75% you have a very nice interest rate on your mortgage. I absolutely understand your desire to be debt free and share it in fact.

      From a purely financial point of view, you’d likely be best served by shifting those extra payment to investments. But if you want to just be done with the mortgage, go right ahead. Then, once it’s paid off, just start plowing that former payment along with the extra in to investments.

      You are choosing between two very good options here. :)

  14. Amanda
    Posted June 27, 2013 at 3:08 pm | Permalink


    I’m thrilled to have found your blog. My husband and I are both 25 and 27, and have been actively fully funding our Roth IRA accounts for the past several years.

    We hold an AA of 70/30/10 in VTSAX, VGTSX and VBMFX in our Roths right now.

    We currently save over 60% of our take home income, and I have a money purchase pension plan through my company (an NGO).

    Instead of a 401k, my employer puts in an extra 10% of my gross income each month to my fund of choice – 100% in VTSSX for lack of better available funds. I will be fully vested in 2.5 years and plan on staying with the company for as long as I can.

    In essence, we’re saving quite a bit in retirement! We are now ready to start looking at opening a taxable account.

    Because we save so much, we have about $45k in cash, and stash about $2k away in cash per month. This is just on my salary. My husband is currently in full time graduate school, and is expected to finish in 2 years. We have been paying for his school as we go and have about $28k left to pay.

    In two years, our income will increase. We have no plans to purchase a home in the next 3 years, but when we do we’d like to put at least 20% down in cash.

    Any suggestions on what to do with this money and future savings moving forward? Our cashing is sitting in a checking account earning about .01% interest. It feels safe and liquid, but we know we are going to be living the “renting life” for the next several years.

    Are there other alternatives like placing it all in VMMXX or a short term bond fund such as VFSTX?

    I love the advice you are giving your daughter. I thank my dad for the same thing!

    • jlcollinsnh
      Posted June 27, 2013 at 6:58 pm | Permalink

      Thanks Amanda…

      I’m thrilled you found it too!

      Let me say first you and your husband are off to a great start. Kudos on the choices you’ve already made!

      The allocation you’ve put together for the Roths is just fine. For reasons I discuss here: http://jlcollinsnh.com/2012/09/26/stocks-part-xi-international-funds-2/ with VTSAX I don’t feel the need to add the international fund. You could go to a simplier 90/10 split. But if you like owning it I don’t have a strong objection either.

      You say you are “100% in VTSSX for lack of better available funds.” Rest easy. VTSSX is a terrific fund!

      While holding that cash feels “safe and liquid” its purchasing power is slowly being eroded by inflation. I would take at least 10k of it and open an account in VTSAX. This is also where I’d pour that 2k per month, keeping in mind this is money being invested for the long-term.

      These days with interest rates so low, your interest paying checking account is just fine. FDIC insured too. Used to be a money market fund like VMMXX paid more and got my recommendation. Now I prefer the bank and the FDIC coverage. But only slightly.

      VFSTX will step up your yield to about 2% but with some additional risk should rated begin to rise. If you are going to hold 30-40k in cash, you could consider putting half in this bond fund and leave the rest in the bank.

      As you can tell, this is all just fine-tuning and mostly boils down to your comfort level. You’ve already made great decisions before coming here. If I might ask, what lead the way for you?

      • Amanda
        Posted July 8, 2013 at 8:40 pm | Permalink

        Thanks so much for your time and insight.

        I found your site through your guest post over at Mr Money Mustache, actually, and look forward to reading here.

        You’ve given us some great things to consider. We’re now thinking about putting 15k into a taxable account, and definitely see us doing a bit more in the way of putting future money into the market instead of putting it in savings/cash.

        Now to plow through, pay off school and see how the benefits of investing in education pays off. Patience is not the easiest thing, but it feels great knowing we’ve got a solid start.

  15. Jonathan
    Posted July 19, 2013 at 4:57 pm | Permalink

    Hi Jim,

    Also come across your blog so late that I wish I had seen it earlier. Instantly become a big fan and thank you for writing so many great articles.

    I have been investing for a while but not very successful, with a bunch of failure on stocks and now I just simply decided to forget about stocks and focus on mutual funds and ETFs.

    All my investment is with Fidelity and I don’t have a vanguard account. I am wondering if its necessary to open a Vanguard account to start investing the funds you mentioned above?

    Also I think two of the funds you mentioned, VTSAX and VGSLX have stopped accepting new investors. The only way is to purchase the Investor share version?

    I’ve read every comments in this post and feel a lot of the ideas could be used. Great blog and thanks!

    • jlcollinsnh
      Posted July 19, 2013 at 6:21 pm | Permalink

      Hi Jonathan…

      Glad you found your way here.

      Routinely I get comments saying VTSAX or VGSLX are closed to new investors. Not true! It seems this comes from trying to buy them thru Fidelity or some other investment company. But if you go directly to Vanguard they are readily available.

      You need a minimum of $3000 to buy into the “investor shares” versions. Once you hit 10k, Vanguard automatically rolls your funds into the even lower cost Admiral Shares.

      ou are wise to have learned buying individual stocks is a loser’s game. But so is buying actively managed funds and most ETFs. Index funds are the way to go.

      • Jonathan
        Posted July 23, 2013 at 10:36 am | Permalink


        Thank you so much for your advice. I will open a Vanguard account and starting investing!

      • Jonathan
        Posted July 31, 2013 at 12:20 pm | Permalink

        Dear Jim,

        Thank you for your excellent advice, now I have opened a Vanguard account and started my way of investing in VTSAX (investor shares for the time been)

        I do have two more questions I would like to seek your advice on:

        1. I have a Roth with Fidelity with some shares of different ETFs here and there and some cash in it. I have been thinking about this and would it be a good idea to just transfer them all to Vanguard and hopefully to bump the total above 10k so I can enter the Admiral shares? Or should I just leave them with Fidelity for now?

        2. I have about 130k laying around in a money market account. This is my parent’s money and I don’t want it to devalue thats why I haven’t put it in any investment. But lately I have been thinking, instead of putting in the money market earn very little interests, what could be a better way to make the money work for me and my parents? The key thing is I can’t risk it for losing value, in a sense it is more like a medium term thing. Would love to hear from your put especially on this part.

        Thank you in advance!

  16. Len
    Posted July 27, 2013 at 12:09 pm | Permalink

    I’ve been retired for 14 years and see no immediate reason why I will ever need to touch my savings. I have mutual funds in regular IRA’s, Roth IRA’s and taxable broker accounts. Every year I am planning to roll over a chunk of my regular IRA money to a Roth. What do you think is the best way to use the four funds above in the various accounts I mention?



    • jlcollinsnh
      Posted July 27, 2013 at 2:19 pm | Permalink

      Congrats Len!

      Sounds like you are already doing pretty much the same as I am.

      Since we don’t need my IRA money to live on, each year I convert just enough into our Roths to stay under the 25% tax bracket. My goal is to get the IRAs down before age 70.5 when the required withdrawals kick in. It’s all about tax strategy.

      Meanwhile we live on our taxable accounts.

      • Len
        Posted July 28, 2013 at 12:10 am | Permalink

        Thanks for the reply. Yes, we are doing the same thing. My hope is to get my 70.5 year RMD’s as low as possible while making sure my Roth conversions keep me in the 25% bracket.

        I will still have some regular IRA’s as well as the Roths and some regular taxable accounts. Which accounts make the most sense for the four Vanguard funds you mention in your article?

        • jlcollinsnh
          Posted July 28, 2013 at 6:47 am | Permalink

          I keep VTSAX in my taxable account, because it is tax efficient and in our Roths because the Roths are the longest term money we have invested.

          The bonds and REITS we keep in our IRAs because of the dividends and interest they throw off. However, I internally debate about this as dividends are taxed at a lower rate than the ordinary income that IRA withdrawals represent.

          However we also live in NH and here there is a 5% income tax on investment income.

          • Eric
            Posted August 26, 2013 at 8:21 am | Permalink

            Hi Jim,

            Great blog and comments on this post! Thanks for all the hard work you put into writing this!

            Do you have a post that explains this tax strategy or can you explain it here in the comments? I’m particularly interested in how you convert from your IRA to your Roth, what the process is? Is there any limit to how many Roth’s one can open? Also, why the focus on the 25% tax bracket?


          • jlcollinsnh
            Posted September 20, 2013 at 9:55 am | Permalink

            Thanks Eric!

            Sorry for the delay, as I’m just back from six weeks in Ecuador I’m a bit late responding!

            Converting an IRA to a Roth is as simple as telling the investment company to do it. In my case, with Vanguard, I just make the change on line. Any company can walk you thru the mechanics.

            The important thing to realize, is that doing this is a taxable event and, if you are under age 59.5, you’ll also incur penalties. As is the case anytime you withdraw money from an IRA.

            You can have as many Roths as you like, but there are limits each year as to how much you can contribute.

            I focus on the 25% bracket as I’m trying to avoid paying that much in tax. 15% is better!

            For more on all this:


  17. AllenT
    Posted July 29, 2013 at 9:05 pm | Permalink

    I have found your site through MMM. Currently I have my Roth IRA split into 12% VGTSX and 88% in VFINX. I have my cash in a CD (currently 30k) earning 1.25% for 3 years and I am thinking to get out of the CD account to follow your allocation. I’m 35 years old and I can take a little risk. I do like the idea of retiring early but I love my job right now and I can easily do it for another 10-15 years.

    A few questions for you:

    1. You mentioned that you allocate your Roth IRA into dividend paying accounts. Do you only purchase VTSAX through your taxable investment account? Where does the dividends from your VBTLX and VGSLX go? Does it automatically go into your Roth IRA and can’t be touched (without penalty) until 59.5?

    2. Before reading this page and your comments on MMM, my goal used to be saving up my money for a downpay for a 2nd rental property. (my first one isn’t paid off yet at 3.35% with 12 years to go). The idea was to generate a steady income, just in case I feel like retirement soon. But with a 1st rental that cost way too much and earning little due to repairs and vacancy, and the lack of renovation skills that MMM has (I am learning, though), I am starting to be convinced that there may be a better (and easier) way to generate income. So my question is, if I diversify my monthly savings into the 50/25/25% that you have mentioned. Does that somehow work the same way as putting my money into a rental property?

    I apologize in advance if I’m asking the obvious. I have only started looking into taxable investments for less than 6 months and I only have a general idea of how investment works.

    Thank you for your efforts in this blog. I find it extremely useful!

    • jlcollinsnh
      Posted July 29, 2013 at 10:35 pm | Permalink

      Welcome Allen…

      and thanks for the kind words.

      It is great that you are building your resources even as you love your job.

      1. We own VTSAX in our Roths, regular IRAs and in our taxable account. VBTLX and VGSLX we own in the regular IRAs as well. In all cases we have the interest, dividends and capital gains distributions reinvested automatically.

      2. Done well, RE investing is great and should provide better returns than stocks. But it is also, as you’ve discovered, a job as well as an investment. For me the added potential return is not worth the added work. But for some, it is. Personal call.

      I like RE’s potential which is why I own the REIT fund. It also provides an inflation hedge. The bonds are my defation hedge. Inflation and defaltion are the two economic events that can cause real havoc.

      Hope that helps!

  18. Angela
    Posted September 5, 2013 at 8:19 am | Permalink

    I currently have my roth ira in American Mutual Funds, with pretty high fees. I’ve been wanting to transfer everything (about $13k) to Vanguard, and I’m finally getting around to doing it. Is it a terrible idea to do this now, with the market so high?

  19. Brian
    Posted October 4, 2013 at 9:46 am | Permalink

    Great posts I can’t tell you how many hours I have spend enjoying your blog.
    Do you have any ideas for me I would like to be free in 10-15 yrs
    I am 35 yrs old with a gross income of 100k and 15% paid to taxes because of my real estate and 401k deductions
    180k in vanguard investments 401k
    100k cash
    900k in rental properties with mortgage of 760k 5% rate can’t refi bad fico score
    Monthly rental mortgage + expenses 6k
    Rental income 5k per month
    I have a free car and live in one of my rental units so my living costs are low I save 50% of my take home pay
    Any thoughts would be greatly welcome

    • jlcollinsnh
      Posted October 5, 2013 at 1:07 am | Permalink

      Hi Brian…

      Glad to hear it helps you pass the time.

      What leaps out to me is the 12k your rental properties are costing you each year. It has been decades since I fooled with owning rentals, but that’s what we used to call an “alligator”. As is it is eating you alive. I’d see that as what my pal Mr. MM calls “a hair on fire emergency”.

      Without far more detail I can’t begin to tell you how to resolve this, and even then any expertise I might have once had is far too rusty.

      Owning RE is not just an investment, it is a job. So it should pay you investment returns and for your time. If you love having this part-time job, you’ll need to figure out how to get out from under this negative cash flow ASAP.

      If you don’t love it, I’d say sell, lick your wounds and move on. You’ll free up the 140k in equity so it can start making you money and the $1000 a month the properties now cost you should provide a very nice apartment.

      Hope that helps! Let us know what you decide to do.

      Oh, and how do you have a free car? Company car? I’d like one of those!

      • Brian
        Posted October 9, 2013 at 7:23 pm | Permalink

        Thanks for the comment here is a little more detail
        I live in DC so cost of living is high but so are rents and incomes so that’s one reason I bought the rentals
        I agree that rentals can be a little work but the leverage can’t be beat plus I save a about 6k per yr in taxes from deprecation write downs
        I live in one of my rental property units so if I moved out and rented it out then my tenets would be paying for the mortgage and paying down the principle.
        I can pay off all mortgage in about 15 years if I make extra payments
        Then I would be making about 4-5k per month from rent and still have a nice 401k as a back up.
        My question is would it be better to put the extra 2,700 per month in to stocks or pay down the Mortgage?

        And yes it is a free company car,cell phone to :)

        You make me a fan of the Internet thank you so much

        • jlcollinsnh
          Posted October 9, 2013 at 7:37 pm | Permalink

          Two points that my guess is you already know:

          Leverage is a two edged sword. When it works it is a beautiful thing. When it doesn’t…
          While you save taxes on depreciation you are also lowering the cost basis of your properties. This will mean a bigger tax bill if/when you sell.

          As for your question, I’d put it in stocks. Two reasons:

          1. Diversification
          2. Your mortgage interest is deductible against your rents

          Many years ago I was having a beer with a friend. He mentioned he had just gotten a new car.

          What kind did you get? I said.
          The best kind in the world, he said.
          Really, I said. What kind is that?
          A company car! he said. :)

          • Brian
            Posted October 9, 2013 at 11:17 pm | Permalink

            Thanks again you know people would pay good money for your advice me included.
            I would love to talk to you to live(on the phone) about my finances.would you ever do that?
            You see I am in sales so I have a hard time articulating myself in writing.
            I would gladly pay you for your time
            I could go and pay a financial adviser for advice but I already know what they will say:
            Save 15% of your money
            I would say I save 50%
            Pay off your credit cards
            Well pay down your mortgage
            My tenets do that for me
            Well then why are you?
            I want to retire in 10 yrs
            O well if I knew how to do that I would not still be here working at age 60!

            I am already good in 30 yrs just with the money already in my 401k I will be fine at 65.
            If you don’t talk live its ok I have already learned a lot about stocks and life from your blog

            Do you know what’s better than a free car?

            Not needing one because you don’t have to drive to work everyday :)

  20. Matt
    Posted November 5, 2013 at 12:46 pm | Permalink

    Hi Jim,

    Great website, I just shifted some savings into VTSAX and feel extremely confident that this was a good choice based on everything you’ve written in your posts.

    Quick question, and sorry if this is basic: how do you actually use the VMMXX?

    I personally enjoy RE even though it qualifies as a part-time job, and I am putting a portion of my savings straight into stocks each month, but I’d also like to put away the money for a down payment on my next rental property. Would you keep this in VMMXX if I’m going to be withdrawing it sometime late next year? Or is there a better place to put money that I’m saving but know I will want to reallocate in the short-term?

    Thanks again for the great articles — I’m very grateful you’ve taken the time to create them.

    • jlcollinsnh
      Posted November 5, 2013 at 9:39 pm | Permalink

      Welcome Matt…

      Glad you like the blog.

      I use VMMXX to park cash until I find a use for it. This is a money market fund and, back in the day, MM funds paid more than banks. But now the yeild on VMMXX is only .01%.

      A better choice would be an on-line bank like ally.com. Last I checked you could get .84% on money in a checking account and about .94% on a one year CD. I haven’t done this myself and probably should. Old habits and inertia at work. 😉

      Good luck with your next rental!

  21. Mark A.
    Posted February 8, 2014 at 10:10 pm | Permalink

    Hello Jim, I would appreciate your opinion about a scenario in which I might choose to step away from the work force for at least a few years.

    My wife and I both work. She’s 50 and I’m 48. We will be having a kid later this year (!). Neither of us are excited about day care and I’m considering raising the kid full time for 3-5 years until pre-school.

    My field is such that I’m not too worried about finding work if I choose to go back to it, though I’d like to not manage people anymore, or I might do something altogether different.

    Now, my wife is fairly frugal but she’s really not interested in a MMM lifestyle. So, to live comfortably and keep peace in the valley I calculate we’d need to rely on her salary plus tapping a sustainable 3%/year of our FU money for four years, which is invested 80% Vanguard stock index/20% bond index.

    Here’s my question: Most of our stash is in IRAs so I’d either have to take a 10% penalty plus taxes off that 3% or spend down our liquid taxable account cash to nearly nothing over the 4 years.

    Either would work but I’m torn between choosing a sustainable IRA draw with penalties and taxes or an unsustainable burn rate of our finite cash.

    Any thoughts on this choice? I suppose a third option is to stay at work and save but I’ll miss a lot of the kid’s early years. Thanks and cheers, Mark

    • jlcollinsnh
      Posted February 10, 2014 at 12:12 am | Permalink

      Hi Mark and welcome.

      Congrats on the coming new baby. It is wonderful that you have the option to be a stay-at-home dad.

      When our daughter was born we both happened to be between jobs and nothing money can buy is worth more. During that time my wife returned to school so my daughter and I had lots of one-on-one time. I believe it is a key reason we have the close relationship we enjoy today.

      If you haven’t already, read this for ideas on how to access your tax advantaged money without penalty: http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

      If nothing in that post works for you, spend down the taxable account first. 10% is too heavy a penalty to pay unless you have no other choice. And remember, withdrawals from those accounts will also be taxable.

      Good luck!

      • Mark A.
        Posted February 10, 2014 at 11:01 pm | Permalink

        Thanks a lot Jim and good suggestion. I re-read that post and Lucas’ SEPP strategies, especially, made me scratch my chin and think. I also appreciated you sharing your encouraging early parenting story. I’m fortunate to have found your and the other related blogs, which are so helpful in thinking through practical FI matters.

  22. Alan
    Posted March 5, 2014 at 1:16 pm | Permalink

    Hi Jim, hope all is well. I’ve been absorbing your blog like a sponge absorbs water. I just finished reading the entire stock series… really great stuff you’ve got here, it’s enlightening to say the least. Thank you!

    I have a question for you regarding Vanguard’s money market fund (VMMXX). Since it is a money market account, Vanguard allows for checkwriting services… my question is, are there any tax implications for writing checks? Vanguard states on their website that “for tax purposes, checks are considered redemptions”.

    Here is a link:

    • jlcollinsnh
      Posted April 8, 2014 at 1:49 pm | Permalink

      Thanks Alan…

      Glad you’re enjoying it and I appreciate the kind words.

      Money Market funds strive to maintain share value at exactly $1, so typically there is no capital gain or loss when you sell shares. So, no taxable event — even though checks written on them are redemptions.

      I say typically because on rare occasions an MM fund will “break the buck” — that is the share value will drop below $1. This is a very big and negative deal. It last happened in the financial crisis of 2008, but only with a couple of MM funds. None were Vanguard’s.

      So for all practical purposes, you have nothing to worry about here.

      But, with interest rates so low, MM funds are no longer a very profitable place to keep cash. Banks, especially on-line banks, pay more these days and enjoy the benefit of FDIC insurance. My checking account actually pays more interest than VMMXX. But both are vanishingly small percentages.

      I still use the MM fund, but mostly now just for convenience.

  23. Sean311
    Posted June 10, 2014 at 1:53 pm | Permalink

    Hi Jim,

    Love the blog. I’ve learned an amazing amount by reading through your stock series and the free flow commentary that always follows. I have a couple of questions for you. I’m about to turn 30 this year and have finally opened a Roth account! While I feel great about it, deep down I feel like I’m behind and have some catching up to do. When exploring where to put my money I decided to put 1,000$ into a Roth vanguard (2055) target retirement fund.

    If I only had around 5k a year total to contribute to both Roth and taxable accounts, (I work at the state and do not make much money right now), my main questions would be these:

    1. Since I still have many years till retirement would it be better to invest my money purely in VTSAX, take the tax hit every year and then gradually buy bonds to help smooth it out? Or,

    2. Be putting all of my money into the Roth account as I’ve already paid taxes on the money, and the TRF is more or less already diversified for me?

    3. Or some combination of both (i.e. grow the Roth account until I can split the money into both the Roth and taxable investments)? If you would choose this option, how would you split the money between Roth/taxable accounts?

    I hope all of this makes sense. I know every dollar invested helps, but I want to make the most of what I can actually invest at this point in time. Hopefully down the line I’ll make more money and can manage multiple funds at the same time. I just don’t know if I have enough money to do that right now. I really appreciate your input and thoughts from you and the community as I’m still a noob and learning my way towards FI. Thanks

    • jlcollinsnh
      Posted June 11, 2014 at 12:21 am | Permalink

      Welcome Sean…
      ..and thanks! Glad it helps and glad you take the time to read the comments. There is a lot of good info to be found in them.

      To your questions:

      1. As for deciding your stock/bond allocation, I just put up a post on this very subject: http://jlcollinsnh.com/2014/06/10/stocks-part-xxiii-selecting-your-asset-allocation/

      2. That post will also address the TRF question.

      2 & 3. Regarding Roth v. taxable v. deductible IRA…

      Time was I would have suggested that, being in a low tax bracket, you chose a Roth. But the Mad Fientist has helped me see the advantages of a regular deductible IRA and how to convert them in early retirement to Roths. I was so impressed I asked him to write this guest post on those conversions: http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

      The advantage of a regular IRA is that you get the full tax deduction. With a Roth, you have to pay tax on the money before you make the contribution. If you are in the 10% tax bracket and you have $5000 to invest:

      –with a Roth $500 goes to pay the tax and only $4500 goes in the Roth.
      –with a regular IRA all $5000 goes in.

      Not only do you lose the $500 to taxes, you lose all the money it could have earned for you over the decades. If we use this calculator: http://www.globalrph.com/invcomp.cgi

      and we assume an 8% annual return over the 40 years until you are 65, that comes to

      That’s just for one year contribution. I’ll leave it to you to figure the impact of paying that $500 in tax each year you fund your Roth. :)

      Now I’ve heard some say, pay the tax out of other money and then fully fund the Roth. Well then, yes, at the end a Roth is nicer to have than a traditional. But you still had to give up that extra $500 paid to taxes each year no matter where it came from. And in your case it doesn’t sound like you have it hanging around anyway.

      In short, go traditional deductible IRA and always defer taxes if you can. Better to keep your money working for you.

      Once you have more than enough each year fully fund it each year, invest the surplus in a taxable account.

      Make sense?

      You are smart to get started now with the money you have. You’ll get it working for you immediately and when it comes to investing time is magic. Plus it gets you in the habit of investing so that as more money comes your way you’ll be less likely to fritter it away on lifestyle inflation.

      Good luck!

  24. Van
    Posted September 27, 2014 at 10:11 am | Permalink

    Man I want to thank you for taking the time to write and share these articles with us. You sir have had a profound impact on the way I think about my finances and I will be incorporating this strategy into my portfolio! Thank you!

    • jlcollinsnh
      Posted September 27, 2014 at 1:20 pm | Permalink

      Thanks for letting me know, Van.

      Glad it helped!

  25. Daniel
    Posted November 4, 2014 at 3:49 pm | Permalink

    I am a regular reader but first time commenter. I love the idea and simplicity of taking the market return and being happy with it. My question is this: Is there are reason you are not taking the return of the entire world market through VTWSX?

    • jlcollinsnh
      Posted November 4, 2014 at 4:22 pm | Permalink

      Welcome Daniel…

      great question!

      VTWSX has great appeal and all other things being equal I might prefer it over VTSAX.

      The problem is the ER:

      VTWSX = .30%
      VTSAX = .05%

      Make no mistake, .30% is a low ER, especially for a world fund. But, it is still .25% higher than VTSAX.

      Of course, with VTWSX I’d get exposure to the rest of the world markets. But even with VTSAX I get a big slug of that for reasons I describe here: http://jlcollinsnh.com/2012/09/26/stocks-part-xi-international-funds-2/

      All that said, were the ERs the same, or even closer, I might well be in VTWSX.

      Make sense?

      • Daniel
        Posted November 5, 2014 at 11:05 am | Permalink

        Thank you so much for the quick response. I hadn’t thought about the ER, makes perfect sense to minimize ER since we know that the total US stock market already has international exposure.

  26. Jonathan
    Posted August 12, 2015 at 2:05 pm | Permalink

    I’m 19 and I stumbled upon your blog while reading through all of MMM’s blog posts. I already had an allocation of 70% VTI and 30% VXUS in my Roth Ira with maximum contributions from last year and this year($11000). However, my summer internship offered a Roth 401K plan which I maximized my contributions to (25%) in a S&P500 index fund with an expense ratio of 0.022% which is lower than Vanguard’s expense ratios(0.05% and 0.14%). I was wondering whether you would rollover the Roth 401K into the Roth IRA to maintain asset allocation at a higher expense ratio or leaving the money in the 401K account until I can roll it over into a new 401k plan in the future.

    PS: I’ve read through all of your posts in the stock series and they taught me a lot even though I had already done some research and had a Vanguard account. I also plan to eventually move my holdings in VTI to VTSAX once I exceed the $10000 minimum with my current asset allocation.

    • jlcollinsnh
      Posted August 12, 2015 at 3:48 pm | Permalink

      Hi Jonathan…

      Welcome and glad you’ve found the Series useful.

      I’d just stick with the Roth 401(k) and that low ER. An S&P 500 index fund is just fine and will track your VTI very closely.

      Once you are earning enough to pay income tax, you’ll want to consider a tax deductible IRA/401(k) for new contributions.

      Congratulations on the early start!

  27. Posted September 19, 2015 at 6:31 pm | Permalink

    I read your blog inside out and absolutely love it! It dramatically changed my way of investing and I feel much better about my investments than I have ever had. You have such a solid and simple investing plan that can make any investor a successful one.
    I have a couple of quick question for you.
    1) What do you think about automatically reinvesting dividends? My point is:
    Dividend reinvestment can cause future investments at higher prices. If a stock was a good bargain at $20 a share, it might not be at $50, but your dividend reinvestments will still be buying at the higher price. Your exposure to an over priced stock is thus increasing with each dividend reinvestment.
    2) I see all your investments are in mutual funds. Do you not like ETFs and why?
    3) Should one choose “average cost basis” or “first in first out”
    Thanks a lot!

    • jlcollinsnh
      Posted September 21, 2015 at 10:49 am | Permalink

      Hi Elena…

      Glad to hear it!

      1. During the Wealth Accumulation Phase I always reinvested dividends. I wanted to invest as much as possible and automatic reinvesting is easy.

      Now that I am living on my portfolio, I have the dividends sent to me. No sense in reinvesting only to withdraw.

      Just because a stock grows from $20 to $50 a share doesn’t mean it is now overpriced. In fact, it could be underpriced based on it’s current business operations.

      But as you know having read the blog, I don’t believe in trying to pick individual stocks.

      2. ETFs were created to facilitate trading and as a long-term investor I don’t care about that. But they are fine as long as you are careful about the trading costs and spreads. VTI (the ETF) and VTSAX (the mutual fund) hold exactly the same portfolio. http://jlcollinsnh.com/2013/05/02/stocks-part-xvii-what-if-you-cant-buy-vtsax-or-even-vanguard/

      3. This is more a question for a stock trader. As I long-term investor I don’t much care. I’m signed up for whatever the default approach Vanguard uses is and I don’t even recall what that is. :)

  28. mark
    Posted December 9, 2015 at 8:24 am | Permalink

    I’m at 2m but live on 50,000. so I yearly put 4 to 5,000 into my Roth from my ira. When I hit 70 I will have my ss and ira money that has to be taken out. It will add up to $150,000 a year. That’s one reason you should look at the Roth if you have the money. Love your blog

  29. s.c.c.
    Posted January 6, 2016 at 3:43 pm | Permalink

    Hey Jim,

    I have learned a great deal from your blog and I appreciate you putting it out there!
    Are you familiar with the TSP (gov version of 401k) funds? If so, what allocation most closely matches VTSAX?

    • jlcollinsnh
      Posted January 6, 2016 at 4:19 pm | Permalink
      • Markola
        Posted January 7, 2016 at 10:22 am | Permalink

        Happy New Year, Jim!

        S.C.C.’s comment prompted me to re-read this good post because my wife is now a Fed and invests in the 2030 fund in the TSP.

        You make the comment at the end about how, on separation from
        Federal service, you’d leave those investments in the TSP rather than making an IRA rollover. I’ve come to the same conclusion, and for two additional reasons:

        First, though it is darned elusive to nail down by searching online, I’ve found hints that she could withdraw from the TSP after age 55 penalty-free upon early separation from service, but I need her to verify this with an expert there.

        The other reason is that Minnesota, where I live, is one of the states with surprisingly limited liability protections for IRAs.

        We have a liability insurance policy but my reading indicates that 401ks and 403bs and their kin are entirely locked away from lawyers versus IRAs, which still have some legal exposure depending on one’s state.

        We might even roll her IRA into the TSP because the choices are good, fees are low and there’s this extra little peace of mind. I could send you a state by state list that I found if you are interested.

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  • By Stocks — Part XXII: Stepping away from REITs on May 27, 2014 at 12:59 am

    […] I’d been pondering a lot of late. Regular readers will know, as described in the posts What we own and why we own it and Stocks Part VI: Portfolio ideas to build and keep your wealth, I personally keep 25% of our […]

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