suggestions or ideas about Vanguard's VFINX?

[goals^n^dreams]

I have read some stock forums and there is a guy use this fund Vanguard's VFINX at his taxable account and he has earned pretty good return . Right now, I have a Roth IRA Target Retirement fund 2050 at Vanguard. Do you think that Vanguard's VFINX is good to invest if I would like to open a taxable account at Vanguard?

Thank you very much for your help!

 

[Matt]

The VFINX fund is designed to follow the S&P500 index. This would mean that your position would be 100% in equities. While this is diversified across 504 companies, it would mean that broad movements in the stock market would be reflected within your VFINX position.

You need to ask yourself, what will you do if the market drops 40%?

If you are OK with that, and happy to buy more, then you should be OK in this position. If you aren't OK with that then you'd be better of dividing up that allocation into something with stocks and bonds rather than just bonds. For example, you might want to consider a Target Retirement Fund 2050, which is 90/10 stocks to bonds. You may wish to consider an earlier target date fund that has more bonds it also.

Really depends on how you can handle the loss, because anyone can handle the gain (emotionally at any rate!)

One last consideration is that 'generally speaking' a Mutual Fund (VFINX is a mutual fund seeking to replicate the SP500) is less efficient than an ETF from a tax perspective, so you might want to go the ETF route. Vanguard has VOO and iShares has IVV.

 

[goals^n^dreams]

You need to ask yourself, what will you do if the market drops 40%?

If I have $100k to invest in this, I will lose 40k$. Am I correct? Will I get back $40k, if I leave the fund in 3 years or 5 years? How do I know if market drop 40%? When will market drop 40%? Are there any ways if I would like to prevent the market drop?

One last consideration is that 'generally speaking' a Mutual Fund (VFINX is a mutual fund seeking to replicate the SP500) is less efficient than an ETF from a tax perspective, so you might want to go the ETF route. Vanguard has VOO and iShares has IVV.

what do you mean ETF? I will take a look this one later. I have no idea what ETF mean. I will google this term.

Thank you very much for your help!

 

[Therivler1]

a target fund has much better diversification. stick with it until you learn more. vfinx is good, but only have 500 companies. target funds have many thousands, and include international and a smattering of bonds.

 

[Free-quent Flyer]

Are there any ways if I would like to prevent the market drop?

Let me know THE SECOND you find a way to prevent a market drop.

 

[Matt]

If I have $100k to invest in this, I will lose 40k$. Am I correct?

Correct

Will I get back $40k

Probably. It could take a year, it could take 10 years, perhaps longer.

How do I know if market drop 40%? When will market drop 40%? Are there any ways if I would like to prevent the market drop?

You can't control the market. Think of it like the ocean. If you put your boat on it, and your boat is $100K and all you have then you have to go with the flow of the waves. It might go well, like for your friend (hint - EVERY US equity index fund has done very well since the last crisis...) or it might go really badly.

The secret to controlling this is by deciding how much to invest. When the market drops 40%:

• The guy who invested $100K loses $40K
• The guy who invested $50K loses $20K

Then what really separates the best:

• The guy who invested $50K and lost $20K waits for the market to return.
• The guy who invested $50k and lost $20K invests more from the remaining $50K to 'rebalance' and take advantage of buying cheap stocks.

My advice for you would be to work with an advisor or with target date fund, maybe even more conservative than your current one. The logic behind both being that it removes you from the equation a little.