FREE NEWSLETTER
Go to main Forum page »
Right now, the bulk of my US stock holdings are in my Rollover IRA, split unequally between VFIAX (Vanguard 500 Index Fund Admiral Shares) and VEXAX (Vanguard Extended Market Index Fund Admiral Shares). The split has become more unequal than I originally intended. I am taking the whole of my RMD from the 500 fund (and investing it in other funds in taxable), but I’ll still need to move money to VEXAX to rebalance. I am wondering whether it wouldn’t be better (it would obviously be simpler) to combine both funds into VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares). Thoughts?
Though you didnt ask it, you could consider selling both and buy VT, the Vanguard Total World Stock ETF, which owns all stocks globally, cap weighted. This obviates the need to rebalance, gives international stock diversification, and simplicity.
I do hold international, but I don’t think I’m ready to give up control of the split between international and US, plus I like to hold at least some international in taxable. Another few years, though…
VFIAX has 38% of its value in ten stocks. VTSAX has 33% of its value in 10 stocks. They are the same stocks. Not really a big difference. What percentage do you allocate to VEXAX? Those big 5 stocks really drive performance in the big cap world. Are you comfortable with that?
My original allocation was two thirds to the 500 fund and one third to extended market. I would be OK with 50-50, but right now I’m overweighted in the 500. My overall allocation is 50% stocks, so if switched to VTSAX I would only have about 15% in the top ten stocks – actually, less than that, as I also hold international.
Sounds like you favor a tilt to smaller stocks. If you want to continue this, you can keep your 500 and extended funds and rebalance. Right now I believe VTSAX is about 80/20 500/extended. The way I do the small tilt is with a total market fund and a small allocation to the extended market.
Thanks for the data. I think I would be happier with 70-30.
I personally would go for simplicity AND greater diversification by selling both funds and having all your funds in VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) or VTI (Vanguard Total Stock Market Index Fund) to get an even lower cost basis 0.03% vs 0.05% and 0.04%, with a bonus that you can sell the fund at any time the markets are open.
HINT: I have read it is not a good idea to sell in the first and last hours of the market as there are less bidders available to purchase your shares.
It’s also not a bad time to peel back your exposure to large caps, especially the magnificent seven. I with no US sector funds let my domestic diversification be determined by the collective opinion of the active traders in the market.
David, what you refer to as cost basis are actually expense ratios. Cost basis is what you pay when you purchase a fund.
I trade ETFs in the first and last half hour only with limit orders to avoid price surprises. Also check the bid/ask spread to make sure it’s not too high. A penny is good for high volume funds.
Oops!
That’s a very thoughtful question and one that many long-term investors face as portfolios grow. Combining VFIAX and VEXAX into VTSAX could definitely simplify management since VTSAX already covers both large-cap and extended market exposure in a single, well-diversified fund. The trade-off, however, is losing the flexibility to fine-tune large vs. mid/small-cap allocations separately, which can be useful if you ever want to adjust exposure based on market cycles or RMD considerations. I recently came across San Diego Limo Service when reading about efficiency and balance in service operations, and it reminded me how streamlining can often enhance simplicity without sacrificing quality — though balance still matters. Do you think your main goal is easier rebalancing, or do you want to maintain some control over how much small/mid-cap exposure you hold?
I would go for the simplicity of the one total market fund.
If you want the market cap weighting, go with VTSAX, and you won’t have to rebalance your US stocks again.
I only hold both because way back in the early days of 401ks only the 500 index was available. Now I’m wondering if there’s a long term advantage to weighting one rather than the other.
That’s my thought as well.