Author Topic: Does Target Retirement Fund for everything make sense?  (Read 1702 times)

Catica

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Does Target Retirement Fund for everything make sense?
« on: May 01, 2018, 04:04:54 PM »
I want to set things and forget the, I don't want to rebalance anything periodically, does investing both 401K and IRA to one of the Vanguard Target Retirement funds makes sense?

Dee18

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Re: Does Target Retirement Fund for everything make sense?
« Reply #1 on: May 01, 2018, 04:45:52 PM »
The expenses are usually quite a bit higher in target funds.  VTSAX has expenses of .04, as compared to .14 for VTHRX, the 2030 target fund.  This makes a big difference over the long haul.

boarder42

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Re: Does Target Retirement Fund for everything make sense?
« Reply #2 on: May 01, 2018, 04:51:23 PM »
Not worth it and why would you rebalance more conservatively over time the opposite has proven to be better

Telecaster

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Re: Does Target Retirement Fund for everything make sense?
« Reply #3 on: May 01, 2018, 05:30:53 PM »
Try Lifestrategy funds instead.   (VASGX)

Eric

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Re: Does Target Retirement Fund for everything make sense?
« Reply #4 on: May 01, 2018, 06:26:54 PM »
I would also suggest Life Strategy funds for this approach, but Target Date Funds are still a fine choice.

The expenses are usually quite a bit higher in target funds.  VTSAX has expenses of .04, as compared to .14 for VTHRX, the 2030 target fund.  This makes a big difference over the long haul.

It's .04% and .14%, so .0004 and .0014 respectively.

If you invested $50,000 per year for 30 years and received a 7% return, the difference after 30 years is ~5,000,000 vs 4,900,000, or 2% overall.  A shorter timeline means a smaller difference.

I personally don't think it's worth it, but I can understand if someone else does.
"Compound interest is the most powerful force in the universe."  -- Einstein

steveo

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Re: Does Target Retirement Fund for everything make sense?
« Reply #5 on: May 01, 2018, 07:15:57 PM »
I personally don't like all in one funds because my plan is to have a rising equity glide path. In stating that I bet they will work out great.

Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #6 on: May 01, 2018, 07:36:42 PM »
Not worth it and why would you rebalance more conservatively over time the opposite has proven to be better
I don't know I thought it was a good idea
« Last Edit: May 02, 2018, 04:19:04 AM by Catica »

Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #7 on: May 01, 2018, 07:37:10 PM »
Try Lifestrategy funds instead.   (VASGX)
Why?  They look almost identical to me

Radagast

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Re: Does Target Retirement Fund for everything make sense?
« Reply #8 on: May 01, 2018, 07:54:24 PM »
Target date funds are best in tax sheltered accounts because their asset allocation will change over time to become very heavy in bonds which are not tax efficient. I recommend chosing a date around when you expect to become physically and mentally incapable of work rather than when you retire to pursue a life of leisure. VASGX is similar to target date funds, but its allocation does not change. It might be my most highly recommended "only one ever" fund. But, a target date fund might have better phsychological benefits and allow you to hold on through thick and thin becuase you didn't reach the date yet. Plus I like its initially higher stock allocation.

The expense ratio seems very reasonable to me. The benefit of these balanced funds is that they protect you from yourself and never leave you wondering if you made the right choice. They also cover around 3500 US stocks, 5000 international stocks, and similar numbers of US and international bonds so they are well diversified. Those seem like big advantages for the 0.07% or whatever their expenses are bigger than combined admiral shares funds of each.

MDM

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Re: Does Target Retirement Fund for everything make sense?
« Reply #9 on: May 01, 2018, 08:46:57 PM »
I want to set things and forget the, I don't want to rebalance anything periodically, does investing both 401K and IRA to one of the Vanguard Target Retirement funds makes sense?
Yes, perfect sense for what you describe.

Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #10 on: May 02, 2018, 04:43:52 AM »
OK, I'm torn between "not worth it" vs "makes perfect sense".  I know I said I didn't want to rebalance but if I was to rebalance periodically can I sort of mimic the target fund (Vanguard Target Retirement 2035?  Let's say using VTSAX, VTIAX, VBTLX, TIEIX, TCIEX, and TISPX (I have 2 403b accounts in TIAA)

Let's say something like this:

403b 1 ($134,315)
TIAA-CREF S&P 500 Index Fund (Institutional), Ticker symbol: TISPX, Expense ratio: 0.06%

403b ($71,524)
16.89% TIAA-CREF International Equity Index Fund (Institutional) (TCIEX) 0.06%
12.52% TIAA-CREF Bond Index Fund (Institutional) (TBIIX) 0.12%

IRA 1 ($11,125)
4.59% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%

IRA 2 ($31,243)
10.43% Vanguard Total International Market Index Fund Admiral Shares (VTIAX) ER 0.11%

I can also transfer 403b 1 (all or some of it) to IRA 1 (slightly lower expense ratio)
« Last Edit: May 02, 2018, 04:48:12 AM by Catica »

I'm a red panda

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Re: Does Target Retirement Fund for everything make sense?
« Reply #11 on: May 02, 2018, 06:37:13 AM »
Not worth it and why would you rebalance more conservatively over time the opposite has proven to be better

Can you link to some information about this?

My understanding is when you are living solely off your investments, you do want a more conservative allocation.  A giant drop could wipe someone's living expenses out in old age.

Telecaster

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Re: Does Target Retirement Fund for everything make sense?
« Reply #12 on: May 02, 2018, 08:14:34 AM »
Try Lifestrategy funds instead.   (VASGX)
Why?  They look almost identical to me

Target retirement funds become more conservative over time even after the retirement target date (seven years, I believe for Vanguard) and ultimately become 30% stocks and 70% bonds.  But you're investing timeline can be as long, or longer when you are retired than than your working investing timeline.  That is extremely bond heavy, and you'll need more money to sustain yourself in retirement than if you follow the 4% rule as commonly practiced. 

There is also some data that say you should become less conservative after retirement, with increasing exposure to equities. 

https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/

boarder42

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Re: Does Target Retirement Fund for everything make sense?
« Reply #13 on: May 02, 2018, 08:23:50 AM »
Not worth it and why would you rebalance more conservatively over time the opposite has proven to be better

Can you link to some information about this?

My understanding is when you are living solely off your investments, you do want a more conservative allocation.  A giant drop could wipe someone's living expenses out in old age.

I dont have anything handy but many of the FIRE blogs have explored this topic its called a reverse equity glide path i believe, if you want to google that i know boggle heads has somethings about it.  Its proven to be more effective at limiting the biggest risk which is sequence of returns risk early in FIRE while making sure money lasts a long time.  moving to a more conservative AA is not in my plans whatsoever at this point i'm planning a more flexible varible withdrawal method for my FIRE timeline.  Moving to an asset such as bonds later in life is a poor move in my opinion.  In most cases you already will have WAY WAY more money than you need by the time you hit normal retirement age when you FIRE in your 30s or 40s that it wont really matter if the market crashes a couple times on you.

Clean Shaven

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Re: Does Target Retirement Fund for everything make sense?
« Reply #14 on: May 02, 2018, 08:37:37 AM »
Kitces' blog has a good explanation of the "reverse equity glide path" concept, as well as what he calls a "bond tent" to start off that glide path. Search on his site for the write ups.

Broadly, the idea is to start retirement with a more conservative allocation (say, 50/50), then slowly move into a more stock-heavy allocation as years go by and you (hopefully) pass any early bad returns sequence.

MDM

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Re: Does Target Retirement Fund for everything make sense?
« Reply #15 on: May 02, 2018, 09:19:49 AM »
...can I sort of mimic the target fund...?
You certainly can. 

Some people enjoy getting hands on with their investments, and the very slight potential gain from holding individual funds is just an added bonus because rebalancing is fun.

Others see the very slight potential gain from holding individual funds as not worth their time, and are happy to let someone else do the continuous rebalancing.

The choice is yours.

Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #16 on: May 02, 2018, 09:23:08 AM »
...can I sort of mimic the target fund...?
You certainly can. 

Some people enjoy getting hands on with their investments, and the very slight potential gain from holding individual funds is just an added bonus because rebalancing is fun.

Others see the very slight potential gain from holding individual funds as not worth their time, and are happy to let someone else do the continuous rebalancing.

The choice is yours.
Does this look like Vanguard Target Retirement 2035? (70/30)?

403b 1 ($134,315)
TIAA-CREF S&P 500 Index Fund (Institutional), Ticker symbol: TISPX, Expense ratio: 0.06%

403b ($71,524)
16.89% TIAA-CREF International Equity Index Fund (Institutional) (TCIEX) 0.06%
12.52% TIAA-CREF Bond Index Fund (Institutional) (TBIIX) 0.12%

IRA 1 ($11,125)
4.59% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%

IRA 2 ($31,243)
10.43% Vanguard Total International Market Index Fund Admiral Shares (VTIAX) ER 0.11%

MDM

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Re: Does Target Retirement Fund for everything make sense?
« Reply #17 on: May 02, 2018, 10:10:01 AM »
Does this look like Vanguard Target Retirement 2035? (70/30)?

403b 1 ($134,315)
TIAA-CREF S&P 500 Index Fund (Institutional), Ticker symbol: TISPX, Expense ratio: 0.06%

403b ($71,524)
16.89% TIAA-CREF International Equity Index Fund (Institutional) (TCIEX) 0.06%
12.52% TIAA-CREF Bond Index Fund (Institutional) (TBIIX) 0.12%

IRA 1 ($11,125)
4.59% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%

IRA 2 ($31,243)
10.43% Vanguard Total International Market Index Fund Admiral Shares (VTIAX) ER 0.11%
At a quick glance, the only bond fund is TBIIX.  If true, that's 12.52% bonds and the rest (87.48%) stocks, so an 87.48/12.52 allocation.  That's somewhat different from 70/30.

No way to know what allocation is "correct".  See Asset allocation - Bogleheads.

CorpRaider

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Re: Does Target Retirement Fund for everything make sense?
« Reply #18 on: May 02, 2018, 12:20:38 PM »
You sound like a good candidate for a target date or balanced fund.  Just set it and (truly) forget it.  You will probably do better than most of the people who are new to investing and extoll the virtues of full exposure to the equity risk premium but have never weathered a bear market.  If history is any guide, a big chunk of them will panic and shift into bonds after their equities are down a lot.

Strick

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Re: Does Target Retirement Fund for everything make sense?
« Reply #19 on: May 02, 2018, 12:37:11 PM »
I like VASGX as I always know what it is rebalancing to and do not intend to move more conservative over time.

The expense difference between VASGX and its underlying funds is not quite 0.1% as only the cheapest of the components are available at 0.04 , but you definitely could save a little just mimicking and rebalancing yourself as long as you actually do it and don't try to time it.

Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #20 on: May 02, 2018, 02:14:57 PM »
Does this look like Vanguard Target Retirement 2035? (70/30)?

403b 1 ($134,315)
TIAA-CREF S&P 500 Index Fund (Institutional), Ticker symbol: TISPX, Expense ratio: 0.06%

403b ($71,524)
16.89% TIAA-CREF International Equity Index Fund (Institutional) (TCIEX) 0.06%
12.52% TIAA-CREF Bond Index Fund (Institutional) (TBIIX) 0.12%

IRA 1 ($11,125)
4.59% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%

IRA 2 ($31,243)
10.43% Vanguard Total International Market Index Fund Admiral Shares (VTIAX) ER 0.11%
At a quick glance, the only bond fund is TBIIX.  If true, that's 12.52% bonds and the rest (87.48%) stocks, so an 87.48/12.52 allocation.  That's somewhat different from 70/30.

No way to know what allocation is "correct".  See Asset allocation - Bogleheads.
Right, need to rebalance.  Question, when I look at the the portfolio of Vanguard Target Retirement 2035, I see:
Cash   1.83%
US Stock 46.29%
Non US Stock 30.17%
Bond   21.30%
Other 0.41%
What is cash and other?  This is 77/23

MDM

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Re: Does Target Retirement Fund for everything make sense?
« Reply #21 on: May 02, 2018, 03:07:28 PM »
What is cash and other?
Cash is money not invested in anything (other than perhaps a savings account at a bank).

Other is...something other than cash, stocks, and bonds.  Could be gold, real estate, ...?

DreamFIRE

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Re: Does Target Retirement Fund for everything make sense?
« Reply #22 on: May 02, 2018, 03:13:40 PM »
Broadly, the idea is to start retirement with a more conservative allocation (say, 50/50), then slowly move into a more stock-heavy allocation as years go by and you (hopefully) pass any early bad returns sequence.

Or starting even more conservative, say 10 to 30%, before ramping it up slowly during FIRE, as shown here:

https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/

boarder42

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Re: Does Target Retirement Fund for everything make sense?
« Reply #23 on: May 03, 2018, 02:38:04 PM »
Yes the old school of thought of going from higher equities early to lower equities late to decrease risk is 100% backwards when you look at those graphs you dont increase your chances of success- b/c as we always discuss here its the first 5-10 year that will tell the tale for if you're oging to be safe so either be flexible with a large equity allocation(my personal choice) or reverse equity glide path. 

seattlecyclone

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Re: Does Target Retirement Fund for everything make sense?
« Reply #24 on: May 03, 2018, 03:26:06 PM »
My two cents:

A Vanguard target date fund can be a great choice for 100% of someone's stash while they're just getting started investing. It's a perfectly reasonable allocation, likely to stay stable for some time if the date is sufficiently far into the future, and has low costs.

The criticisms people have posted above are all valid. You do pay a little bit more for the one-fund solution than if you "roll your own" with the individual asset class funds. At some point years down the road, the target date fund will slowly convert you into a mostly-fixed-income allocation. This may be the opposite of what you want.

While those criticisms are valid, I say ignore them for now. Put your money in the target date fund; it's loads better than analysis paralysis keeping you in cash. Educate yourself about investing, about why someone might choose one asset allocation over another, and why that might change as you go through life. You might find at that time that the asset allocation you want is different from the one Vanguard's target date fund chose for you. That's fine! Feel free to switch things up once you have a solid reason for why that's a good idea for your life circumstances.
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Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #25 on: May 08, 2018, 05:37:18 AM »
My two cents:

A Vanguard target date fund can be a great choice for 100% of someone's stash while they're just getting started investing. It's a perfectly reasonable allocation, likely to stay stable for some time if the date is sufficiently far into the future, and has low costs.

The criticisms people have posted above are all valid. You do pay a little bit more for the one-fund solution than if you "roll your own" with the individual asset class funds. At some point years down the road, the target date fund will slowly convert you into a mostly-fixed-income allocation. This may be the opposite of what you want.

While those criticisms are valid, I say ignore them for now. Put your money in the target date fund; it's loads better than analysis paralysis keeping you in cash. Educate yourself about investing, about why someone might choose one asset allocation over another, and why that might change as you go through life. You might find at that time that the asset allocation you want is different from the one Vanguard's target date fund chose for you. That's fine! Feel free to switch things up once you have a solid reason for why that's a good idea for your life circumstances.
Thanks.  I don't have anything in cash. I'm transferring from another institution to Vanguard.  I've decided to go with individual funds.

MustacheAndaHalf

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Re: Does Target Retirement Fund for everything make sense?
« Reply #26 on: May 08, 2018, 07:24:18 AM »
Over 30 years, 0.10% of fees makes a 3% difference.  I wouldn't call that "a big difference".
1.001 ^ 30 = 1.03

Target date funds are diversified and automatically buffer your portfolio with bonds as you approach retirement and need more safety.  How much do you plan to save in a taxable account?

Right now $25,000 in a target date fund only means $2,500 in bonds.  Not much difference between ordinary income and qualified dividends at that level.  But as you approach retirement, you assets will look more like Vanguard Target 2025 with 37% bonds.  If your taxable account has grown to $540k, then $200k of that will be in bond funds.  At today's 3.1% yield that would be $6,300 in ordinary income, and you might pay 22% on that instead of 15%, a difference of about $440.  But with an account 1000 times larger than that, maybe it's not a huge deal.

Most likely, a target date retirement fund will work fine even if you have some in retirement and some in taxable.  You can look at the above numbers to help you decide.

thesis

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Re: Does Target Retirement Fund for everything make sense?
« Reply #27 on: May 08, 2018, 11:14:47 AM »
If it's between analysis paralysis and target funds, just pick the target funds. You will likely still do way better in the end than just sitting on your cash. For my friends who are not focused on FIRE (almost all of them), who are scared to invest, I would probably recommend one of these in a heartbeat. If the simplicity of target funds gets them to begin investing now (20s), then that would be awesome.

I have moved all my funds out of target funds, though, because I'm planning for early financial independence, and really don't want anything to do with a higher bond allocation. I'm in the accumulation phase, so risk is more desirable for me right now.

It's not all about returns, though, it's also about knowing yourself, and if you know that market fluctuation will freak you out, then you may just have to set some new expectations for timing your path to FIRE, and that is OK. And honestly, when most actively managed funds charge 0.50% and higher in fees, who freaking cares about the difference between 0.04% and 0.14%? Ok, a bunch of mustachians, but do you get what I'm saying? 0.14% is still way ahead of the game on expense ratio :)
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talltexan

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Re: Does Target Retirement Fund for everything make sense?
« Reply #28 on: May 09, 2018, 12:39:39 PM »
If you like the simplicity of target date funds, but also want a slight juice on your returns, read this: https://paulmerriman.com/double-target-date-retirement-funds-return-single-move/

harvestbook

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Re: Does Target Retirement Fund for everything make sense?
« Reply #29 on: May 11, 2018, 05:58:44 AM »
You can also use a more aggressive target date if you don't want to shift to bonds so soon. I just opened a Roth at age 55 and I used the 2065 fund even though I doubt I'll live that long.

Instead of worrying about the date, just pick the AA you want, and you can always trade up to a later date if you want to stay aggressive. They're very simple, especially when you are in the building stage.

ender

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Re: Does Target Retirement Fund for everything make sense?
« Reply #30 on: May 11, 2018, 06:18:01 AM »
Yeah there is nothing saying that the date your target retirement fund is has to match your goals for retirement.

Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #31 on: May 11, 2018, 06:55:50 AM »
Yeah there is nothing saying that the date your target retirement fund is has to match your goals for retirement.
That much even I know!

Catica

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Re: Does Target Retirement Fund for everything make sense?
« Reply #32 on: May 11, 2018, 07:01:03 AM »
I decided not to go with the target fund.  I'm going with:
20% TIAA traditional
80% Stocks, combination of VSMPX and VTSAX and out of that 30% will be international, combination of VTIAX and VTSNX
I'm deliberating about throwing TREA in there but I haven't decided yet, if so it won't be more than 10% maybe even just 5%

VaCPA

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Re: Does Target Retirement Fund for everything make sense?
« Reply #33 on: May 11, 2018, 10:05:30 AM »
Vanguard has some really good target date funds which I use in my wife's 401k. Comes down to how involved you want to be.