Anything wrong with just going with a Vanguard Target Retirement Fund?

[Nick_Miller]

I hope to semi-retire in 2025 when I'm 52. I have the VTTHX. It's currently set at....

48.3% US stocks
32.3% international stocks
13.7% US bonds
5.7% international bonds

I like the mix of stocks to bonds and domestic to international. It will slowly slide more towards bonds. In 2035, when I'm 62 (and retired, I hope), it will be at 50/50 stocks and bonds.

It continues sliding to bonds until it reaches 20/80 stocks/bonds and it stops there. I think that will be in about 2055 when I'm 82.

I only have about $10K in it now, (Roth IRA) but planning to dump my Roth max into this every year. My wife has a 2040 fund since she's a few years younger.

My question is: this seems to make investing pretty easy. What's wrong with just using this as a person's primary (or only) retirement fund?

[Philociraptor]

There's nothing wrong with it.

[Jeremy E.]

Nothing is wrong with this, it's a great choice. You will have a very slightly lower expense ratio if you buy the funds separately and will also have more control over exactly what percentage you want in each, but then if you buy the funds separately, you'll also want to probably rebalance annually or more often, which can take some time, so I think a target retirement fund is a fantastic option, here is an article with more information on the topic.

http://jlcollinsnh.com/2012/12/18/stocks-part-xv-target-retirement-funds-the-simplest-path-to-wealth-of-all/

[Mississippi Mudstache]

No real problem, if it contains the mix of stocks and bonds that you wish to use. I quit using it, because the fees are several tenths higher than the ETFs and index funds that I'm currently using.

[Davids]

Nothing wrong with it at all. It does all the work for you. Fees are still very good.

[seattlecyclone]

It's a fine choice if you're on board with the asset allocation glide path they're using. I tend to think that 50% is rather high for bonds at any age so I would go with a different fund. You may also want to look into Vanguard's LifeStrategy funds. They hold the same four funds as the Target Retirement funds, with the same auto-rebalancing feature, but they keep the allocation consistent over time for investors who aren't really interested in going super bond-heavy in their old age.

[MustacheAndaHalf]

Nick_Miller - Sounds like it fits you.  You already know both the current allocation and future glide path, and you're happy with the percentages it allocates.  So that works.

Note on expense ratio: 0.1% has a fairly linear impact of about 1% per decade.  In other words, the difference between a retirement fund and doing it yourself in theory would be 3% over 30 years.  In practice, someone doing it themselves will rebalance differently, may not track the bond percentage, etc.  The fund having an expense of 0.1% higher than it's component funds shouldn't have a big impact.

[steveo]

Personally I think it's a great option. The fees may have an impact but compared to the standard approach that most people use it's a great option.

[Radagast]

It's a fine choice if you're on board with the asset allocation glide path they're using. I tend to think that 50% is rather high for bonds at any age so I would go with a different fund. You may also want to look into Vanguard's LifeStrategy funds. They hold the same four funds as the Target Retirement funds, with the same auto-rebalancing feature, but they keep the allocation consistent over time for investors who aren't really interested in going super bond-heavy in their old age.

I agree with this, there doesn't seem to be any real reason to have less than 50% stocks. I would hop off onto the 60/40 (preferably) or 40/60 (if you really, really hate watching things go up and down) as you pass those marks. I think target retirement funds end at 30/70, which just a little too low in my opinion.

[Nick_Miller]

Thanks everyone!

I just wanted to make sure that I wasn't sacrificing too much in exchange for the lower hassle factor.  After reading all of this, and the links, I'm definitely sticking with my target retirement fund.

*We also have $20K in VTSAX which I'll keep there. We can always fund that one in a given year if I think the target retirement fund is too bond heavy.

[Jack]

Thanks everyone!

I just wanted to make sure that I wasn't sacrificing too much in exchange for the lower hassle factor.  After reading all of this, and the links, I'm definitely sticking with my target retirement fund.

*We also have $20K in VTSAX which I'll keep there. We can always fund that one in a given year if I think the target retirement fund is too bond heavy.

Well, that changes everything: if you hold any other investment, you've eliminated almost the entire benefit (simplicity) of picking the target date fund. If you're going to manually manage the allocation of part of your funds, you might as well do it with all of them.

[Smokystache]

It's a fine choice if you're on board with the asset allocation glide path they're using. I tend to think that 50% is rather high for bonds at any age so I would go with a different fund. You may also want to look into Vanguard's LifeStrategy funds. They hold the same four funds as the Target Retirement funds, with the same auto-rebalancing feature, but they keep the allocation consistent over time for investors who aren't really interested in going super bond-heavy in their old age.

I agree with this, there doesn't seem to be any real reason to have less than 50% stocks. I would hop off onto the 60/40 (preferably) or 40/60 (if you really, really hate watching things go up and down) as you pass those marks. I think target retirement funds end at 30/70, which just a little too low in my opinion.

Perhaps this is obvious, but if you like the automatic switch to more stable/conservative investments but want it to happen later in your life, simply choose a later target date fund (2045, 2050, etc.).

I've heard some people take the target date at which they retire really literally and thought they couldn't choose a fund with a different year. I assured them the Vanguard Retirement Fund Police would not force them in or out of retirement based on the date on their retirement strategy fund.

[Nick_Miller]

@Jack, the VTSAX doesn't really require any "managing," does it? I mean, I'm just letting it ride. As I said, if I later think that the retirement fund is a bit too conservative or whatever, I have the easy option to adding to it, but I don't consider that eliminating my plan's simplicity.

@Smokystache, I'll be 62 in 2035, and I think that's the right time for me to have a 50/50 stocks/bonds setup. I did it on purpose. My wife has a 2040 account (as she's a few years younger) so from my age 62-67, we'll still have that slightly more aggressive account.

[Jack]

@Jack, the VTSAX doesn't really require any "managing," does it? I mean, I'm just letting it ride. As I said, if I later think that the retirement fund is a bit too conservative or whatever, I have the easy option to adding to it, but I don't consider that eliminating my plan's simplicity.

The "managing" I'm speaking of is keeping your overall allocation correct by paying attention to the ratio of VTSAX and VTTHX in your portfolio. If you can do that, you can pay attention to the ratio of VTSAX/VTIAX/VBTLX/VTABX almost as easily, and save a little bit of expense ratio in the process.

[Jeremy E.]

@Jack, the VTSAX doesn't really require any "managing," does it? I mean, I'm just letting it ride. As I said, if I later think that the retirement fund is a bit too conservative or whatever, I have the easy option to adding to it, but I don't consider that eliminating my plan's simplicity.

@Smokystache, I'll be 62 in 2035, and I think that's the right time for me to have a 50/50 stocks/bonds setup. I did it on purpose. My wife has a 2040 account (as she's a few years younger) so from my age 62-67, we'll still have that slightly more aggressive account.

I agree that VTSAX doesn't take much managing, I think you have a great plan.

[Philociraptor]

@Jack, the VTSAX doesn't really require any "managing," does it? I mean, I'm just letting it ride. As I said, if I later think that the retirement fund is a bit too conservative or whatever, I have the easy option to adding to it, but I don't consider that eliminating my plan's simplicity.

The "managing" I'm speaking of is keeping your overall allocation correct by paying attention to the ratio of VTSAX and VTTHX in your portfolio. If you can do that, you can pay attention to the ratio of VTSAX/VTIAX/VBTLX/VTABX almost as easily, and save a little bit of expense ratio in the process.

I don't think he's tracking that ratio though. I certainly don't. We have our taxable brokerage in VTSAX, 401(k)s in VFIAX (lowest ET choice in 401(k)'s), and IRAs in VASGX. As the accounts grow organically I don't plan on balancing between them, just keep adding to the chosen fund for each account.

[Jack]

@Jack, the VTSAX doesn't really require any "managing," does it? I mean, I'm just letting it ride. As I said, if I later think that the retirement fund is a bit too conservative or whatever, I have the easy option to adding to it, but I don't consider that eliminating my plan's simplicity.

The "managing" I'm speaking of is keeping your overall allocation correct by paying attention to the ratio of VTSAX and VTTHX in your portfolio. If you can do that, you can pay attention to the ratio of VTSAX/VTIAX/VBTLX/VTABX almost as easily, and save a little bit of expense ratio in the process.

I don't think he's tracking that ratio though. I certainly don't. We have our taxable brokerage in VTSAX, 401(k)s in VFIAX (lowest ET choice in 401(k)'s), and IRAs in VASGX. As the accounts grow organically I don't plan on balancing between them, just keep adding to the chosen fund for each account.

How are you deciding how much to contribute to each account? Regardless of what the decision-making process is, there is some process, and you (or Nick_Miller) could apply that process to four funds almost as easily as you could to two.

[Philociraptor]

Brokerage is $500/mo autodraft; 401(k)s are through payroll deductions, set to equal amounts such that they max out on last paycheck each year; IRA's are scheduled to draft the full amount ($5,500) on Jan 4th of each year. Everything is automated, no manual process other than setting it up.

Put another way, 401(k)s and IRAs get maxed out, brokerage is where extra money goes.

[Jack]

Everything is automated, no manual process other than setting it up.

Exactly: you made the decision to set it up that way, which means you thought about it at least a little. All Nick_Miller has to do is make a similar decision, set up the automatic allocations (either dividing by account as you did, or saying that for each deposit into his 401k X% goes into fund A, Y% goes into B, Z% goes into C and W% goes into D, or whatever) and then optionally adjust it once in a while exactly the same way he planned to adjust his VTSAX/VTTHX combo anyway.

What I'm getting at is that if you don't want to have to think about asset allocation, then you want exactly one fund (a target date or balanced fund) across all your investments. Once you decide to own N > 1 funds then you have to think about the asset allocation between them occasionally anyway (defeating the only advantage of the target-date or balanced fund), so the difference between N = 2 and N = 4 is not significant.

[Philociraptor]

Everything is automated, no manual process other than setting it up.

What I'm getting at is that if you don't want to have to think about asset allocation, then you want exactly one fund (a target date or balanced fund) across all your investments. Once you decide to own N > 1 funds then you have to think about the asset allocation between them occasionally anyway (defeating the only advantage of the target-date or balanced fund), so the difference between N = 2 and N = 4 is not significant.

I disagree. I am not thinking about the asset allocation between accounts, merely choosing the best option in each account. The 401(k)'s don't have the same fund as the IRA's so I am forced to choose something different. The brokerage is VTSAX because it makes taxes easier. This is simpler than deciding on a single asset allocation and balancing it between accounts, because I am still picking a single fund per account to dump everything into. My "allocation" between accounts is based on annual limits, not any personal choosing. If I wanted a whole-portfolio asset allocation, it would take a lot more work to balance between accounts.

[Jeremy E.]

My understanding is that Nick Millers plan is to only contribute to this target retirement fund until 2035 without rebalancing.... At which point he'll try to keep a 50/50 stock/bond ratio. This is much less work than having 4 funds and rebalancing them every year and I think it is a good plan

[Jack]

My understanding is that Nick Millers plan is to only contribute to this target retirement fund until 2035 without rebalancing....

Nope. He plans to also contribute to his VTSAX "if [he thinks] the target retirement fund is too bond heavy," implying that he's tracking his asset allocation anyway. (And doing something mostly equivalent to "rebalancing," except in an ad-hoc way -- which is really the kind of undisciplined meddling that target date funds were designed to discourage, now that I think about it.)