Author Topic: Target date Funds?  (Read 5396 times)

Chesterfield

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Target date Funds?
« on: June 01, 2015, 12:07:21 PM »
Relatively new here. My money is at Vanguard and Mutual of America ( only choice for work). Wife's money is at Vanguard and Fidelity ( only choice for work). If job ends, we will role over into Vanguard.
Currently we are invested in Target date Funds, primarily 2035, but some in both earlier and later dates. Cost is 0.17%.
After reading MMM all the posts, I realized I was keeping way too much money in cash. Currently live in Seattle, renting a house from my father. No way we will be buying a house here ( current house a fixer, bought for 472k in 2012 now Zillow says it is worth about 800k, and that is mostly for increase in LAND prices). Our combined salary is 69k this year, up to  100- 110k next year, probably 130k the year after and for the next 5 years (  wife is finishing training for a profession). I looked around the forums.
My question is why not Target date funds? I have not seen any info on them on MMM versus index funds or in posts on the Forum-  don't have to rebalance, just buy another fund with a different mix of stocks and bonds if you prefer a different allocation.
Moving 20k cash into vanguard, trying to figure out where to put it.
Thoughts?

MDM

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Re: Target date Funds?
« Reply #1 on: June 01, 2015, 12:13:30 PM »
A Vanguard Target Date fund, e.g. VTTSX, is my default suggestion for someone seeking a place to start.  And staying there may be just fine, also.

One can do a little better on expense ratios by buying the admiral shares equivalent when the balance gets high enough, if one is willing to rebalance manually.

mizzourah2006

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Re: Target date Funds?
« Reply #2 on: June 01, 2015, 12:16:14 PM »
It's a viable option for a lot of people. My concern is the conservative glide paths. You will probably find that MMM individuals aren't huge fans because at the target date the allocation is typically 50/50 and 5-10 years after the allocation is typically 40/60 bonds. MMM individuals plan to be retired for 40-50 years + often times and that allocation is likely way too conservative to reliably expect the 4% withdrawal rate or any version of that to be successful over that long of a retirement period.

You could always pick target dates that are around when you will turn 70-75, but I just don't really like the conservative glide paths most use.

SuperSecretName

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Re: Target date Funds?
« Reply #3 on: June 01, 2015, 12:27:54 PM »
just be aware that as time goes on, your stock allocation will decrease.

they are perfectly fine, and a good choice for many. you might be able to do better, but you can surely do a lot worse.

I'm a red panda

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Re: Target date Funds?
« Reply #4 on: June 01, 2015, 12:34:23 PM »
I use a target date fund for my 403b, but I have it targeted to when the government thinks I should retire,  not when I plan to retire.  It would be adjusted much too conservatively if I used the actual date I want to retire.

KC1983

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Re: Target date Funds?
« Reply #5 on: June 01, 2015, 08:13:23 PM »
Target date funds are great choices. Especially right now, when being 100% stocks is a little scary. Mizzourah2006 is incorrect that most target date funds are 50/50 AA. As you obviously know, even the 2035 fund is 85/15, which is pretty darned equity-tilted. As mentioned, when your balances are high enough, the individual admiral funds will lower your ERs, but .17 is a good number for the diversification you're getting. If you want to say conservative, then in five years shift it to Target Date 2040, etc.

mizzourah2006

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Re: Target date Funds?
« Reply #6 on: June 01, 2015, 08:51:45 PM »
Target date funds are great choices. Especially right now, when being 100% stocks is a little scary. Mizzourah2006 is incorrect that most target date funds are 50/50 AA. As you obviously know, even the 2035 fund is 85/15, which is pretty darned equity-tilted. As mentioned, when your balances are high enough, the individual admiral funds will lower your ERs, but .17 is a good number for the diversification you're getting. If you want to say conservative, then in five years shift it to Target Date 2040, etc.

The 2035 target date is 20 years away from today of course it is still equity tilted. Go re-read what I wrote. At the target date it is 50/50. You do realize they have glide paths for re-allocation don't you?

Here, if you are interested in learning more about them. http://www.investopedia.com/terms/g/glide-path.asp

Look at the 2015 Target Date Fund. https://personal.vanguard.com/us/funds/snapshot?FundId=0303&FundIntExt=INT

Is that or is it not essentially 50/50?

This is why I said if you plan on setting your target date for when you are actually 70-75 it's probably not a bad idea, but if you set it for when you actually retire as an early retiree (which is what most people on here are shooting for) it will likely be too conservative.
« Last Edit: June 01, 2015, 08:57:26 PM by mizzourah2006 »

skyrefuge

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Re: Target date Funds?
« Reply #7 on: June 01, 2015, 09:40:07 PM »
Look at the 2015 Target Date Fund. https://personal.vanguard.com/us/funds/snapshot?FundId=0303&FundIntExt=INT

Is that or is it not essentially 50/50?

Yeah. And here's a page that actually shows the glide path (it's strange that Vanguard doesn't show it on the main fund pages).

https://investor.vanguard.com/mutual-funds/target-retirement/#/mini/overview/0305

It actually gets up to 70% bonds about 8 years after the retirement date.

It's Vanguard's LifeStrategy funds that have the diversification and automatic rebalancing of the Target Retirement funds, but without the glide path; they maintain a constant allocation.

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Either type is a plenty-good choice for most investors, even Mustachians (especially since you can always move to a different TR fund if/when you realize the allocation is getting more conservative than you'd like).

KC1983

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Re: Target date Funds?
« Reply #8 on: June 01, 2015, 09:53:42 PM »
Sorry, Mizz, I misread what you wrote. I'm well aware of the glide path, that's why I suggested changing funds every 5 years to maintain the AA one prefers. Of cousre the LifeStrategy funds mentioned by skyrefuge are good set-and-forget options, too, though they aren't as fine grained as the Target Retirement funds (e.g., you want something besides 80/20 or 60/40).

mizzourah2006

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Re: Target date Funds?
« Reply #9 on: June 01, 2015, 10:07:21 PM »
Sorry, Mizz, I misread what you wrote. I'm well aware of the glide path, that's why I suggested changing funds every 5 years to maintain the AA one prefers. Of cousre the LifeStrategy funds mentioned by skyrefuge are good set-and-forget options, too, though they aren't as fine grained as the Target Retirement funds (e.g., you want something besides 80/20 or 60/40).

No problem, yes that is another option, I just figure people choose target date for simplicity. If you are re-allocating to differing target funds it's essentially equivalent to just building your own allocation.

Wow, SkyRefuge, I didn't relaize VGs was that conservative. The one in my 401k moves to 60/40 bonds around 10 years after the Target Date. 70/30 bonds is crazy.

TomTX

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Re: Target date Funds?
« Reply #10 on: June 02, 2015, 05:29:36 AM »
Sorry, Mizz, I misread what you wrote. I'm well aware of the glide path, that's why I suggested changing funds every 5 years to maintain the AA one prefers. Of cousre the LifeStrategy funds mentioned by skyrefuge are good set-and-forget options, too, though they aren't as fine grained as the Target Retirement funds (e.g., you want something besides 80/20 or 60/40).

Eh, if you have enough money to retire and you're picky enough that you don't like the granularity, you can AA between two LifeStrategy funds to get exactly the stock/bond ratio you want.

Want 75% equity?

$750,000 in the 80/20 Lifestrategy
$250,000 in the 60/40 Lifestrategy

Okay, you may want to rebalance once every 5 years or thereabouts. Swings between them should be a lot less than if you do your own 75/25 ratio - that should get an annual rebalancing.

Either way, NBD.

Interest Compound

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Re: Target date Funds?
« Reply #11 on: June 02, 2015, 10:22:42 PM »
Vanguard Target Date Funds are probably the best investment vehicle currently available for those new to investing. Even for someone retiring early. Simply choose the fund based on your age, and you're done. For life. The glide path keeps you above 75% stocks until you're a bit over 50 years old, hits 60% stocks when you're 60 years old, and drops down to 35% stocks when you're 70 years old. As you get older, your ability to work and generate income on your own typically decreases, so it makes total sense that your portfolio should be less risky.

You'll be just fine if you put the same Target Date Fund in all your accounts, and be done with it.