Recreating target date fund using individual funds

[terran]

My wife and I (age 29/30) currently have all our retirement savings in the Vanguard Target Retirement 2055 Fund (VFFVX) with an expense ratio of 0.18%. Looking at the individual funds I could save a bit if I built my own approximation of the fund. To do this exactly it looks like we would need  63.2% in Vanguard Total Stock Market Index (VTSMX), 26.8% Vanguard Total International Stock Index (VGTSX), 8.1% in Vanguard Total Bond Market II Index (VBMFX), and 1.9% Vanguard Total International Bond Index (VTIBX).

My calculations say that to have 1.9% in the international bond fund and still meet the minimums for the investor or admiral class shares we would need to have a total available to invest of about $158k or $526k respectively, which we don't (yet), so I thought I would skip this fund and instead invest 10% in the the total bond market fund.

We have a little less than half our savings in two Vanguard R.iras, a little more in a 403b with TIAA-Cref and about one years contribution plus growth in a Vanguard T.ira. We're solidly in the 15% bracket, so I think we'll stick with the Roth's until we're in the 25% bracket.

With TIAA-Cref we have access to institutional class shares of all but the international bond fund, so those would be VITSX (aka VTSMX/VTSAX), VTSNX (aka VGTSX/VTIAX), and VBTIX (aka VBMFX/VBTLX) with expense ratios of 0.04% (vs 0.17%/0.05%), 0.12% (vs 0.22%/0.14%), and 0.07% (vs 0.2%/0.08%).

My thinking is that we would invest all of each Roth in VTSAX since if we split it we wouldn't be able to access admiral class shares yet, then invest the 403b in VITSX, VTSNX, and VBTIX in the appropriate amounts to approximate the target date fund across all our savings. Since the T.ira is so small and won't get more contributions for now we would be stuck with investor class shares, so I thought I would just leave it in the target date. All this would really only save us about $56/year right now.

So I guess my questions are:
- Is it worth doing all this for $56/year? I suppose this is really a question of how often should I rebalance? Doesn't seem like it would take more than 1/2 an hour to do, so probably worth it if it's only once a year, but maybe not if it's more.
- If it's not worth doing financially, is it worth doing for practice and habit forming for when we have enough that it really adds up or should I just wait until then?
- Do I lose much by not investing in international bonds at all?
- How should I invest contributions until the next time I rebalance?
- Is there some other allocation I should consider instead?

Thanks!!!

[GGNoob]

My wife and I (age 29/30) currently have all our retirement savings in the Vanguard Target Retirement 2055 Fund (VFFVX) with an expense ratio of 0.18%. Looking at the individual funds I could save a bit if I built my own approximation of the fund. To do this exactly it looks like we would need  63.2% in Vanguard Total Stock Market Index (VTSMX), 26.8% Vanguard Total International Stock Index (VGTSX), 8.1% in Vanguard Total Bond Market II Index (VBMFX), and 1.9% Vanguard Total International Bond Index (VTIBX).

You really don't have to be so precise. Just do 63% VTSAX (Total US), 27% VTIAX (Total International), and 10% VBTLX (Total US Bond).

Then maintain that allocation through rebalancing (annually is probably good). Then you can follow the TRD 2055 fund to slowly decrease your exposure to stocks as you get closer to retirement.

My calculations say that to have 1.9% in the international bond fund and still meet the minimums for the investor or admiral class shares we would need to have a total available to invest of about $158k or $526k respectively, which we don't (yet), so I thought I would skip this fund and instead invest 10% in the the total bond market fund.

Yes, skip international bonds. Just do a simple 3-fund portfolio.

With TIAA-Cref we have access to institutional class shares of all but the international bond fund, so those would be VITSX (aka VTSMX/VTSAX), VTSNX (aka VGTSX/VTIAX), and VBTIX (aka VBMFX/VBTLX) with expense ratios of 0.04% (vs 0.17%/0.05%), 0.12% (vs 0.22%/0.14%), and 0.07% (vs 0.2%/0.08%).

My thinking is that we would invest all of each Roth in VTSAX since if we split it we wouldn't be able to access admiral class shares yet, then invest the 403b in VITSX, VTSNX, and VBTIX in the appropriate amounts to approximate the target date fund across all our savings. Since the T.ira is so small and won't get more contributions for now we would be stuck with investor class shares, so I thought I would just leave it in the target date. All this would really only save us about $56/year right now.

You normally should look at your entire portfolio as one. So with that said, you really don't need to replicate the TRD 2055 fund in each of your accounts, but just in your total portfolio. You can always use ETFs too. They have the same ER as admiral shares. I've only been investing for a couple of years now so my accounts are rather small. Using ETFs allows me to get the portfolio I want with low fees without having to have the minimum of $10k for admiral shares.

- How should I invest contributions until the next time I rebalance?

I try to rebalance with deposits as much as possible. So if international is down and US stocks are up, you may contribute more to international to even it back out.

[Indexer]

BNDX.  This is the ETF version of the total international bond index.  You don't have to worry about the 3k or 10k minimum.

As for what you are doing.  It is a good way to get an even lower ER while owning the same thing.  Yes, you do have to rebalance yourself and honestly its pretty easy to do.

[skyrefuge]

- If it's not worth doing financially, is it worth doing for practice and habit forming for when we have enough that it really adds up or should I just wait until then?

It might be worth it for the practice, but I think this exercise is probably even more worth it because it should be raising the "what do I really want to do?" question in your mind. Everyone needs to decide what their asset allocation should be, and how (if) it should change over time. This is a personal decision based on risk-tolerance, life goals, etc. It seems like you feel you have already arrived at your answer: "my allocation should match Vanguard Target Retirement 2055 Fund".

Why? Just because that's the fund you happen to already be invested in? Because you plan to retire in 2055 and trust that Vanguard's chosen mix for that goal is the supreme and correct one? While I understand that comfort that comes from essentially being "told" what to do, it might not actually be the best answer for you.

Realizing that your personal allocation needs are unlikely to match exactly with any Target Retirement fund (though they're likely to be close) should help free up your mind a bit and make you realize that precisely matching a TR fund isn't that important. This will also help with optimizing your asset *location* choices, because as you're already noting, trying to match the TR fund across all your accounts is an unnecessary pain in the ass.

[terran]

Logan T and Indexer, Thanks for the ETF tips! Since it sounds like I'd be fine skipping the international bonds I'll probably just go that route, but it's good to know it's an option.

skyrefuge, That's a really good point. I think dipping my toes in by being a little more active in this way will be a good start, but as I learn more I may end up tweaking things further. Maybe some real estate exposure once the house isn't as big a part of our total net worth or something. Thanks for your thoughts -- definitely something to think about!