Lifestrategy vs Components

[AdrianC]

The Vanguard Lifestrategy funds can really simplify investing, if you like the asset allocation. For me, the advantages are:
- They rebalance it.
- There is no need for us to touch it at all.
- I have less temptation to mess around with it.

But the expense ratio is a bit high. Vanguard sets it as the weighted average of the underlying funds using investor class funds, not admiral. For the 80/20 growth fund VASGX that comes to 0.14%. The weighted average of the components using ETFs is 0.06%. $800/year saving on $1M. Not a lot, but if we're trying to optimize...

I wondered how the expense ratio affected performance. Here's what I got from Porfoliovisualizer:

July 2013 - March 2019 CAGR (July 2013 when BNDX data available)
VASGX
8.44%

Component ETFs (VTI, VXUS, BND, BNDX)
Rebalance Annually 8.39%
Rebalance Quarterly 8.37%
Rebalance Monthly 8.36%

Different start times will give different results, depending on if the constant rebalancing helps or not, but it looks like the extra expense of Lifestrategy might not hurt much, if at all.

[MustacheAndaHalf]

If you search for "2050 funds", you quickly find this article suggesting the best funds:
https://money.usnews.com/funds/mutual-funds/rankings/target-date-2050

Which then starts the list with these 5 funds - all with worse expense ratios:

"TIAA-CREF Lifecycle 2050 Retirement" : 0.70% expense ratio
"MainStay Retirement 2050 I" : 0.74% expense ratio
"Fidelity Freedom Blnd 2050" : 0.54% expense ratio
"MFS Lifetime 2050 A" : 0.88% expense ratio
"Wells Fargo Dynamic Target 2050 R4" : 0.37% expense ratio

Overall, 0.14% is actually a decent expense ratio for a target date fund.  As you point out, you can do better if you pick the funds yourself (or ETFs).  You can also save a small amount of additional expense by splitting VXUS into VEA(80%) and VWO(20%).

But it's also worth noting that 0.10% compounded over 30 years equals 3%.  Which means going from 0.15% to 0.05% expense ratios might make less of a difference than you expect.

[AdrianC]

But it's also worth noting that 0.10% compounded over 30 years equals 3%.  Which means going from 0.15% to 0.05% expense ratios might make less of a difference than you expect.

Sure, and as my single example above shows, it could be that the Lifestrategy fund with it's constant rebalancing could actually do slightly better than the separate four funds despite having a higher expense ratio.

We decided to go with VASGX for all our Vanguard IRA accounts.

[BicycleB]

@AdrianC, I've been thinking similarly. I recently used VASGX as my new investment when switching from a different investment provider. Over a third of my financial investments are in VASGX now.

Suits my Very Slow and Lazy style...    :)