Vanguard Target Funds

[NewDay1]

Hello MMMers,

What are your thoughts on Vanguard Target (date) retirement funds?

I'm mid-40s with a late start in saving/investing, and a renter in a very expensive area.  All family/community is here, which is important to me, so doing my best to make it here (or near here).

Thanks for any feedback.

[Indexer]

They are a combination of Vanguard's big total market index funds, they automatically rebalance, and get more conservative over time.


They are fine in a 401k plan or IRA where taxes on trades aren't a consideration. However, keep them out of taxable accounts as their automatic rebalancing can create capital gains distributions.

In addition, they are slightly more expensive than buying the underlying funds individually, but they rebalance for you. If you plan on rebalancing yourself, buy the funds. If you aren't sure you would rebalance when you need to, like in a down market, then the automatic rebalancing is worth it.

[NewDay1]

Thank you Indexer.  This would be for a Roth IRA.

[nereo]

Thank you Indexer.  This would be for a Roth IRA.

Indexer nailed it.  We use them in our IRAs because of the simplicity, and because for us (with 'just' tens-of-thousands in our IRAs) the convenience of auto-rebalancing outweighs the couple of dollars we'd save in fees* if we just owned the bond and equity index funds and rebalanced them ourselves. Plus, as it would require owning four separate funds to mimic our Target Date fund, we didn't have enough invested to have 'just' 2.5% in the total international bond fund ($1,000 minimum in an IRA, which requires $40k+)

*last I calculated it our our target date fund had a yield of 0.15% and the combined yield of the four funds was ~0.08%, so we would save 0.07%/year, or $7 per $100,000.  As we haven't hit that $100k threhold our actual savings would be less.  Is it worth it to you?  Depends on your circumstances and level of optimization.  If you've got several hundred k$ it might very well be worth it. If you've got just $5,500 it's doubtful the savings is worth it to you.

[Laserjet3051]

Good, low cost products. Without reiterating what was said above, the biggest drawback of TD funds is that their fixed glide path may (or may not) match the risk an investor is able, willing, and/or needs to take. TDFs also charge a small premium for conducting, what are essentially easy rebalancing/changes to stock:bond ratio.