Author Topic: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500  (Read 7551 times)

RusticBohemian

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I currently have my Roth IRA and 401k Accounts investing in Vanguard Target Retirement Funds.

I'm curious to know if it makes more sense to switch them to a The Vanguard Total Stock Market Index Fund.

This would, I believe, bring me from 90% stock, 10% bond to 100% stock.

I'm 30, so short term risk shouldn't be an issue.

Also, would I end up incurring significant fees from making the change?

Any thoughts?

Thanks!

pbkmaine

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #1 on: January 03, 2015, 09:18:19 PM »
The reason the Vanguard Target Retirement funds always have at least 10 percent of your money in bonds is because the bond part cushions you in a stock downturn. Morningstar/Ibbotson has great charts showing you that a small allocation to bonds can decrease risk without affecting return. See also Modern Portfolio Theory.

WYOGO

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #2 on: January 03, 2015, 10:05:06 PM »
At 30 I would not bother with bonds if you can handle the ride that VTSAX alone would provide. You are paying a higher expense for those target retirement funds. The largest companies in the fund are international as well so I would not worry about owning others at the moment. I would set it and roll with it.

Often times 401K plans managed by Vanguard will offer the institutional versions of funds which is very nice. My overall portfolio expense ratio is somewhere around 0.03 or so because of this. VIIIX is an example.

Best of luck...

Mr. Captain Cash

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #3 on: January 04, 2015, 03:36:45 PM »
RusticBohemian,

If I was you I would switch to The Vanguard Total Stock Market Index Fund for a number of reasons:

- Like WYOGO mentioned, there is a good chance you are paying a higher management expense ratio for the target retirement fund, which will diminish your returns

- If you have a long time horizon and will absolutely not be requiring this money until retirement it is statistically proven that an all equity portfolio will have the highest returns. I have a similar timeline like yourself and that is why my own investment portfolio is all stocks.

The fees will all depend on which brokerage you use for your investments. That is hard to say.

There are some benefits to the retirement funds as they take care of adjusting your stocks to bonds allocations as you get closer to retirement ensuring that the majority of your capital will be in fixed securities. That way if there was a stock market correction it would not wipe out 20-30% of your investment portfolio right when you wanted to retire. If you manage your own investments correctly this should be of little worry though if you are able to live off the possible dividend income generated or provided yourself with a big enough safety margin to weather a market correction with an all equity portfolio. Or it could be as simple as reducing expenses or doing side jobs to earn income to avoid depleting your investment portfolio during these periods.   

Indexer

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #4 on: January 04, 2015, 08:07:51 PM »
I currently have my Roth IRA and 401k Accounts investing in Vanguard Target Retirement Funds.

I'm curious to know if it makes more sense to switch them to a The Vanguard Total Stock Market Index Fund.

This would, I believe, bring me from 90% stock, 10% bond to 100% stock.

I'm 30, so short term risk shouldn't be an issue.

Also, would I end up incurring significant fees from making the change?

Any thoughts?

Thanks!

Well I personally wouldn't do 100% total stock just because that is 100% US.  Throw in some international. 

If you are ok with the ride you can go 100% stock, but go in expecting a 40% loss in a bad year.  When that year does happen, and remember you are 'expecting' it to happen like its no big deal that is when you need to keep on buying with a smile on your face because everything is on sale.  If that statement sounds normal you can do 100% stock.  If it sounds crazy you shouldn't be 100% stock.


As for costs it depends on where you hold the money.  Vanguard shouldn't charge you for trading between their own funds.  Other companies probably will. 

BarkyardBQ

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #5 on: January 07, 2015, 04:18:52 PM »
First year contributing to our IRA's, we contributed ~4500 to VTI to get lower expenses and increase stocks, then to ensure all 5500 was invested we bought the 2060 fund (least amount of bonds) with the rest. We will hold this until next year when we can go all in and rebalance to VTSAX.

We hold international stocks in a Vanguard taxable account, and split the rest of our AA between lower fund fees in each 457 plan (VTI/VBR @ TD, FSTVX/FSEVX @ Fidelity).

Eric

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #6 on: January 07, 2015, 05:32:49 PM »
Note that The Vanguard Total Stock Market Index Fund is not the same as the S&P 500 index.  Your thread title mentions the S&P but the body of the post talks about VTSMX, so just wanted to make sure you were clear.  The S&P 500 is only 500 stocks.  Generally they are the large companies, so this is referred to as a Large Cap fund (Large Capitalization).  The VTSMX has about 3300 3787 stocks, so you'll get small and mid cap exposure too.  It's weighted by cap size, so most of your money still ends up in those same 500 stocks as the S&P 500, but they're not the same holdings.


Edit -- I just guessed on the number of different domestic stock holdings initially, then my curiosity got the better of me
« Last Edit: January 07, 2015, 05:48:56 PM by Eric »

Dodge

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #7 on: January 10, 2015, 06:15:36 PM »
If you have a long time horizon and will absolutely not be requiring this money until retirement it is statistically proven that an all equity portfolio will have the highest returns.

This is incredibly dangerous advice.  You cannot statistically "prove" anything here, the future is unknown.  A newbie investor can read that and think it's a guarantee, when it most certainly is not.

wtjbatman

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #8 on: January 11, 2015, 09:04:37 AM »
If you have a long time horizon and will absolutely not be requiring this money until retirement it is statistically proven that an all equity portfolio will have the highest returns.

This is incredibly dangerous advice.  You cannot statistically "prove" anything here, the future is unknown.  A newbie investor can read that and think it's a guarantee, when it most certainly is not.

I don't think the advice itself is dangerous, what's dangerous is how the OP (or anyone reading it) reacts to it.

I always cringe when we respond to threads and the OP replies with something along the lines of "Ok, I'm adjusting my portfolio now." Yikes. I want people to read what we have to say, then do their own research before acting on it. Instead, I get the feeling there are people who post in this forum who act on our advice without actually understanding it.

Mr. Captain Cash

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Re: Vanguard Target Retirement Funds Vs General Index Fund of S&P 500
« Reply #9 on: February 02, 2015, 05:44:35 PM »
Dodge,

You are correct that you cannot statistically prove anything because the future is unknown.

I was biasing my opinion off past market performance I have seen and researched. This data is what influenced me to go 100% equities in my own investment portfolio. Being 25 my investment timeline is the next 50 to 70 years which another reason I decided to go 100% equities. There are also many other factors one would have to consider before jumping into 100% equity portfolio such as risk tolerance, and withdrawal rate, etc...

The thought that somebody would read that advice and immediately jump into 100% equities without conducting their own research did not cross my mind. As that would require an MMM face punch.