T Rowe Price Target Retirement Funds

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bogleenigma
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T Rowe Price Target Retirement Funds

Post by bogleenigma »

Ladies and Gents:

A few of my co-workers and I have been discussing retirement investing and as a devoted Boglehead I have extolled the virtues of indexing. I've given all the typical convincing arguments. I've suggested to them that rather than use the Target Date funds available in their 403b's they utilize the the respective index funds (despite being pricy for index funds) from TRP (PREIX, PEXMX, PIEQX, PBDIX). However one brought to my attention the simple performance of the T Rowe Price target retirement funds compared to the Vanguard Target Retirement Funds via Morningstar. It would seem reasonable to see that over a ten year period, overall, Vanguard funds would trump T Rowe Price funds, with the assumption that in certain time periods the T Rowe Price may significantly outperform the Vanguard funds. The expense ratio of 0.78% versus 0.25% would be reason enough. But this isn't the case. I've compared the funds for each year shown respectively and TRP seems to trump Vanguard. I've even looked at the issue of bond holdings, and tried to compare funds with comparable ratios of bond holdings rather than the simple Target Dates themselves and I get the same result. I am flummoxed. Please assist.
washjeff
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Re: T Rowe Price Target Retirement Funds

Post by washjeff »

My 30s kids asked for some help with rollover IRAs they had. They were looking for something they would not have to spend time worrying about, so I looked at target date funds. Looked to me like the TRP and Vanguard were the best. So, I put 50% with each to get a mix of active and passive management for an average ER of .48%. TRP has a more aggressive asset allocation and takes a tactical approach. I guess they have jsut had a long streak of being "right" in their decisions. As I suspect you also saw, they have consistently outperformed their category (+ 2.94% YTD, +1.88% 3YR, +1.85% 5YR, 1.79% 10YR).

Jeff in Tennessee
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ofcmetz
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Re: T Rowe Price Target Retirement Funds

Post by ofcmetz »

Perhaps the T. Rowe Price funds took more risk on both the bond and stock side than the Vanguard funds. Perhaps there was some manager luck and skill displaying itself in the active management of the underlying funds. This doesn't change the reasons I have for choosing index funds.

Just taking a quick look at both funds contents, it appears that the T. Rowe Price Funds have a value tilt. They also make use of an underlying 500 Index fund too. All in all, I don't think they are a bad choice if your index funds are high priced.

If I had the choice between the two, even knowing past results, I would choose the Vanguard funds as they contain three very broad index funds and win in fees. If I was in your plan, I would be fine using and encouraging my coworkers to use the T Rowe Price funds. Encouraging them to save more is probably more important.
Never underestimate the power of the force of low cost index funds.
pkcrafter
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Re: T Rowe Price Target Retirement Funds

Post by pkcrafter »

When analyzing funds you have to look at equivalent AAs and risk factors. In comparing TR 2045 funds, Morningstar (M*) shows a higher beta and higher standard deviation for the TRPrice fund, so it has more risk and would be expected to outperform in strong markets, and that's pretty much of what you are seeing when you compare the two funds. In 2008, TRP 2045 dropped more than the Vanguard fund as would be expected from the higher volatility.

TRP TR funds opened in 2005, Vanguard 2045 in 2003, so there is no 10 year results. In shorter term comparisons you have to be very careful of a few strong years influencing the five year results, and somethings even 10 year results. The last few years is where much of TRP 2045 outperformance comes from. But consider this, the M* benchmark, moderate target risk at 60% stock and 40% bonds--a very inappropriate benchmark-- outperformed both the TRP and Vanguard funds since 2005. So, you have 7 years where a fund with 60% stock has beaten funds with 90% stock. Over the last three years, the returns are reversed. This is why costs are a better predictor when you compare apples to apples than past performance.

I think the TRP retirement funds are among the best of the actively managed TR funds, but Vanguard is the clear choice when costs are considered.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
YDNAL
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Re: T Rowe Price Target Retirement Funds

Post by YDNAL »

mdpsychcrnp wrote:However one brought to my attention the simple performance of the T Rowe Price target retirement funds compared to the Vanguard Target Retirement Funds via Morningstar. It would seem reasonable to see that over a ten year period, overall, Vanguard funds would trump T Rowe Price funds, with the assumption that in certain time periods the T Rowe Price may significantly outperform the Vanguard funds. The expense ratio of 0.78% versus 0.25% would be reason enough. But this isn't the case. I've compared the funds for each year shown respectively and TRP seems to trump Vanguard. I've even looked at the issue of bond holdings, and tried to compare funds with comparable ratios of bond holdings rather than the simple Target Dates themselves and I get the same result. I am flummoxed. Please assist.
Active management can make adjustments in underlying Funds that may (may not) work - these adjustments often come with changes in risk levels. I ran TR 2030 from both companies and currently T.Rowe has 4% Cash and Vanguard has 1.8%. T.Rowe has 12.93% Bonds and Vanguard has 19.38%. Even then, I don't see any "trumping" except [perhaps] a 1.5% difference in the 1-year period. Lastly, when we do these comparisons, we should make sure to look at apples/apples.
Morningstar wrote:T. Rowe Price Retirement 2030 TRRCX -
Cash 4.07
US Stock 55.84
Non US Stock 26.31
Bond 12.93
Other 0.85

8.85% (10 years, 10/16/12)
1.59% (5 years)
10.24% (3 years)
16.48% (1 year)
-------------------------
Vanguard Target Retirement 2030 Inv VTHRX -
Cash 1.82
US Stock 54.49
Non US Stock 24.03
Bond 19.38
Other 0.28

N/A (10 years, 10/16/12)
1.12% (5 years)
9.37% (3 years)
14.95% (1 year)
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
KyleAAA
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Re: T Rowe Price Target Retirement Funds

Post by KyleAAA »

Sometimes active management DOES win. This shouldn't come as a surprise to us and it doesn't invalidate our approach.

That said, Vanguard for sure has changed the asset allocation of these funds several times since inception and they likely have different glide paths, so it's not really an apples-to-apples comparison.
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stevewolfe
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Re: T Rowe Price Target Retirement Funds

Post by stevewolfe »

T, Rowe Price's target retirement funds are GOOD funds. You can do a heck of a lot worse. If you prefer index funds, use Vanguard's target date funds. If you have T. Rowe Price funds available, use those. Mr. Bogle often quotes the 1.5% ER for the average active fund, these funds are 1/2 that. I don't see a big deal here frankly.
Topic Author
bogleenigma
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Re: T Rowe Price Target Retirement Funds

Post by bogleenigma »

stevewolfe wrote:T, Rowe Price's target retirement funds are GOOD funds. You can do a heck of a lot worse. If you prefer index funds, use Vanguard's target date funds. If you have T. Rowe Price funds available, use those. Mr. Bogle often quotes the 1.5% ER for the average active fund, these funds are 1/2 that. I don't see a big deal here frankly.
ofcmetz: Regarding having a choice. If Vanguard target date funds were available in our 403B's I would recommend them. But, for the moment, we're stuck with only TRP offerings.

Stevewolf,
Indeed, this does seem to be the case. For a company whose bread and butter is active management they really do seem to do a very good job. Very professional folks in person. I'll confess that if I had discovered TRP years ago prior to my experience with brokers and load funds (and the sharks at Northwestern Mutual and UBS Investments), I might never have went down the Boglehead path. But yes, I'll probably desist from recommending deviating from the TRP Target Date funds for my colleagues.

As it is I wince every two weeks when I see money pulled out of my paycheck to purchase the S&P 500 index fund with an ER of 0.30% to put into my 403B at TRP but, really, I have nothing to complain about, really, as I don't have an asset management fee. My wife's 403b and 457b each use the Vanguard S&P 500 Signal Shares at an ER at 0.05%, HOWEVER, ING charges her an asset management fee of 0.40%, which gives her an effective ER of 0.45%. In the scheme of things, however, even that is nothing to complain about. Many folks have some pretty awful 401k's. And thankfully we have more than enough assets at Vanguard to simply use the 403b's and 457b with S&P 500 index funds, the cheapest funds available for each of us.
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sometimesinvestor
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Re: T Rowe Price Target Retirement Funds

Post by sometimesinvestor »

An almost more interesting debate is the difference in glide paths. Is there a thread where this is discussed and conclusions reached? I sort of agree with the TRP path (its assumption is you will spend a long time in retirement so lots of stocks) but if you had owned the 2005 or 2010 fund in 2008 you would be pretty upset with TRP though I believe if you had held on things would have worked out I will note that in contrast to Fidelity TRP uses its best managers/funds in its target retirement funds and perhaps they are often capable of overcoming a difference in e.r. of less than 1% .Of course past performance ...
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