Three Fund Approach vs Vanguard Life Strategy Fund

[LFKB]

What (if any) are the advantages of the three fund approach vs a target life strategy fund? It seems like the three fund approach takes a bit more maintenance to ensure you are properly re-balancing while a target fund you can just buy and let tne fund do all the work. It looks like the expense ratios are comparable so just wanted to check what I may be missing before making a decision on which route to go.

Thanks

[KyleAAA]

Expense ratios are lower with the individual fund approach because you can take advantage of admiral shares once your portfolio is large enough. The target retirement funds and the Lifestrategy funds are different. Which in particular were you thinking of investing in? The Lifestrategy funds have a static asset allocation while the Target Retirement funds slowly become more conservative with time. Both have higher expenses than holding the individual admiral shares of the funds separately.

[umfundi]

I, for one, graduated this way:

1. Complex, high cost portfolio of 10+ funds. Too much work.

2. Three-fund portfolio. Discovered I was not paying attention to rebalancing, or to reinvesting dividends.

3. Life Strategy Moderate. Done.

For my kids' portfolios, still accumulating, I have them in Target 2060, or whatever the longest available target year is.

Keith

[dickenjb]

If all your assets are in taxable or tax deferred, a Life Strategy or Target Retirement fund is fine, albeit slightly higher expense than the three fund portfolio.

If, like most people, you have some assets in taxable and some in tax favored, you can realize tax efficiencies as well as lower expense ratios with the three fund portfolio.

This is all fully explained in the wiki.

[Taylor Larimore]

What (if any) are the advantages of the three fund approach vs a target life strategy fund?

The portfolios of both are nearly the same (over 10,000 individual securities).

The Three Fund Portfolio allows you to place tax-INefficient Total Bond Market in a tax-advantaged account and tax Efficient Total Stock Market and Total International in a taxable account for an overall tax-efficient portfolio.

For investors with a single IRA, I recommend the convenience of a Target Fund; otherwise the Three Fund Portfolio is usually superior.

Happy Holidays!
Taylor

[RYD]

Taylor

Curious why you chose Target rather than Life Strategy?

Thanks

John

[LFKB]

Expense ratios are lower with the individual fund approach because you can take advantage of admiral shares once your portfolio is large enough. The target retirement funds and the Lifestrategy funds are different. Which in particular were you thinking of investing in? The Lifestrategy funds have a static asset allocation while the Target Retirement funds slowly become more conservative with time. Both have higher expenses than holding the individual admiral shares of the funds separately.

Now that I know the difference I would be investing in a life strategy fund. Question on the admiral shares, I see that the minimum investment is $10,000 but what about after the initial purchase? Does each incremental investment have to be at least $10,000 or is it less? And how does the incremental investment size on a typical $3,000 minimum initial investment mutual fund?

[Taylor Larimore]

Taylor

Curious why you chose Target rather than Life Strategy?
Thanks
John

John:

The Opening Post specified a Target Fund.

Happy Holidays!
Taylor

[KyleAAA]

Now that I know the difference I would be investing in a life strategy fund. Question on the admiral shares, I see that the minimum investment is $10,000 but what about after the initial purchase? Does each incremental investment have to be at least $10,000 or is it less? And how does the incremental investment size on a typical $3,000 minimum initial investment mutual fund?

Subsequent investments, if made online, can be as little as $1 i.e. there is no minimum. And there's no need to come up with $10,000 per fund all at once. You can invest in the investor shares ($3,000 minimum) and when your balance reaches $10,000 you can convert it automatically to the admiral shares. This is a tax-free exchange.

[chaz]

When DW becomes a widow, I've told her to convert from my 3 fund IRA to a 1 fund IRA: the Target Retirement fund.