"Why Would an Experienced Investor Buy a Target-Date Fund?"
- Taylor Larimore
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"Why Would an Experienced Investor Buy a Target-Date Fund?"
Bogleheads:
Mike Piper, editor of the The Oblivious Investor ("oblivious" to the media), has written this very insightful article about the advantages of Target-Date funds:
Why Would an Experienced Investor Buy a Target-Date Fund?
Best wishes.
Taylor
Mike Piper, editor of the The Oblivious Investor ("oblivious" to the media), has written this very insightful article about the advantages of Target-Date funds:
Why Would an Experienced Investor Buy a Target-Date Fund?
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
The Target Date Funds (TDF) have a reputation for being investments for "beginners", "market-ignorant", etc, kinds of investors. I'm fine with that reputation, especially if it helps people who fit that description invest with more confidence. Still, the TDFs really are a wonderful foundation for virtually anyone. The TDF portfolio is very efficient, right at the edge of the efficient frontier (according to Personal Capital). TDFs, or the individual components of the TDF, make up over 80% of our entire portfolio. We are married to the Vanguard 2035 TDF glidepath, and that makes me very happy.
The biggest source of new money in our portfolio, the periodic 401k contributions and match, buy the TDF, so our new money is constantly helping us "rebalance along the way". By far the easiest way to achieve that effect is to simply buy the TDF with all new money. It would be much harder to do if we had to slice and dice our 401k new money.
The biggest source of new money in our portfolio, the periodic 401k contributions and match, buy the TDF, so our new money is constantly helping us "rebalance along the way". By far the easiest way to achieve that effect is to simply buy the TDF with all new money. It would be much harder to do if we had to slice and dice our 401k new money.
Even a stopped clock is right twice a day.
- Mel Lindauer
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Well done, Mike. Couldn't agree more with his reasoning. IMO, there's nothing "unsophisticated" about the low-cost Vanguard Target Retirement funds. They offer a nicely-diversified portfolio in a single fund that rebalances automatically and gets more conservative as the investor ages. Sounds like something an "experienced" and "sophisticated" investor would benefit from.Taylor Larimore wrote:Bogleheads:
Mike Piper, editor of the The Oblivious Investor ("oblivious" to the media), has written this very insightful article about the advantages of Target-Date funds:
Why Would an Experienced Investor Buy a Target-Date Fund?
Best wishes.
Taylor
And the Vanguard LifeStrategy series that Mike uses does basically the same thing, but with a static allocation.
You can't go wrong with either choice. And you'll have more time to get on with enjoying your life.
Best Regards - Mel |
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Semper Fi
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Unfortunately, this doesn't protect you from the fund provider tinkering with the allocation, and the fund providers are under pressure to make their allocations attractive to new investors. Even Vanguard, or should I say especially Vanguard, changes their target date funds far more often than I change my own.
At least when I make a change I know exactly why I did it.
At least when I make a change I know exactly why I did it.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I think most people should use target-date fund or balanced fund. The only draw back is that if you have only TDF, you have to put it in both ira and taxable account which is not tax efficient.
- Mel Lindauer
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Which changes that Vanguard made do you feel made the funds less diversified and therefore less desirable? IMO, the changes made the funds even MORE diversified and thus, even more desirable. Investors didn't have to do any "tweeking" around the edges as new funds, such as International Bonds and ST TIPS, became available.telemark wrote:Unfortunately, this doesn't protect you from the fund provider tinkering with the allocation, and the fund providers are under pressure to make their allocations attractive to new investors. Even Vanguard, or should I say especially Vanguard, changes their target date funds far more often than I change my own.
At least when I make a change I know exactly why I did it.
Best Regards - Mel |
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Semper Fi
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I think some of the moves to heavier international exposure have some people questioning that move.Mel Lindauer wrote:Which changes that Vanguard made do you feel made the funds less diversified and therefore less desirable? IMO, the changes made the funds even MORE diversified and thus, even more desirable. Investors didn't have to do any "tweeking" around the edges as new funds, such as International Bonds and ST TIPS, became available.telemark wrote:Unfortunately, this doesn't protect you from the fund provider tinkering with the allocation, and the fund providers are under pressure to make their allocations attractive to new investors. Even Vanguard, or should I say especially Vanguard, changes their target date funds far more often than I change my own.
At least when I make a change I know exactly why I did it.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I tend to think that only an experienced investor might buy a target date fund because there is too much hidden under the hood for these funds to be appropriate for an investor that is not knowledgeable of the implications and perhaps does not yet fully understand all the details.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I would use one in tax deferred if it were possible for them to also exist with munis for taxable.
Now if that ever changes, I will jump on it.
Now if that ever changes, I will jump on it.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
It isn't any particular change that bothers me, but the number and frequency taken in total. And I'm sure Vanguard sincerely believes they are all improvements, because you can make a convincing argument in favor of almost any change. But if the goal is to say the course without following the latest fashions in investing, these funds don't look like the best choice.Mel Lindauer wrote:Which changes that Vanguard made do you feel made the funds less diversified and therefore less desirable? IMO, the changes made the funds even MORE diversified and thus, even more desirable. Investors didn't have to do any "tweeking" around the edges as new funds, such as International Bonds and ST TIPS, became available.
I like the other reasons in the article, just not that one.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I too would jump for munis......do you have any influence with Vanguard ??columbia wrote:I would use one in tax deferred if it were possible for them to also exist with munis for taxable.
Now if that ever changes, I will jump on it.
1210
- Mel Lindauer
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Replacing the bond portion of each TR fund with munis could certainly be an attractive option for those investors who would prefer to hold TR funds in their taxable account and need the tax-efficiency that munis provide.1210sda wrote:I too would jump for munis......do you have any influence with Vanguard ??columbia wrote:I would use one in tax deferred if it were possible for them to also exist with munis for taxable.
Now if that ever changes, I will jump on it.
1210
I might run that up the flag to see what Vanguard thinks.
Best Regards - Mel |
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Semper Fi
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Yes, it is a reasonable proposal but certainly would be TR fund for the experienced investor and not for the novice, to address the question in the OP.Mel Lindauer wrote:Replacing the bond portion of each TR fund with munis could certainly be an attractive option for those investors who would prefer to hold TR funds in their taxable account and need the tax-efficiency that munis provide.1210sda wrote:I too would jump for munis......do you have any influence with Vanguard ??columbia wrote:I would use one in tax deferred if it were possible for them to also exist with munis for taxable.
Now if that ever changes, I will jump on it.
1210
I might run that up the flag to see what Vanguard thinks.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I don't use target date in taxable accts, but even if used in those, most investors would do far better than they would on their own.
Yeah, tweaking 3 and 4 fund portfolios might net you a little more, but you also might tweak at the wrong time. Or other issues.
I understand the popularity of 3 and 4 fund portfolios, but i bet in most cases, I would have been just fine putting all of my money in all accounts into LS moderate growth 60/40 from day 1 and forgetting about it until retirement.
Anyway, i use these funds in retirement accts and love them for their simplicity
Yeah, tweaking 3 and 4 fund portfolios might net you a little more, but you also might tweak at the wrong time. Or other issues.
I understand the popularity of 3 and 4 fund portfolios, but i bet in most cases, I would have been just fine putting all of my money in all accounts into LS moderate growth 60/40 from day 1 and forgetting about it until retirement.
Anyway, i use these funds in retirement accts and love them for their simplicity
- Taylor Larimore
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9 Reasons Why Experienced Investors Chose Target-Date Funds
For these reasons:"Why Would an Experienced Investor Buy a Target-Date Fund?"
* Experienced investors know what they don't know -- Vanguard Target-Date funds are designed and updated by a team of well-educated, well-trained and experienced Vanguard professionals.
* Experienced investors know that the stock/bond ratio is the major determinant of risk and return in a portfolio -- Vanguard's Target-Date funds have 12 stock/bond allocations to chose from.
* Experienced investors know that "low-cost" is the best predictor of future returns -- Vanguard Target-Date fund expense ratios are 74% less than their peer-group averages.*
* Experienced investors know that index funds, on average, outperform managed funds -- Vanguard Target Date Funds contain only index funds.
* Experienced investors know the importance of Diversification (lower risk). Vanguard Target Date Funds hold over 10,000 world-wide securities.
* Experienced investors know the importance of Rebalancing -- Vanguard Target-Date funds are automatically rebalanced.
* Experienced investors know the importance of Simplicity -- Vanguard Target-Date funds offer one-fund, maintenance-free simplicity for the fund owner, caregiver and heirs.
* Experienced investors know that portfolios should become more conservative with age -- Vanguard Target-Date funds automatically become more conservative with age.
* Vanguard Target-Date funds have Morningstar's highest GOLD rating.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Thanks Mel. That would be great.Mel Lindauer wrote:Replacing the bond portion of each TR fund with munis could certainly be an attractive option for those investors who would prefer to hold TR funds in their taxable account and need the tax-efficiency that munis provide.1210sda wrote:I too would jump for munis......do you have any influence with Vanguard ??columbia wrote:I would use one in tax deferred if it were possible for them to also exist with munis for taxable.
Now if that ever changes, I will jump on it.
1210
I might run that up the flag to see what Vanguard thinks.
I seem to recall that a balanced fund with a muni for the fixed income portion must have an AA that is at least 50% fixed income. I'm fine with that. Maybe Vanguard would offer a semi Moderate Growth Life Strategy fund with a 50% equity and 50% fixed with taxable bonds. That way, you could have a 50/50 AA in both taxable and tax advantaged accounts.
1210
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Some folks say if they make a change to their portfolio they know exactly why they did it. But, no matter your reasoning or research into a portfolio change, only in hindsight will you know if it was correct.
Vanguard puts reasoning and research into their TD fund changes and the same applies. It seems as though if Vanguard makes a change they're tinkering needlessly but if an individual here knows why they're tinkering then it's ok.
I'm guessing the folks at Vanguard who do the research for a living aren't making changes to these funds just for the hell of it or solely for marketing purposes. If they are they've got me fooled.
Vanguard puts reasoning and research into their TD fund changes and the same applies. It seems as though if Vanguard makes a change they're tinkering needlessly but if an individual here knows why they're tinkering then it's ok.
I'm guessing the folks at Vanguard who do the research for a living aren't making changes to these funds just for the hell of it or solely for marketing purposes. If they are they've got me fooled.
“If you think nobody cares if you're alive, try missing a couple of car payments.” – Earl Wilson
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Mike has written an excellent article, highlighting that the Target Funds are quite sophisticated tools, used by many investors. They are ideally suited to investors who prefer (or need) simplicity. As Mike says, they are well suited for those who:
a) want time savings
b) are math-averse
c) have a spouse who requires simplicity
d) are concerned about cognitive decline
e) have difficulty staying the course, and
f) have difficulty not tinkering
These are all legitimate reasons. Let me outline the reasons why Target Funds might not be suitable for some investors:
1) You qualify for lower cost Admiral funds and prefer to pay half what the Target fund owners pay.
2) You have a taxable account and will tax loss harvest when available.
3) You prefer an international ratio other than what the Target fund has.
4) You prefer to tilt to small caps or to value stocks.
5) You prefer to take risk in equities and stick to short-term and safe fixed income
6) You have a 401k plan at work and need to use your taxable account to complement the 401k plan.
7) You tax manage your taxable account.
8) You prefer to donate highly appreciated shares to charity (or a Donor Advised Fund).
9) You are better off with Muni funds in your taxable account.
Mike's article asks whether an experienced investor should use a Target Fund, and in my opinion the issue has nothing to do with experience. It has to do with the issues in both of the lists above.
Best wishes.
a) want time savings
b) are math-averse
c) have a spouse who requires simplicity
d) are concerned about cognitive decline
e) have difficulty staying the course, and
f) have difficulty not tinkering
These are all legitimate reasons. Let me outline the reasons why Target Funds might not be suitable for some investors:
1) You qualify for lower cost Admiral funds and prefer to pay half what the Target fund owners pay.
2) You have a taxable account and will tax loss harvest when available.
3) You prefer an international ratio other than what the Target fund has.
4) You prefer to tilt to small caps or to value stocks.
5) You prefer to take risk in equities and stick to short-term and safe fixed income
6) You have a 401k plan at work and need to use your taxable account to complement the 401k plan.
7) You tax manage your taxable account.
8) You prefer to donate highly appreciated shares to charity (or a Donor Advised Fund).
9) You are better off with Muni funds in your taxable account.
Mike's article asks whether an experienced investor should use a Target Fund, and in my opinion the issue has nothing to do with experience. It has to do with the issues in both of the lists above.
Best wishes.
Andy
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Hi:
Here is the chapter and verse (perhaps this wiki page should be a sticky, considering the multitude of times the desire for balanced funds using municipal bonds as the bond component comes up in discussions):
Municipal bond fund regulation - Bogleheads
Here is the chapter and verse (perhaps this wiki page should be a sticky, considering the multitude of times the desire for balanced funds using municipal bonds as the bond component comes up in discussions):
Municipal bond fund regulation - Bogleheads
regards,According to the Tax Reform Act of 1976 a fund must hold a minimum of 50% tax exempt bonds in order to qualify to pass tax exempt income to its shareholders.
Section 2137(c) of the Tax Reform Act of 1976, I.R.C. § 852(b)(5), provides in pertinent part: "If, at the close of each quarter of its taxable year, at least 50 percent of the value... of the total assets of the regulated investment company consists of [state and local government] obligations . . . such company shall be qualified to pay exempt-interest dividend . . . to its shareholders." The section provides further that an exempt-interest dividend "shall be treated by shareholders. . . as an item of interest excludable from gross income." [note 1]
In late 1976 mutual fund companies introduced funds investing in municipal bonds. [1]
A balanced fund holding municipal bonds can hold a maximum of 50% stocks, and still qualify for the pass-through of tax exempt interest. These regulations account for the allocation policy of the Vanguard Tax-Managed balanced fund, which has a policy of maintaining a 50/50 target asset allocation between stocks and municipal bonds. [note 2]
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Thank you for sharing the article, Taylor!
Well said.Wagnerjb wrote:Mike's article asks whether an experienced investor should use a Target Fund, and in my opinion the issue has nothing to do with experience. It has to do with the issues in both of the lists above.
Mike Piper |
Roth is a name, not an acronym. If you type ROTH, you're just yelling about retirement accounts.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Great post. I would add a very simple point to your 2nd list though...Wagnerjb wrote:Mike's article asks whether an experienced investor should use a Target Fund, and in my opinion the issue has nothing to do with experience. It has to do with the issues in both of the lists above.
10) You have severe doubts (or complete disbelief) about using a glide path towards more bonds over time - hence don't quite see the point of a target-date fund as opposed to a never-changing AA.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
There's more than a few guys I work with that opt into the Voya "advisor service" through the 401k/457. We were bombarded with e-mails, letters, free lunches on site... all to get people to sign up for this.
They charge an additional yearly fee to essentially recreate the available Target fund. The target fund has an ER of only .16%.
I have tried to explain this to people and have been dismissed - I'm clearly not qualified to make suggestions...
Mike
They charge an additional yearly fee to essentially recreate the available Target fund. The target fund has an ER of only .16%.
I have tried to explain this to people and have been dismissed - I'm clearly not qualified to make suggestions...
Mike
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
No, the TDF is not suitable for a taxable investment account when you're accumulating investments but it's a legitimate option if you intend on living off of the interest. We buy the equity component allocations, and have an offsetting bond allocation in our 401ks. We could eventually buy muni bonds as part of our overall bond allocation if we want to in our taxable account. Putting munis in the TDF would not be a good idea since the TDFs are so common in 401ks and IRAs.
Even a stopped clock is right twice a day.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Mel, you're putting words in telemark's mouth. He didn't say the changes made the funds less diversified. He just said the funds change their allocation more often than he would. And you're making an assumption that more diversification makes a fund more desirable, which isn't necessarily so. For instance consider the current allocation of the Vanguard Target Retirement 2015 Fund (VTXVX):Mel Lindauer in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2487543#p2487543]this post[/url] wrote:Which changes that Vanguard made do you feel made the funds less diversified and therefore less desirable? IMO, the changes made the funds even MORE diversified and thus, even more desirable. Investors didn't have to do any "tweeking" around the edges as new funds, such as International Bonds and ST TIPS, became available.telemark wrote:Unfortunately, this doesn't protect you from the fund provider tinkering with the allocation, ... Even Vanguard ... changes their target date funds far more often than I change my own.
Code: Select all
1 Vanguard Total STOCK Market Index Fund Investor Shares 34.9%
2 Vanguard Total BOND Market II Index Fund Investor Shares 31.4%
3 Vanguard Total International STOCK Index Fund Investor Shares 15.3%
4 Vanguard Total International BOND Index Fund Investor Shares 10.4% <-- added
5 Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 8.0% <-- added
Total 100.0%
- VTIBX, the international bond fund, has only a 0.81% SEC yield -- quite small given its 7.4 duration.
- I believe VTIPX, with a 2.4 duration, was a replacement for Vanguard's original TIPS fund: Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX) which has an 8.1 duration. In my opinion the replacement was ill-advised. If anything the duration of a TIPS fund -- because it eliminates inflation risk -- should be longer than that of a nominal bond fund. The 2015 Target date fund holds two nominal bond funds with durations of 5.6 (Vanguard Total Bond Market Index Fund Investor Shares (VBMFX) and 7.4 (VTIBX). Given this, to replace a TIPS fund with a duration of 8.1 (VIPSX) with one having only a 2.4 duration (VTIPX) makes no sense in a fund intended to be held for the remainder of one's life after one retires.
Last edited by #Cruncher on Mon May 11, 2015 11:31 pm, edited 1 time in total.
Re: 9 Reasons Why Experienced Investors Chose Target-Date Funds
Taylor, I believe the issue the article discusses is why it might be good for even an experienced investor to purchase a target date (or balanced) fund instead of purchasing individual index funds. But many of your points, as I mention above, address some other issue.Taylor Larimore in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2487802#p2487802]this post[/url] wrote:"Why Would an Experienced Investor Buy a Target-Date Fund?" For these reasons:
- Experienced investors know what they don't know -- Vanguard Target-Date funds are designed and updated by a team of well-educated, well-trained and experienced Vanguard professionals. An experienced investor is more likely to know the best allocation for him than a stranger, no matter how well educated and trained.
- Experienced investors know that the stock/bond ratio is the major determinant of risk and return in a portfolio -- Vanguard's Target-Date funds have 12 stock/bond allocations to chose from. True, but if he's smart enough to pick the target date fund with the best allocation for him, an investor is probably smart enough to determine and purchase, in the corresponding amounts, the individual funds that comprise it.
- Experienced investors know that "low-cost" is the best predictor of future returns -- Vanguard Target-Date fund expense ratios are 74% less than their peer-group averages. True, but the issue isn't about Vanguard target date funds vs other companies' higher cost target date funds. It's about Vanguard Target-Date funds vs individual Vanguard funds. And the fees on Vanguard target date funds are higher than the fees on the admiral class of the individual Vanguard funds they consist of.
- Experienced investors know that index funds, on average, outperform managed funds -- Vanguard Target Date Funds contain only index funds. True, but the issue isn't index funds vs managed funds.
- Experienced investors know the importance of Diversification (lower risk). Vanguard Target Date Funds hold over 10,000 world-wide securities. True, but diversification isn't the issue.
- Experienced investors know the importance of Rebalancing -- Vanguard Target-Date funds are automatically rebalanced. True, but this isn't the issue. No one denies that a portfolio of individual stock and bond funds should be manually re-balanced.
- Experienced investors know the importance of Simplicity -- Vanguard Target-Date funds offer one-fund, maintenance-free simplicity for the fund owner, caregiver and heirs. True. This is the only good argument, in my opinion.
- Experienced investors know that portfolios should become more conservative with age -- Vanguard Target-Date funds automatically become more conservative with age. If an investor can re-balance manually to a fixed allocation once or twice a year, he can certainly re-balance to a new, more conservative, allocation every five or ten years. Furthermore, as I understand it, each of the Vanguard target date funds gradually changes to a more conservative allocation until seven years after the fund's date, when it merges with the unnumbered Vanguard Target Retirement Income Fund (VTINX). (E.g., the 2015 fund will merge in 2022.) After that the allocation remains constant. But, assuming retirement at age 65, many experienced investors would not want their allocation to remain constant after age 72.
- Vanguard Target-Date funds have Morningstar's highest GOLD rating. Presumably Morningstar is comparing Vanguard target date funds against other companies' target date funds. But that isn't the issue. See reply to # 3 above.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Isn't that essentially Vanguard's Tax Managed Balanced Fund?Mel Lindauer wrote:Replacing the bond portion of each TR fund with munis could certainly be an attractive option for those investors who would prefer to hold TR funds in their taxable account and need the tax-efficiency that munis provide.1210sda wrote:I too would jump for munis......do you have any influence with Vanguard ??columbia wrote:I would use one in tax deferred if it were possible for them to also exist with munis for taxable.
Now if that ever changes, I will jump on it.
1210
I might run that up the flag to see what Vanguard thinks.
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Excellent article. I have family that has moved from individual funds to Target funds and are very happy. The older I get, the more I appreciate these funds.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I like the idea of these managed funds that do the rebalancing for me. I've thought about moving my funds, but that would mean I'd have to pull money from both taxable and tax deferred accounts and as well, out of my TSP. Maybe that's not a big deal or I just need to consider all the implications.
BFG
BFG
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I don't believe the fund you mentioned has "international" and is not a passive fund. Or am I wrong??Eric76 wrote:Isn't that essentially Vanguard's Tax Managed Balanced Fund?Mel Lindauer wrote:Replacing the bond portion of each TR fund with munis could certainly be an attractive option for those investors who would prefer to hold TR funds in their taxable account and need the tax-efficiency that munis provide.1210sda wrote:I too would jump for munis......do you have any influence with Vanguard ??columbia wrote:I would use one in tax deferred if it were possible for them to also exist with munis for taxable.
Now if that ever changes, I will jump on it.
1210
I might run that up the flag to see what Vanguard thinks.
1210
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
If all Americans were financially literate, then TDFs really should appeal to the vast majority of them. They’re simple, rebalance/professionally managed, cheap, no/low maintenance, and tax efficient (obviously primarily in tax-deferred accounts). We recently helped our college-aged daughter start one with Vanguard a couple of years ago - she has little, if any, interest in personal finance/investing issues. I think the main folks who really don’t like them are do-it-yourselfers who aren't yet ready to turn over management to someone else (for their spouse's benefit when they're gone, etc.), as well as many financial planners/advisors who would then have to work to find other ways to add value for a client (ways which do exist, but aren't marketed much). They're certainly good for both experienced and inexperienced investors, especially if investing isn't a hobby or you have many other interests that you want to devote your time and attention to.
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
New does not always mean better. The track record of the funds and the securities they hold is not as long as say the more plain-vanilla securities we all know as the domestic market and developed Western European markets. Although not completely an apples to apples comparison, it wasn't too long ago that new fangled financial instruments such as derivatives came "this close" to taking down the entire financial system. The point is, "new" does not mean it will be beneficial for the end-user.Mel Lindauer wrote:Which changes that Vanguard made do you feel made the funds less diversified and therefore less desirable? IMO, the changes made the funds even MORE diversified and thus, even more desirable. Investors didn't have to do any "tweeking" around the edges as new funds, such as International Bonds and ST TIPS, became available.telemark wrote:Unfortunately, this doesn't protect you from the fund provider tinkering with the allocation, and the fund providers are under pressure to make their allocations attractive to new investors. Even Vanguard, or should I say especially Vanguard, changes their target date funds far more often than I change my own.
At least when I make a change I know exactly why I did it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I pay 7 basis points for a Vanguard TDF as my sole holding in my 401k. My desire to tweak the TDF AA a little here and a little there is exactly why I chose to cut myself out of the decision making process. The cost is low and the behavioral barrier to tinkering is worth something me.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
It isn't any particular change that bothers me, but the number and frequency taken in total. And I'm sure Vanguard sincerely believes they are all improvements, because you can make a convincing argument in favor of almost any change. But if the goal is to say the course without following the latest fashions in investing, these funds don't look like the best choice.
+1
Even Mike Piper who put his assets in a Life Strategy Fund was frustrated by Vanguard tinkering with Life Strategy and Target Date Funds. He didn't necessarily object to the changes but to not leaving the funds alone.
All active managers have rational reasons for their selections if you listen to them you almost feel like they know what is best - Vanguard research/analyst staff are no better than active funds. If VG decides to add more international equities in my TIRA Target Date fund does that mean I need to sell some of it in my taxable account to maintain the allocation I desire?
So is the Boglehead message stay the course except if Vanguard changes it for you? They are decent products but you really don't know what you are buying. I think there is some loss of objectivity when it comes to Vanguard. They are a great company but not everything they do is great.
+1
Even Mike Piper who put his assets in a Life Strategy Fund was frustrated by Vanguard tinkering with Life Strategy and Target Date Funds. He didn't necessarily object to the changes but to not leaving the funds alone.
All active managers have rational reasons for their selections if you listen to them you almost feel like they know what is best - Vanguard research/analyst staff are no better than active funds. If VG decides to add more international equities in my TIRA Target Date fund does that mean I need to sell some of it in my taxable account to maintain the allocation I desire?
So is the Boglehead message stay the course except if Vanguard changes it for you? They are decent products but you really don't know what you are buying. I think there is some loss of objectivity when it comes to Vanguard. They are a great company but not everything they do is great.
Re: 9 Reasons Why Experienced Investors Chose Target-Date Funds
This ^^^^. How does one handle the end game? This is what I am currently struggling with. Besides having TIPs, our 401k, IRA and 457B are all in Target Retirement 2020. Our AA will be 60/40 from now until the forseeable future. As the glide path gets more conservative as #Cruncher noted, how should one rebalance (esp. if all the re-balancing is done on the tax-deferred side)? Should one start busting these out into their individual components by buying/selling? Should one take the year-end dividends and buy the required core funds or more aggressive Target Date Funds to re-balance?#Cruncher wrote:Taylor Larimore in [url=https://www.bogleheads.org/forum/viewtopic.php?p=2487802#p2487802]this post[/url] wrote:"Why Would an Experienced Investor Buy a Target-Date Fund?" For these reasons:
- Experienced investors know that portfolios should become more conservative with age -- Vanguard Target-Date funds automatically become more conservative with age. If an investor can re-balance manually to a fixed allocation once or twice a year, he can certainly re-balance to a new, more conservative, allocation every five or ten years. Furthermore, as I understand it, each of the Vanguard target date funds gradually changes to a more conservative allocation until seven years after the fund's date, when it merges with the unnumbered Vanguard Target Retirement Income Fund (VTINX). (E.g., the 2015 fund will merge in 2022.) After that the allocation remains constant. But, assuming retirement at age 65, many experienced investors would not want their allocation to remain constant after age 72.
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Re: 9 Reasons Why Experienced Investors Chose Target-Date Funds
As soon as I had an appreciable amount in a taxable account I dumped my balanced funds (Wellesley and Wellington) and bought TSM and TBM so I could control placement of stocks and bonds, taxable vs traditional IRA vs Roth IRA.fourniks wrote:As the glide path gets more conservative as #Cruncher noted, how should one rebalance (esp. if all the re-balancing is done on the tax-deferred side)? Should one start busting these out into their individual components by buying/selling? Should one take the year-end dividends and buy the required core funds or more aggressive Target Date Funds to re-balance?
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
I wonder what percentage of 401k investors just "get assigned" a TDF as the default and just leave it at that. I don't have good data to back this up, but I suspect there are many TDFs that are captive to 401k plans, and which have excessive ERs (often above 1%). There are tons of target date funds, and many of them are awful, with little to no option to change it if captive to a retirement plan.
I just did a search for traded mutual funds with the word "target" in the name, and there are nearly 500 of them. That doesn't count the hundreds of "target date" style of funds that don't have the word "target" in the name. All that to cover maybe ten 5-year increments from 2015!
When I search for 2020 or 2030 in fund names, I get about 250 funds each (that includes multiple share classes for a given fund, so some of these have a load).
Why does the world need so many of these? It doesn't. Many of them might be sustained off the investments of captive employees in a retirement plan. Without that, they'd be closed.
I just did a search for traded mutual funds with the word "target" in the name, and there are nearly 500 of them. That doesn't count the hundreds of "target date" style of funds that don't have the word "target" in the name. All that to cover maybe ten 5-year increments from 2015!
When I search for 2020 or 2030 in fund names, I get about 250 funds each (that includes multiple share classes for a given fund, so some of these have a load).
Why does the world need so many of these? It doesn't. Many of them might be sustained off the investments of captive employees in a retirement plan. Without that, they'd be closed.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
If I did not have taxable and had VG Target Date funds in my 401k, that's where I'd be.
My advice to folks sans a 401k or a 401k with Vanguard TD funds is to pick your year, dump all your allocation into that year, and let's talk again when you have maxed out on and are ready to move beyond tax deferred/advantaged accounts.
The VG, fido (index) freedom, black rock (index) life path, and a few others are probably better for the average investor than about %99.9999 of the other possible outcomes.
We (bogleheads) collectively and individually tend to over complicate this, err, stuff far more than it needs to be.
My advice to folks sans a 401k or a 401k with Vanguard TD funds is to pick your year, dump all your allocation into that year, and let's talk again when you have maxed out on and are ready to move beyond tax deferred/advantaged accounts.
The VG, fido (index) freedom, black rock (index) life path, and a few others are probably better for the average investor than about %99.9999 of the other possible outcomes.
We (bogleheads) collectively and individually tend to over complicate this, err, stuff far more than it needs to be.
Re: 9 Reasons Why Experienced Investors Chose Target-Date Funds
How about this one?#Cruncher wrote:Taylor, I believe the issue the article discusses is why it might be good for even an experienced investor to purchase a target date (or balanced) fund instead of purchasing individual index funds. But many of your points, as I mention above, address some other issue.
Some experienced investors don't have the money in each account to meet each individual funds' minimum in the allocation they desire. If you want to do a 3 fund portfolio with 10% allocation in one of the funds, you'll need a total of $30,000 in the account. There's a difference between having $30,000 total vs. $30,000 in a single account such as an IRA account where you can only contribute $5500 a year.
Re: "Why Would an Experienced Investor Buy a Target-Date Fund?"
Why wouldn't I want to buy a Target-Date Fund?
1. I know my personal situation better than anyone else.
2. I only own Admiral shares when available and the ERs are lower.
3. I don't necessarily want to change my AA to more bonds as I age.
4. I am concerned that rebalancing frequently may be less tax efficient.
Frankly #2 alone is enough to make me not look twice at these type of funds.
1. I know my personal situation better than anyone else.
2. I only own Admiral shares when available and the ERs are lower.
3. I don't necessarily want to change my AA to more bonds as I age.
4. I am concerned that rebalancing frequently may be less tax efficient.
Frankly #2 alone is enough to make me not look twice at these type of funds.