Why I will use Target Retirement for the foreseeable future.

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assumer
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Why I will use Target Retirement for the foreseeable future.

Post by assumer »

Rebalancing a three-fund portfolio, trying to add in a small piece of international bonds, etc., through Vanguard funds seems like a reasonable thing to do. But my time is valuable. I am going to consolidate everything into VFIFX (Target Retirement 2050). I will have a 1-fund portfolio.

Yes, costs matter. But so does my time and simplicity. How much am I losing to costs?

According to Vanguard's Cost Calculator, the difference between a 0.18% ER (VFIFX) and 0.10% ER (approximate ER of admiral shares 3-fund) is a difference of $28 / year extra in retirement for every $50,000 invested. That's right. $28 / year. For me, I'm going to pour every cent I have into VFIFX and enjoy my time.

Oh and I may reconsider when I start getting taxable accounts, but even then I'm not sure. See some of the recent threads' debates about stocks vs. bonds in taxable, and it may be close to a wash.

For short term savings (e.g. house down payment) I might also keep it ultra simple and use their lifestrategy 20/80 stock/bond fund.

Thoughts?
Last edited by assumer on Wed Nov 20, 2013 11:55 am, edited 1 time in total.
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englishgirl
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Re: Why I will use Target Retirement for the foreseeable fut

Post by englishgirl »

You know, I have had the same thoughts myself lately.

I rebalanced the other week, out of Total International, which has been doing really well, and into TIPs, which hasn't. And I hated it. I had put it off for a while, and still didn't even rebalance the whole amount that I should have done to bring my percentages completely into line with my desired AA. I hated taking money out of something that's going up and putting it into something that's going down. I know logically that it is the right thing, but emotionally it was hard for me to do. I also keep questioning if I should have TIPs at all, which I know is recency bias just because it hasn't done well lately. I'd like to stop worrying!

I have Balanced Index in my 401k, and I really like that it rebalances itself without me thinking about it, or having to take any action. It just does its thing, and I don't have to think about it. So then I think about how nice and simple it would be to have either a Target Retirement fund or a Lifestrategy fund in my IRA. And to just let it be. My ER would be slightly higher than holding Admiral shares of the individual funds, but as you point out, it's not much difference.

There is much to be said for simplicity.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Twins Fan »

I like it! Nice and simple, has everything you need, and too easy. I agree that the small difference in cost is not worth giving any more thought than you already have... that's peanuts.

I don't understand the short term savings thing though. Where would you hold that other than a taxable account? And, you say you don't have taxable accounts yet. Can you clarify?
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matjen
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Re: Why I will use Target Retirement for the foreseeable fut

Post by matjen »

I would just use their LifeStrategy funds. Though I think the most aggressive is 80/20 so perhaps wait a few years...

The advantage is that those funds don't change their holdings and percentages like the Retirement Date ones do. Not a huge deal but if I had to choose that is the route I would go.
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bogleblitz
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Re: Why I will use Target Retirement for the foreseeable fut

Post by bogleblitz »

I also use Target Retirement but not because of the ER cost. It is mostly preventing me from doing stupid things like putting more into stocks or bonds than needed.

I'm only about 50% target retirement in my 401k/IRA/Roth. The reason is taxable account. We should not buy Target retirement or Life Cycle funds in taxable account.

My taxable account (short term and long term money) is all stocks (US and International). No bonds at all. I use an excel spreadsheet to find the right Asset Allocation I need to buy in taxable and 401k/IRA/Roth accounts.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Nummerkins »

I am on the same path. My wife's 401(k) has exactly one fund that contributions go into. I am hoping to be at the same place by the end of the year, except for a few older individual stock/REIT picks. I have no desire to get into the minutiae of reallocating here and there. I used to spend hours crafting the 100% perfect portfolio, but now I realize that with these funds 99% of the work is done for me. My investments will sit and do what they do over a long period of time. Meanwhile, I allocate my 'financial' time into churning credit card offers and getting free money from banks to spend on my hobbies and wife.
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assumer
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Re: Why I will use Target Retirement for the foreseeable fut

Post by assumer »

Twins Fan wrote:I don't understand the short term savings thing though. Where would you hold that other than a taxable account? And, you say you don't have taxable accounts yet. Can you clarify?
I have very minimal taxable savings yet as I am just about to embark on my first job out of graduate school next year.

The choices for me are a bank savings account (with a paltry <1% return) or a Vanguard brokerage account with a majority invested in bonds.

I don't mind paying capital gains when I take the money out for a down payment, as I'd have to pay income tax on any return in a savings account or CD anyway.

Was that what you were asking?
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Re: Why I will use Target Retirement for the foreseeable fut

Post by jimkinny »

I was thinking of doing the same but now, maybe not.


My reason is risk control in extreme situations. If I had a 50/50 equity/bond balanced fund, would I really want that fund to re-balance automatically with some unknown frequency, under all conditions?

I am no expert, but because of my age of 65 and interest, I have learned quite a bit about the Great Depression. Stocks lost about 90% of their value over 3 years. At my age, would I want to re-balance every day, every week or whatever is done as stocks went down, for THREE years.

A 50/50 fund would lose a tremendous % under those conditions, throwing good money after bad. I do not know if we collectively have the knowledge and/or the political will to prevent a repeat of those years. I think we are foolish if we pretend politics can not profoundly effect our economy.

I also have come to believe that although re-balancing is worthwhile, that it is not all that I once thought it to be. I have gone from that 5% band stuff (waste of time, IMO) to once a year but likely will just go to once every 2-3 years or so, selling equity but not buying equity at a set % level, when stocks decrease. My age probably affects my thoughts on this.

I really like the all in one fund approach otherwise.

jim
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assumer
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Re: Why I will use Target Retirement for the foreseeable fut

Post by assumer »

jimkinny wrote:I am no expert, but because of my age of 65 and interest, I have learned quite a bit about the Great Depression. Stocks lost about 90% of their value over 3 years. At my age, would I want to re-balance every day, every week or whatever is done as stocks went down, for THREE years.

A 50/50 fund would lose a tremendous % under those conditions, throwing good money after bad. I do not know if we collectively have the knowledge and/or the political will to prevent a repeat of those years. I think we are foolish if we pretend politics can not profoundly effect our economy.
I don't understand, though. That seems to do with your % on stocks. Are you saying you wouldn't stay the course and keep your asset allocation if stocks dropped? Doesn't that imply that your AA is too heavy in stocks?

All a target retirement or lifestrategy fund does is stay the course for you, for a small fee.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by bigfun »

I'm with you - except I just found out my husband's Fidelity 403b has spartan funds available, and those are much less expensive than Fidelity's TR funds. Once we get organized next year we will switch out of his TR fund and probably go to a 3 fund portfolio.

If you can have all your assets at Vanguard, then I say why not?
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Twins Fan »

assumer wrote:
Twins Fan wrote:I don't understand the short term savings thing though. Where would you hold that other than a taxable account? And, you say you don't have taxable accounts yet. Can you clarify?
I have very minimal taxable savings yet as I am just about to embark on my first job out of graduate school next year.

The choices for me are a bank savings account (with a paltry <1% return) or a Vanguard brokerage account with a majority invested in bonds.

I don't mind paying capital gains when I take the money out for a down payment, as I'd have to pay income tax on any return in a savings account or CD anyway.

Was that what you were asking?
Yes, that was what I was asking... and gotcha. I didn't know the background.
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assumer
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Re: Why I will use Target Retirement for the foreseeable fut

Post by assumer »

bigfun wrote:I'm with you - except I just found out my husband's Fidelity 403b has spartan funds available, and those are much less expensive than Fidelity's TR funds. Once we get organized next year we will switch out of his TR fund and probably go to a 3 fund portfolio.

If you can have all your assets at Vanguard, then I say why not?
Why not buy the vamguard target fund in fidelity? Can you do that?
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Re: Why I will use Target Retirement for the foreseeable fut

Post by nordlead »

assumer wrote:
jimkinny wrote:I am no expert, but because of my age of 65 and interest, I have learned quite a bit about the Great Depression. Stocks lost about 90% of their value over 3 years. At my age, would I want to re-balance every day, every week or whatever is done as stocks went down, for THREE years.

A 50/50 fund would lose a tremendous % under those conditions, throwing good money after bad. I do not know if we collectively have the knowledge and/or the political will to prevent a repeat of those years. I think we are foolish if we pretend politics can not profoundly effect our economy.
I don't understand, though. That seems to do with your % on stocks. Are you saying you wouldn't stay the course and keep your asset allocation if stocks dropped? Doesn't that imply that your AA is too heavy in stocks?

All a target retirement or lifestrategy fund does is stay the course for you, for a small fee.
Staying the course means following your IPS, not keeping to some AA down to the minute/1%. If your IPS says to rebalance every 2-3 years, then stay the course, follow your plan and rebalance every 2-3 years. Don't panic and start throwing money around, but stay the course that you hopefully created with a sound mind.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by rkhusky »

assumer wrote:
jimkinny wrote:I am no expert, but because of my age of 65 and interest, I have learned quite a bit about the Great Depression. Stocks lost about 90% of their value over 3 years. At my age, would I want to re-balance every day, every week or whatever is done as stocks went down, for THREE years.

A 50/50 fund would lose a tremendous % under those conditions, throwing good money after bad. I do not know if we collectively have the knowledge and/or the political will to prevent a repeat of those years. I think we are foolish if we pretend politics can not profoundly effect our economy.
I don't understand, though. That seems to do with your % on stocks. Are you saying you wouldn't stay the course and keep your asset allocation if stocks dropped? Doesn't that imply that your AA is too heavy in stocks?

All a target retirement or lifestrategy fund does is stay the course for you, for a small fee.
There is a school of thought that says to rebalance out of stocks, but not into stocks. The fear is a long term downturn in stocks that never recovers. Japan is often mentioned.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Jay69 »

I thought about this when the lifestrategy funds came out I think last year, that's the fund I would choose for myself at this time.

But.......I have not looked at any tax numbers and would really like to add some context to it, as an example for a working couple in the 15% bracket with $500,000 in taxable and $500,000 in taxed advantaged what would be tax bill difference for a 40/60 bond/equities mix. Then look at the same numbers at the time of FI with a some SS tossed in.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by LAlearning »

I agree. The Vanguard TR/LS Funds make complete and utter sense to me and if asked, is what I recommend to everyone.

I had a post somewhere and came to the same conclusion as Assumer. The cost savings didn't make sense for the time involved and having to deal with (my) behavioral side.

Put it in, walk away, and get on with life. My retired self will thank me one day.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by abuss368 »

You may be able to do a little better but you could definately do a lot worse!
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Blues »

I think it's a fine idea. We have consolidated our Vanguard holdings to a TR fund for all of our retirement accounts.

We still hold Total Stock and the FTSE funds in taxable...as well as a retirement account in the TSP's "G Fund".

Auto-pilot is a good thing imho to the extent it can be employed in a reasonable and judicious manner.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by xyz12 »

I considered doing the same thing quite awhile back when I initially ramped up my investments, but decided not too for a few reasons -- mostly ease of rebalancing and taking advantage of tax loss harvesting opportunities in my taxable.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by columbia »

Given the zero hassle and minor extra expense, I feel like the LS/TR accounts are the perfect option for newer investors in their IRA.
Also, even if one has equities in taxable accounts, you can easily shift to a fund with higher exposure to bonds on the tax advantaged side, to keep your AA.

Additionally, the set it and forget it aspect can encourage habits of *not* tinkering, if one decides to break it out into a 3-fund portfolio later.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by LAlearning »

xyz12 wrote:I considered doing the same thing quite awhile back when I initially ramped up my investments, but decided not too for a few reasons -- mostly ease of rebalancing and taking advantage of tax loss harvesting opportunities in my taxable.
These funds are not meant for taxable for the majority of investors.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by LarryG »

I have transferred my IRA to Vanguard Target Retirement Income Fund for another reason. I had a relatively simple portfolio of index funds, but when I saw a neighbor having problems with the mix of the stocks and funds her husband left to her, I decided to simplify even more. My wife agreed that this would be a good plan.
The cost is slightly more, but as was pointed out, this is not significant.
My taxable portfolio consists of a municipal bond fund and some I bonds.

LarryG
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Re: Why I will use Target Retirement for the foreseeable fut

Post by jimkinny »

rkhusky wrote:
There is a school of thought that says to rebalance out of stocks, but not into stocks. The fear is a long term downturn in stocks that never recovers. Japan is often mentioned.
Yesterday dbr in another thread wrote of this: selling equity, not buying. I think this may work well for me.

Larry Swedroe advises to have a plan B, in case plan A does not work. He also articulated the idea of taking the risk that one has the ability, need and willingness to take (at least, I first read about it in his books).

We will not know ahead of time when a crisis is going to appear and we will not know ahead of time how that crisis will resolve itself. Perhaps 2007/2008 could have gone another way, if certain steps were not taken. We will never know.

So, if equities drop by 20% in 3 months, there may or may not be another 50-70% drop ahead. To keep putting money into equities is not a good plan for me at age 65 and thus some fund that will do that automatically for me at 3 months, 6 months, 7 months ....etc is too risky, for me.

I think my IPS might go something like this: if my equity allocation drops by "whatever %", do nothing for 2-3 years and only then consider buying equities.

jim
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LH
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Re: Why I will use Target Retirement for the foreseeable fut

Post by LH »

rkhusky wrote:
assumer wrote:
jimkinny wrote:I am no expert, but because of my age of 65 and interest, I have learned quite a bit about the Great Depression. Stocks lost about 90% of their value over 3 years. At my age, would I want to re-balance every day, every week or whatever is done as stocks went down, for THREE years.

A 50/50 fund would lose a tremendous % under those conditions, throwing good money after bad. I do not know if we collectively have the knowledge and/or the political will to prevent a repeat of those years. I think we are foolish if we pretend politics can not profoundly effect our economy.
I don't understand, though. That seems to do with your % on stocks. Are you saying you wouldn't stay the course and keep your asset allocation if stocks dropped? Doesn't that imply that your AA is too heavy in stocks?

All a target retirement or lifestrategy fund does is stay the course for you, for a small fee.
There is a school of thought that says to rebalance out of stocks, but not into stocks. The fear is a long term downturn in stocks that never recovers. Japan is often mentioned.
What is the Bergen/ trinity type of SWR using that approach, has it been monte Carlo'ed?

I would suspect there is no free lunch, give up on buying stocks low expectantly, the SWR is gonna take a hit of some kind over 30 years.....
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Re: Why I will use Target Retirement for the foreseeable fut

Post by ray.james »

When i switched jobs this year, I merged everything into vanguard target retirement 2045 - Ira, rollover ira, roth.
401k follows VTI equivalent. (other have >1% expense.)
Taxable - will be interesting as I will knock that door soon...

Completely agree - simple, convenient, nothing to worry as life goes through career and family changes. Also,in such an early accumulation phase -slicing, tilts, etc cannot make that much impact/regret in future.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by abuss368 »

The only fund in the Target offerings (and the Life Strategy) that I do not care for is the Total International Bond Index Fund. I will not invest in international debt based on the reasons David Swensen noted in his excellent book "Unconventional Success". In addition, Jack Bogle has noted that international debt is not needed.

In any event, in reviewing the Target and Life Strategy funds, the percentage of the portfolio allocated to Total International Bonds appears to be immaterial. I would rather have seen Vanguard increase the international equity and avoided the international bond.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Casper »

All of our tax-deferred Vanguard accounts are in TR2045. I was pleased to see that our TIAA-CREF accounts had a "target date"-style fund available, until I saw that the ER was 0.6% and it was a mish-mash of 10-20 funds! So much for that.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by ClevrChico »

I use TR whenever I can.

My 401k is going to stop offering TR, which I'm not thrilled about. But, I can nearly mirror the holdings in index funds, and I plan to do annual rebalancing.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by robertalpert »

I like the transparency of Vanguard's Target / Life strategy funds. And especially for considering the inheritance issue (spouse is not prepared to handle slice and dice).

But it's hard for me to let go of small or value tilting. My current slice / dice includes Wellington; Wellesley; Extended market; Total bond; International bond; total international stock; International smallcap. Vast majority of portfolio is & will be in IRAs.

Have thought about simplifying to a three-funds value-tilt: {Wellington; Wellesley; short-term-bond fund}.
The other choice: Vanguard Target or Life-strategy. But for now, cannot bring myself to let go of tilting slices.
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assumer
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Re: Why I will use Target Retirement for the foreseeable fut

Post by assumer »

robertalpert wrote:But it's hard for me to let go of small or value tilting. {Wellington; Wellesley; short-term-bond fund}. ... But for now, cannot bring myself to let go of tilting slices.
To each his own. I have no need nor desire for any tilting. I have not been convinced by the evidence that there is an increased risk / reward. Because at the end of the day, by tilting you're claiming that it has a higher reward without a higher risk (otherwise you'd simply increase your stock allocation).

Here are some links: Bogle on tilting, Bogleheads discussion.

But I digress. Like I said, to each his own. All I state is my own decisions and my reasoning behind it. I welcome others' opinions.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by stemikger »

I like your plan. I'm a big fan of the one fund portfolios. Be it Balanced, life strategy or target. They protect us from ourselves and on a morbid note, they don't leave behind anything an uninterested spouse can't handle in case you die before her or him.

Many people promote the 3 fund portfolio here which I think is great, but I don't think you can beat the one fund portfolio for the simplicity and peace of mind.

And of course we all know that in that one fund is a very diversified portfolio of index funds. It really is the ultimate in investing. John Bogle gives it his blessing in Common Sense on Mutual Funds. (He uses the Balanced Index Fund as an example) and in the Little Book on Common Sense Investing he does agree with all the variations that came to fore.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Dandy »

It is always wise to calculate the dollars involved in these type of decisions. It is something that is an important factor to consider just like your time/hassle factor. You would have time spent each year or so to rebalance and/or adjust contributions etc. so the time "wasted" is ongoing vs one time "waste". You also run the risk of not following through with your plan and let allocations drift. So, not a bad decision.

Just beware that people often use the hassle/time factor for one time situations e.g. Move money from Prime Money Market earning "nothing" to an on line bank savings or money market (or CD) earning at least something. They say I can't be bothered opening up an account etc. They should calculate the dollars lost to see what price convenience (or inertia) they are paying. A1% difference on $10,000 is $100. If it takes an hour to set up the account and move the money you can determine if $100 an hour is not worth your time. If you were deciding on a 5yr CD with a 1% difference then it would be a $500 decision.

As your assets grow keep an eye on the cost differential and the number of years on investing to make sure the trade off continues to make sense.

We all have a crazy ideas about money, we count it differently as in a $100 win at the slot machine is different than $100 saved on mutual fund expense. It is the same $100 but feels and is treated differently.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by bigfun »

assumer wrote:
bigfun wrote:I'm with you - except I just found out my husband's Fidelity 403b has spartan funds available, and those are much less expensive than Fidelity's TR funds. Once we get organized next year we will switch out of his TR fund and probably go to a 3 fund portfolio.

If you can have all your assets at Vanguard, then I say why not?
Why not buy the vamguard target fund in fidelity? Can you do that?
When he turns 59 1/2? I'm a noob but I don't know how to do this if the Vanguard fund isn't offered by the employer? :?:
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Re: Why I will use Target Retirement for the foreseeable fut

Post by magneto »

jimkinny wrote: I am no expert, but because of my age of 65 and interest, I have learned quite a bit about the Great Depression. Stocks lost about 90% of their value over 3 years. At my age, would I want to re-balance every day, every week or whatever is done as stocks went down, for THREE years.
I also have come to believe that although re-balancing is worthwhile, that it is not all that I once thought it to be. I have gone from that 5% band stuff (waste of time, IMO) to once a year but likely will just go to once every 2-3 years or so, selling equity but not buying equity at a set % level, when stocks decrease. My age probably affects my thoughts on this.
jim
I share your concerns about rebalancing into falling markets, being also retired.

Rebalancing is usually either based on time or deviation bands. Have mentioned in earlier posts, I attempt to combine both by looking at deviation from the desired AA and also use time (similar to integral or reset action which those of you familiar with process control theory will recognise). So at regular intervals, say monthly or quarterly, look at deviations from desired AA and rebalance, say 10% of the way to the desired AA. This slows down the rate of approach, captures some momentum effect, and is a calming influence. Am therefore always moving in the right direction, towards in my case a moving target based on valuations, and thus not making the sudden changes which could lead to regret. The method must surely be sub-optimal, and not the lowest expense cost, but suits my cautious nature.

All Best
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Re: Why I will use Target Retirement for the foreseeable fut

Post by bengal22 »

abuss368 wrote:You may be able to do a little better but you could definately do a lot worse!
that's definitely the real bottom line. If you like simplicity why agonize over a few points at best.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by DRiP Guy »

A few years ago, I simplified all my Vanguard holdings into TR2010, and haven't looked back. It's glide slope matched my IPS quite well, and it just can't be any easier -- no need to peek, prod or worry. True, my returns aren't what they could have been in this recent upswing in stocks, but that's the beauty (and the cost) of set-it-and-forget-it -- you don't 'clean up' on the upside, but you are also hopefully not going to lose your shirt on the backside. I used to fret and check so much; so I am loving the freedom from thinking about rebalancing, and whether I should tweak allocation, and what exact funds to buy, and record keeping for cap gains or dividends, or electing which bond fund to try, etc.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by Allan12 »

I am a big believer in this strategy as well.

I've been in the 3 fund portfolio for about a year, but never rebalanced due to not having the time/confusion.

How would one such as myself switch Roth IRAs from 3 fund to target date 2060?

Can I simply do an exchange to avoid risk of being out of the market?

Please advise, love this thread!!
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assumer
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Re: Why I will use Target Retirement for the foreseeable fut

Post by assumer »

Allan12 wrote:Can I simply do an exchange to avoid risk of being out of the market?

Please advise, love this thread!!
Yes, extremely easy, and exactly as you described. Simply exchange 100% into the target retirement. In tax-advantaged accounts, there are no tax implications either.
bigfun wrote:
assumer wrote:Why not buy the vanguard target fund in fidelity? Can you do that?
When he turns 59 1/2? I'm a noob but I don't know how to do this if the Vanguard fund isn't offered by the employer? :?:
I don't have any fidelity accounts yet, but can't one just log onto Fidelity and buy VFIFX (or whichever fund)? I'm not sure if every fidelity account type allows you to purchase any fund, but at the very beginning, I used TradeKing.com and simply purchased VFIFX through them for like $7 or something. Now I know brokerages like tradeking, etrade, etc., will usually let you buy any fund in any account, but specific 401k plans may limit you to their chosen mutual funds.

VFIFX (or equivalent) will either be on their list of funds to buy or it won't.

I stated my reasons in another thread, but I will likely open up a solo 401k next year via eTrade and simply buy VFIFX through them for $10.
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Re: Why I will use Target Retirement for the foreseeable fut

Post by abuss368 »

bengal22 wrote:
abuss368 wrote:You may be able to do a little better but you could definately do a lot worse!
that's definitely the real bottom line. If you like simplicity why agonize over a few points at best.
The older I get I not only realize more and more that the simple investment plans appear to work the best and have the best results. It is reassuring to hear Rick Ferri mentoring and providing support more and more to the Three Fund Portfolio.

We invest in the Three Fund Portfolio + REITs (our little investing excitement).

We intend to stay the course!
John C. Bogle: “Simplicity is the master key to financial success."
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