Why I Chose Target Retirement Funds

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assumer
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Why I Chose Target Retirement Funds

Post by assumer » Tue Apr 21, 2015 10:09 pm

For every $100k invested, the expense ratio of .18% equals $180/year. That's $15/month. By trying to use a 3 fund portfolio, where an average market balance is reasonable let to me, I may be able to drop that down to $8/month. That money is nearly a meaningless amount to me. A half million dollars invested, with a safe risk free return of about $800/month, and a difference of maybe $40/month in expense ratios, is not worth any energy to me.

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jeff1949
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Re: Why I Chose Target Retirement Funds

Post by jeff1949 » Tue Apr 21, 2015 10:18 pm

A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!

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CABob
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Re: Why I Chose Target Retirement Funds

Post by CABob » Tue Apr 21, 2015 10:19 pm

And that is a fine decision and I applaud you for it. Keep in mind however there are reasons other than expense ratios that would have many choose individual funds including the 3 fund portfolio over a fund of funds.
Bob

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stemikger
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Re: Why I Chose Target Retirement Funds

Post by stemikger » Wed Apr 22, 2015 5:25 am

You could do a lot worse. My choice is the Balanced Index Fund, but I know a most people here want the international allocation. I also feel the same way John Bogle feels and feel the Target Date Funds don't take social security into account at their final resting place with 30% in equities. But hey, you will be fine and I'll repeat it again. You can do a lot worse.

However, like others said, no investment is risk free.
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Re: Why I Chose Target Retirement Funds

Post by Goal33 » Wed Apr 22, 2015 6:13 am

I think a target date or lifestyle fund is perfectly fine if you're in tax advantaged accounts.

For me personally, I'm investing in both taxable and tax advantaged accounts, so I want the ability to create my AA using a tax efficient strategy.
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Re: Why I Chose Target Retirement Funds

Post by pennstater2005 » Wed Apr 22, 2015 6:18 am

Tax implications play a big role for lots of people. However, the OP does seem to be only talking about himself. His title says "I".
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Re: Why I Chose Target Retirement Funds

Post by Dandy » Wed Apr 22, 2015 7:49 am

A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!


+1
Target Date funds are decent, all in one choices but can be very high risk (late dated ones) or conservative (Retirement Income). You have to look under the cover at the allocation to equities to assess the risk properly.

When expense ratios are in the teens or below they don't make much of a difference.

Understand when you buy VG Target Date funds you are not quite sure of what they will contain down the road. They have made somewhat frequent and significant changes to their make up. You have to have trust that VG "experts" are making changes that will support the basis for your original selection. No reason to assume that VG "experts" are any more able to make changes that will work out better than more active manager "experts" - even if their motives may be purer. So, you need to check under the hood once in awhile to make sure the fund you thought you bought continues to meet your needs.

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Re: Why I Chose Target Retirement Funds

Post by livesoft » Wed Apr 22, 2015 8:01 am

My kids invest only with TR funds, too. If you ask them the reason, they might tell you, "Because Dad said so."
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Re: Why I Chose Target Retirement Funds

Post by RadAudit » Wed Apr 22, 2015 8:03 am

livesoft wrote:My kids invest only with TR funds, too. If you ask them the reason, they might tell you, "Because Dad said so."
+1
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stemikger
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Re: Why I Chose Target Retirement Funds

Post by stemikger » Wed Apr 22, 2015 8:10 am

Dandy wrote:A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!


+1
Target Date funds are decent, all in one choices but can be very high risk (late dated ones) or conservative (Retirement Income). You have to look under the cover at the allocation to equities to assess the risk properly.

When expense ratios are in the teens or below they don't make much of a difference.

Understand when you buy VG Target Date funds you are not quite sure of what they will contain down the road. They have made somewhat frequent and significant changes to their make up. You have to have trust that VG "experts" are making changes that will support the basis for your original selection. No reason to assume that VG "experts" are any more able to make changes that will work out better than more active manager "experts" - even if their motives may be purer. So, you need to check under the hood once in awhile to make sure the fund you thought you bought continues to meet your needs.
Great points. I don't like the way Vanguard changed these several times since their inception.
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Re: Why I Chose Target Retirement Funds

Post by mhc » Wed Apr 22, 2015 8:23 am

I agree that the ER is not a compelling reason to choose or not choose a TR fund. This is more compelling to me:
viewtopic.php?f=10&t=164192&newpost=2465283

It is hard to stay the course when the fund keeps changing. It's a minor issue, but one I choose to avoid.

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Re: Why I Chose Target Retirement Funds

Post by goingup » Wed Apr 22, 2015 9:41 am

assumer wrote: safe risk free return
Your message about the ease of TR cannot be disputed. They are easy to hold and sufficiently low-cost. Even the most conservative of the them, the TR Income Fund, isn't risk-free. It's a 2 on the Vanguard risk scale, with 30% stock allocation.

The other TR funds are composed differently, with increased equity holdings as the TR number gets bigger. It is a good idea, as suggested earlier, to take a look under the hood. See what your TR fund contains.

That said, I think TR funds are a terrific innovation, giving investors great diversity in one fund.

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Re: Why I Chose Target Retirement Funds

Post by PNW_Hunter » Wed Apr 22, 2015 10:16 am

I personally love target retirement funds, because they hold the 4 funds that would have made up the core of my portfolio if I would have held them seperately. You can always add in a 5th fund if you wish to tilt/slice, and they work well for individuals just starting out investing so that they can get a proper asset allocation (without being overweight in any one area).

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Re: Why I Chose Target Retirement Funds

Post by assumer » Wed Apr 22, 2015 11:55 am

jeff1949 wrote:A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!
I simply was referring to a ~2% return. A 2%/year return on $500k = $800/month

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Re: Why I Chose Target Retirement Funds

Post by assumer » Wed Apr 22, 2015 12:02 pm

goingup wrote:The other TR funds are composed differently, with increased equity holdings as the TR number gets bigger. It is a good idea, as suggested earlier, to take a look under the hood. See what your TR fund contains.
Indeed it is, but honestly I don't claim to know a better AA than vanguard, and it's as good as any other index fund to me. The AA for my age are acceptable with the TR funds. If they increase international allocations, who am I to say I know better than them? I'm still getting exposure to thousands of stocks, so I don't really care too much.
Goal-33xSpending wrote:I think a target date or lifestyle fund is perfectly fine if you're in tax advantaged accounts.

For me personally, I'm investing in both taxable and tax advantaged accounts, so I want the ability to create my AA using a tax efficient strategy.
Yes, tax implications are not a concern yet. I can put $5500 into an IRA, $3300 into an HSA, and $51k into a solo-401k each year, so I'm fine with that amount at this point in my career (late-20s). Saving for larger expenses in taxable accounts are usually in conservative investments. And holding bonds in tax-advantaged accounts to me are nearly useless especially with currently low yields (there are plenty of threads on this).

Turnover is a minor concern, but again I always break it down to how much per month is this costing me, and is it worth my time. I actually keep my short-term savings (e.g. downpayment, estimated taxes) in lifestrategy income funds, because the difference in all these things (taxes, ER, turnover) is the cost of a round of beers per month.

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jeff1949
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Re: Why I Chose Target Retirement Funds

Post by jeff1949 » Wed Apr 22, 2015 12:04 pm

assumer wrote:
jeff1949 wrote:A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!
I simply was referring to a ~2% return. A 2%/year return on $500k = $800/month
You can get an essentially risk free 2.25% return with a 5 year CD at either Barclays Bank or Synchrony Bank which would be much safer.

https://www.banking.barclaysus.com/online-cds.html

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bertie wooster
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Re: Why I Chose Target Retirement Funds

Post by bertie wooster » Wed Apr 22, 2015 12:10 pm

assumer wrote:
jeff1949 wrote:A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!
I simply was referring to a ~2% return. A 2%/year return on $500k = $800/month
That is not a good assumption.

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Munir
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Re: Why I Chose Target Retirement Funds

Post by Munir » Wed Apr 22, 2015 12:15 pm

livesoft wrote:My kids invest only with TR funds, too. If you ask them the reason, they might tell you, "Because Dad said so."
Shame! Shame :happy

Educate, educate.

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Re: Why I Chose Target Retirement Funds

Post by assumer » Wed Apr 22, 2015 1:01 pm

jeff1949 wrote:
assumer wrote:
jeff1949 wrote:A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!
I simply was referring to a ~2% return. A 2%/year return on $500k = $800/month
You can get an essentially risk free 2.25% return with a 5 year CD at either Barclays Bank or Synchrony Bank which would be much safer.

https://www.banking.barclaysus.com/online-cds.html

https://www.myoptimizerplus.com/banking ... de=0000000
That's my point, though. I'm not sure others are understanding. If I had simply chosen a risk free return for my $500k, I would net $800/month.

The target retirements have a higher expected value (EV) than even that.

An expense ratio differential of $40/month is nothing compared to even just a risk-free return on my money. This difference is even more pronounced when considering a target retirement fund which has a higher EV than a risk free return.

If the ER is minuscule compared to a risk-free return, then it's even "more" miniscule compared to a portfolio with stocks included.

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CABob
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Re: Why I Chose Target Retirement Funds

Post by CABob » Wed Apr 22, 2015 2:03 pm

Munir wrote:
livesoft wrote:My kids invest only with TR funds, too. If you ask them the reason, they might tell you, "Because Dad said so."
Shame! Shame :happy

Educate, educate.
My DW's 401k rollover to an IRA is invested in a TR fund. Why?
Because I thought that this was a reasonable investment that had a pretty good chance of showing a positive change quarter over quarter and so far it has been a pretty good prediction (let's ignore 2008). Educate? I've tried. DW doesn't look too closely at the numbers, just the final number. That works for us.
:D
Bob

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Taylor Larimore
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Improving fund-of-funds.

Post by Taylor Larimore » Wed Apr 22, 2015 2:33 pm

I don't like the way Vanguard changed these several times since their inception.
Target and Life Strategy funds are normally in tax-advantaged accounts. This means that shareholders can easily exchange to other funds if they disapprove of changes.

I applaud Vanguard experts for changing their Target and Life Strategy Funds when they determine changes will be an improvement.

Best wishes.
Taylor
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Re: Improving fund-of-funds.

Post by toto238 » Wed Apr 22, 2015 2:41 pm

Taylor Larimore wrote:
I don't like the way Vanguard changed these several times since their inception.
Target and Life Strategy funds are normally in tax-advantaged accounts. This means that shareholders can easily exchange to other funds if they disapprove of changes.

I applaud Vanguard experts for changing their Target and Life Strategy Funds when they determine changes will be an improvement.

Best wishes.
Taylor
I agree with Taylor.

Vanguard changes the TR and LS funds a lot less often than the average person changes their portfolio. Being able to just pick one fund and simply not worry about it is valuable. Could you pick up small advantages in efficiency differently? Perhaps. Perhaps not. Might you save 0.1% in expenses? Maybe. But these are really minor issues.

People on this forum are for the msot part people who actually enjoy managing their accounts and getting into the nitty gritty. That is not representative of the average investor. I strongly believe that putting everything into the TR fund that Vanguard recommends for your age and using it your entire life is going to beat over 90% of other strategies other "financial advisors" will try to sell you. The enemy of a good plan is the pursuit of the perfect plan.

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Re: Why I Chose Target Retirement Funds

Post by jtravisdavid » Wed Apr 22, 2015 3:13 pm

I agree with OP but for different reasons. I went with the Target Retirement Funds because I think doing so will prevent me from getting cute and tinkering around with my AA. I'll probably transition to one of the Lifestrategy Funds (40% stocks) when the TR fund AA reaches 40% stocks.

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Re: Why I Chose Target Retirement Funds

Post by powermega » Wed Apr 22, 2015 3:30 pm

I'm a HUGE fan of the Vanguard Target Date Funds (TDF). TDF funds, and their individual components, make up over 80% of our entire portfolio in all accounts (REIT, small cap and corp bond tilts make up the rest). Both DW and I have the 2035 TDF in our 401k accounts, and 100% of our contributions go to the TDF fund. Since 401k contributions are the biggest new money additions to our portfolio, we help keep our overall portfolio balanced by buying the TDF. In other words, our regular 401k contributions are not knocking our overall allocation out of whack, but instead are actually helping us stay on our desired allocation. We use the TDF components by themselves too, stacking traditional IRAs with more bonds, and our Roth IRAs and taxable account with more equity. Our overall component allocations match the TDF. We rebalance our overall portfolio every quarter to match the new allocations of the TDF. The entire arrangement is incredibly simple, low maintenance, and mechanical in its operation.
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Re: Why I Chose Target Retirement Funds

Post by Silence Dogood » Wed Apr 22, 2015 4:06 pm

Count me in as another big fan of these funds. Bogleheads generally don't given enough credit to just how important/significant these funds are to the average investor. Vanguard has done a great job keeping them low-cost, passive, and simple.

I'm 100% in Vanguard Target Retirement 2055. Simple is the way to go.

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Re: Why I Chose Target Retirement Funds

Post by Lynette » Wed Apr 22, 2015 4:57 pm

I have my car replacement fund in Vanguard Target Retirement 2010 Fund (VTENX) and I dump some money in there every month. It seemed a reasonable compromise as MM returns are so low. So I'm parking some money there till I need a new car. Of course, I could supplement it if something happens to the market. I also have some Target funds in my 401k and Life Strategy funds. It means I don't have to spend time thinking! I'm not retired yet.

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Re: Why I Chose Target Retirement Funds

Post by Dandy » Wed Apr 22, 2015 9:43 pm

I applaud Vanguard experts for changing their Target and Life Strategy Funds when they determine changes will be an improvement.

Why are Vanguard "experts" any better than other "experts" that manage active funds or write investment books or give advice in the media? Do they have some special training? Access to special research? Graduate from better Universities? I doubt they are any different. If you listen to active managers they are usually well educated and have solid support for their take on the market and/or for their suggested allocations etc. It is just that they are wrong as often as they are right. How did VG experts do in managing the Asset Allocation Fund that used to be part of the Target Date Fund, If memory serves me- not so well.

I really respect Vanguard- I essentially have all my investments with them - but they seem to get a free pass from many on this issue. It is hard to reconcile the stay the course mantra- which is generally a good idea for individuals and then not only have no problems with significant changes that are made to the Target and Life Strategy Funds but, in fact, praises them.

While it is true that many investors have these funds in tax advantaged accounts and can exchange out if not satisfied - that begs the issue. These are viewed as a simple set it and forget it investments especially suited for people without significant investment savvy. Many are not able to properly assess the impact of the changes. And if you did buy it in a taxable account - you may have initially bought a Prius and wake up with a Hummer. :happy and now have some tax exposure to get out.

I came close to consolidating my TIRA in a Target or Life Strategy - no more - I like to know what I'm buying and possibly leaving to my wife nor do I want my nurse down the road saying Dandy I just heard your fund is now 20% Bitcoins and 30% Greek REITS :oops:

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Re: Why I Chose Target Retirement Funds

Post by abuss368 » Wed Apr 22, 2015 11:30 pm

I have a Target fund in an employer plan and also the 529 plans and it has worked great.

In fact the older I get the more I consider switching our portfolio even more. A Target fund in the IRAs and perhaps the Three Fund Portfolio in taxable with the same overall asset allocation and tax exempt bonds. Not a bad combination.
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Re: Why I Chose Target Retirement Funds

Post by assumer » Thu Apr 23, 2015 9:25 am

abuss368 wrote:A Target fund in the IRAs and perhaps the Three Fund Portfolio in taxable with the same overall asset allocation and tax exempt bonds. Not a bad combination.
Please correct my numbers or logic, but this is how I'd make the decision between a Lifestrategy/TR fund for taxable versus 3-fund with tax-exempt bonds.

Let's say you have $500k in taxable and your AA calls for 40% bonds.

That's $200k in taxable bonds.

The current SEC yield of municipal intermediate term bonds is 1.6%, while the current SEC yield of intermediate term bonds is 2.1%.

The municipal bonds are netting you:
.016* 200k / 12 = $270/month.

If you are in a 35% tax bracket, the taxable bonds are netting you:
.021 * 200k * .65 / 12 = $230/month.

So given these numbers, for every $500k invested, would you be willing to pay $40/month or $10/week to keep everything in a single lifestrategy or TR fund and not have separate municipal bonds pulled out?

Did I do the math correctly here given some reasonable assumptions?

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Re: Why I Chose Target Retirement Funds

Post by angelescrest » Thu Apr 23, 2015 9:30 am

stemikger wrote:
Dandy wrote:A "safe risk free return"?

Where did you get that idea? I like the Target Retirement Funds but they are not risk free!


+1
Target Date funds are decent, all in one choices but can be very high risk (late dated ones) or conservative (Retirement Income). You have to look under the cover at the allocation to equities to assess the risk properly.

When expense ratios are in the teens or below they don't make much of a difference.

Understand when you buy VG Target Date funds you are not quite sure of what they will contain down the road. They have made somewhat frequent and significant changes to their make up. You have to have trust that VG "experts" are making changes that will support the basis for your original selection. No reason to assume that VG "experts" are any more able to make changes that will work out better than more active manager "experts" - even if their motives may be purer. So, you need to check under the hood once in awhile to make sure the fund you thought you bought continues to meet your needs.
Great points. I don't like the way Vanguard changed these several times since their inception.
Do we know exactly what companies will be contained in the S&P 500 down the road that will be the bulk of our index funds?

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Re: Improving fund-of-funds.

Post by stemikger » Thu Apr 23, 2015 9:32 am

Taylor Larimore wrote:
I don't like the way Vanguard changed these several times since their inception.
Target and Life Strategy funds are normally in tax-advantaged accounts. This means that shareholders can easily exchange to other funds if they disapprove of changes.

I applaud Vanguard experts for changing their Target and Life Strategy Funds when they determine changes will be an improvement.

Best wishes.
Taylor

You make a great point Taylor. With my personality, I like the plain old fashioned static balanced index fund. I'm not a fan of international and definitely not a fan of international bonds. But who knows, maybe one day, I'll take the plunge if I ever feel the need for international. I'm not sure I'm a fan of the glide path either.
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Re: Improving fund-of-funds.

Post by assumer » Thu Apr 23, 2015 9:35 am

stemikger wrote:With my personality, I like the plain old fashioned static balanced index fund. I'm not a fan of international and definitely not a fan of international bonds. But who knows, maybe one day, I'll take the plunge if I ever feel the need for international
My personality is that as long as it has a few thousand stocks in it, I don't claim to know better than anyone else what international percentage is ideal (0%? 40%?) and therefore why not just do what vanguard thinks is best? I don't believe I know more than the entire world market.

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Re: Why I Chose Target Retirement Funds

Post by abuss368 » Thu Apr 23, 2015 12:38 pm

assumer wrote:
abuss368 wrote:A Target fund in the IRAs and perhaps the Three Fund Portfolio in taxable with the same overall asset allocation and tax exempt bonds. Not a bad combination.
Please correct my numbers or logic, but this is how I'd make the decision between a Lifestrategy/TR fund for taxable versus 3-fund with tax-exempt bonds.

Let's say you have $500k in taxable and your AA calls for 40% bonds.

That's $200k in taxable bonds.

The current SEC yield of municipal intermediate term bonds is 1.6%, while the current SEC yield of intermediate term bonds is 2.1%.

The municipal bonds are netting you:
.016* 200k / 12 = $270/month.

If you are in a 35% tax bracket, the taxable bonds are netting you:
.021 * 200k * .65 / 12 = $230/month.

So given these numbers, for every $500k invested, would you be willing to pay $40/month or $10/week to keep everything in a single lifestrategy or TR fund and not have separate municipal bonds pulled out?

Did I do the math correctly here given some reasonable assumptions?
Your math and logic appear reasonable. One item to consider is if at some point in the future, an investor decides to sell a Target or Lifestrategy fund to invest in another Target or Lifestrategy fund with a higher allocation to bonds, additional capital gains taxes will be incurred.
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Re: Why I Chose Target Retirement Funds

Post by assumer » Thu Apr 23, 2015 12:44 pm

abuss368 wrote:
assumer wrote:
abuss368 wrote:A Target fund in the IRAs and perhaps the Three Fund Portfolio in taxable with the same overall asset allocation and tax exempt bonds. Not a bad combination.
...

Did I do the math correctly here given some reasonable assumptions?
Your math and logic appear reasonable. One item to consider is if at some point in the future, an investor decides to sell a Target or Lifestrategy fund to invest in another Target or Lifestrategy fund with a higher allocation to bonds, additional capital gains taxes will be incurred.
Good point. Well for me, with let's say $50k in taxable (not $500k), instead of costing me $40/month, it costs me $4/month. That's how much it costs me to keep my $50k taxable in a lifestrategy fund rather than a separate 3-fund portfolio with municipals. I can find $1/week in my sofa cushion. That's how I keep everything in perspective with fiddling around vs set-and-forget-lifestrategy.

Edit: And in the other direction, if I had $5 million invested in taxable, I imagine that I'd hardly care about $100/week. Maybe I would. But doubtful.

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Re: Why I Chose Target Retirement Funds

Post by Dandy » Thu Apr 23, 2015 4:17 pm

Do we know exactly what companies will be contained in the S&P 500 down the road that will be the bulk of our index funds?

Not a very valid comparison. We all realize that a broad based index has to be adjusted on occasion to stay relevant. Standard and Poor's isn't adding international small cap or TIPs to their large cap US equity index. VG's Retirement Income fund has 31% of its total portfolio in bond funds that that wasn't there until recently (Short Term TIPS and International Bonds.) That is almost half of its fixed income allocation. It did have the TIPS fund but that is somewhat different that ST TIPS fund.

All the fans of Total Bond is the only fixed income fund you really need are you adding short term tips and international bonds?-- VG experts says many retirees really should. Retirees using the 3 fund portfolio - are you moving a lot of your fixed income to Short Term TIPS and International Bond funds? Probably not.

It isn't necessarily the changes but the fact that they keep changing. I wonder how advisors who recommended these funds feel.

The Target Date and Life Strategy Funds were a great idea that I feel are being mismanaged. They should have stuck with basically the 3 funds plus some TIPS (for close dated funds) and left things alone.

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Re: Why I Chose Target Retirement Funds

Post by dc81584 » Thu Apr 23, 2015 4:28 pm

I love Vanguard's TR funds more than I love my dog (and believe me -- I love her a lot).

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Re: Why I Chose Target Retirement Funds

Post by abuss368 » Thu Apr 23, 2015 4:35 pm

assumer wrote:
abuss368 wrote:
assumer wrote:
abuss368 wrote:A Target fund in the IRAs and perhaps the Three Fund Portfolio in taxable with the same overall asset allocation and tax exempt bonds. Not a bad combination.
...

Did I do the math correctly here given some reasonable assumptions?
Your math and logic appear reasonable. One item to consider is if at some point in the future, an investor decides to sell a Target or Lifestrategy fund to invest in another Target or Lifestrategy fund with a higher allocation to bonds, additional capital gains taxes will be incurred.
Good point. Well for me, with let's say $50k in taxable (not $500k), instead of costing me $40/month, it costs me $4/month. That's how much it costs me to keep my $50k taxable in a lifestrategy fund rather than a separate 3-fund portfolio with municipals. I can find $1/week in my sofa cushion. That's how I keep everything in perspective with fiddling around vs set-and-forget-lifestrategy.

Edit: And in the other direction, if I had $5 million invested in taxable, I imagine that I'd hardly care about $100/week. Maybe I would. But doubtful.
Now a couple of other considerations:

1) Expense ratios are higher which increase costs to the investor.
2) Bonds - an investor could always add another bond fund to increase bond allocation rather than sell and incurring taxes. Now you have a two fund portfolio. Not much difference.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why I Chose Target Retirement Funds

Post by abuss368 » Sat Apr 25, 2015 8:24 pm

Excellent thread!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Why I Chose Target Retirement Funds

Post by StevieG72 » Sat Apr 25, 2015 10:16 pm

I beg to differ on the expense ratio!

$40 a month IS a big deal and a $500,000 portfolio is not large enough to make $40 month insignificant.

When I first started I owned target retirement funds but I jumped ship for lower fees and more personalization.

I laugh at the posts that claim they have more time to spend with family, friends, hobbies etc. because they are not managing their portfolio.

It does not take much time and I enjoy the satisfaction of doing it myself.
Fools think their own way is right, but the wise listen to others.

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Re: Why I Chose Target Retirement Funds

Post by Dandy » Sun Apr 26, 2015 5:45 am

I love Vanguard's TR funds


While probably just a figure of speech. It is often the case that people become attached to a certain stock or fund. The believe in it, it has treated them well ... it can make you hold on to something when you would otherwise not. Not saying Target Date funds are unlovable but you should be able to look at changes without passion to decide if they still fit your needs.

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Re: Why I Chose Target Retirement Funds

Post by just frank » Sun Apr 26, 2015 5:56 am

I'm a fan of the TR funds (an their equivalent at other firms), but don't currently own any.

I am using them as a benchmark...my IP says that if I fail to beat the TR for a year or two, I should hang up my strategy, and move to TR.

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Re: Improving fund-of-funds.

Post by coolguy954 » Sun Apr 26, 2015 8:46 am

toto238 wrote:
Taylor Larimore wrote:
I don't like the way Vanguard changed these several times since their inception.
Target and Life Strategy funds are normally in tax-advantaged accounts. This means that shareholders can easily exchange to other funds if they disapprove of changes.

I applaud Vanguard experts for changing their Target and Life Strategy Funds when they determine changes will be an improvement.

Best wishes.
Taylor
I agree with Taylor.

Vanguard changes the TR and LS funds a lot less often than the average person changes their portfolio. Being able to just pick one fund and simply not worry about it is valuable. Could you pick up small advantages in efficiency differently? Perhaps. Perhaps not. Might you save 0.1% in expenses? Maybe. But these are really minor issues.

People on this forum are for the msot part people who actually enjoy managing their accounts and getting into the nitty gritty. That is not representative of the average investor. I strongly believe that putting everything into the TR fund that Vanguard recommends for your age and using it your entire life is going to beat over 90% of other strategies other "financial advisors" will try to sell you. The enemy of a good plan is the pursuit of the perfect plan.
:sharebeer :sharebeer :sharebeer
my portfolio is 80% TR 10% REIT 10% Company Stock

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Re: Why I Chose Target Retirement Funds

Post by sambb » Sun Apr 26, 2015 12:24 pm

I far prefer target or lifestrategy over 3 fund in tax deferred. For some reason here there is a passion for 3 fund.

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Re: Why I Chose Target Retirement Funds

Post by bertilak » Sun Apr 26, 2015 12:43 pm

sambb wrote:I far prefer target or lifestrategy over 3 fund. In tax deferred. For some reason here there is a passion for 3 fund.
Three separate funds allow you to locate different asset classes in the most appropriate accounts (taxable, Roth, traditional IRA, etc.).
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Re: Why I Chose Target Retirement Funds

Post by anil686 » Sun Apr 26, 2015 12:58 pm

StevieG72 wrote:I beg to differ on the expense ratio!

$40 a month IS a big deal and a $500,000 portfolio is not large enough to make $40 month insignificant.

When I first started I owned target retirement funds but I jumped ship for lower fees and more personalization.

I laugh at the posts that claim they have more time to spend with family, friends, hobbies etc. because they are not managing their portfolio.

It does not take much time and I enjoy the satisfaction of doing it myself.
I agree that separating out the funds allows for personalization, but then it is a different portfolio. If you were to keep the allocations the same as the TR or LS funds - the choice of your rebalancing (none, daily - a real pain in the neck, monthly, quarterly, semi-annually or annually (birthday/new year/anniversary etc.) will have a far bigger impact on your total return than the cost savings of 0.08% compared to the admiral share classes. I like this blog post from Rick Ferri to illustrate the differences that timing in rebalancing has on returns. It illustrates fairly well that choosing to rebalance on different schedules changes return patterns - and that difference is greater than the cost difference cited above. There is no "optimal" time frame in my mind for rebalancing but clearly it has a larger effect than the cost savings IMO...

http://www.rickferri.com/blog/strategy/ ... balancing/

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Re: Why I Chose Target Retirement Funds

Post by StevieG72 » Sun Apr 26, 2015 5:02 pm

anil686 wrote:
StevieG72 wrote:I beg to differ on the expense ratio!

$40 a month IS a big deal and a $500,000 portfolio is not large enough to make $40 month insignificant.

When I first started I owned target retirement funds but I jumped ship for lower fees and more personalization.

I laugh at the posts that claim they have more time to spend with family, friends, hobbies etc. because they are not managing their portfolio.

It does not take much time and I enjoy the satisfaction of doing it myself.
I agree that separating out the funds allows for personalization, but then it is a different portfolio. If you were to keep the allocations the same as the TR or LS funds - the choice of your rebalancing (none, daily - a real pain in the neck, monthly, quarterly, semi-annually or annually (birthday/new year/anniversary etc.) will have a far bigger impact on your total return than the cost savings of 0.08% compared to the admiral share classes. I like this blog post from Rick Ferri to illustrate the differences that timing in rebalancing has on returns. It illustrates fairly well that choosing to rebalance on different schedules changes return patterns - and that difference is greater than the cost difference cited above. There is no "optimal" time frame in my mind for rebalancing but clearly it has a larger effect than the cost savings IMO...

http://www.rickferri.com/blog/strategy/ ... balancing/
Interesting article!

Am I missing something? How can the 3 portfolios rebalanced using 5 / 10 / 20 % bands have the exact same return of 4.8 % over 13 years? I seriously doubt Mr. Ferri is in error so I must be missing something!

I rebalance mainly by directing new contributions to the appropriate asset class.

It appears this article is rebalancing the initial portfolio without any new contributions.

I am not sold on the idea that a TR or LS portfolio will perform better or worse, however I do agree that there is no optimal time to rebalance.
Fools think their own way is right, but the wise listen to others.

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Re: Why I Chose Target Retirement Funds

Post by wander » Sun Apr 26, 2015 6:18 pm

I told my siblings, who don't know and care about investing, to put money in a Target Retirement fund that best matches the retirement year and ignore it.

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Re: Why I Chose Target Retirement Funds

Post by Dandy » Mon Apr 27, 2015 7:11 am

I told my siblings, who don't know and care about investing, to put money in a Target Retirement fund that best matches the retirement year and ignore it.


Actually, most people who believe in Target Date funds advise people not to look at the date in the fund title but the allocation it actually has. The late dated Target Date funds often have very, very aggressive equity allocations that are often not a match for the potential investor unless they really understand the risks involved.

You may wish to amend your well intentioned advice.

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Re: Why I Chose Target Retirement Funds

Post by bertilak » Mon Apr 27, 2015 8:04 am

Dandy wrote:I told my siblings, who don't know and care about investing, to put money in a Target Retirement fund that best matches the retirement year and ignore it.


Actually, most people who believe in Target Date funds advise people not to look at the date in the fund title but the allocation it actually has. The late dated Target Date funds often have very, very aggressive equity allocations that are often not a match for the potential investor unless they really understand the risks involved.

You may wish to amend your well intentioned advice.
I agree that a TD fund based on the year of one's expected retirement may result in an inappropriate AA. The amount of risk one wants to take should also depend on other things, for example expected SS, pension, job prospects, spouse's situation, or the amount already saved.

But I don't agree that the other choice, pick a TD fund that has an appropriate AA, works well either -- the glide path is likely wrong. This is countered by those who say. "OK, then change to a different TD fund when the current fund's glide path takes you away from the AA you want, probably a number of years in the future." If that's what you are going to do you might as well pick a Life Strategy (or other balanced) fund that doesn't shift around under you. That way you don't have to track TWO things -- your desired AA and the fund's AA. The fund's AA will be a constant. (You might need TWO balanced funds to add up to the AA you want.)

So, I don't like TD funds at all. Perhaps someone will stumble across a situation where the AA and the glide path of some TD fund are just what they want, but that's not a given. I don't think it is even likely.

If and when a taxable account comes into the picture I like individual stock and bond funds. That allows asset placement for tax efficiency.
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Re: Why I Chose Target Retirement Funds

Post by CABob » Mon Apr 27, 2015 9:00 am

Dandy wrote:I told my siblings, who don't know and care about investing, to put money in a Target Retirement fund that best matches the retirement year and ignore it.


Actually, most people who believe in Target Date funds advise people not to look at the date in the fund title but the allocation it actually has. The late dated Target Date funds often have very, very aggressive equity allocations that are often not a match for the potential investor unless they really understand the risks involved.

You may wish to amend your well intentioned advice.
If the investor doesn't know or care about investing, it is unlikely that they would understand or intelligently select an appropriate allocation. Given that situation I think the advice is a whole lot better than most other things the investor is apt to do.
Bob

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