[Quitting] Target Date fund

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BogleMelon
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[Quitting] Target Date fund

Post by BogleMelon » Wed Dec 14, 2016 9:06 am

Hi,
So as stated in my previous post I am thinking of leaving the V Target date fund due to its high stock allocation (90% for a 37 years old). Why I chose it in the first place? I was uneducated at that point.
So, I have scratched an AA plan, based on what I think my risk tolerance (haven't experienced a market crash yet since I am new comer to U.S).
The plan is this spreadsheet https://docs.google.com/spreadsheets/d/ ... sp=sharing

As I age I try to reduce my stock and add more bonds (and TIPS).

Would you please take a look to the details, evaluate the plan, and tell me if there is something I miss, or if there is any flows in it? Any thoughts are highly appreciated.

Thanks!
Last edited by BogleMelon on Thu Dec 15, 2016 10:11 am, edited 1 time in total.
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CAsage
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Re: Quieting TD fund

Post by CAsage » Thu Dec 15, 2016 6:28 am

It appears you are working very hard at redesigning complex portfolios, multiple times. Observation on this one: Age-20 in bonds is sporty (i.e. risky). Why add TIPS at age 80 or so? Inflation generally not a risk with fewer years to live! And dropping to 5% stock - really low. Short term bonds might make more sense later, as duration should match targeted need.

If you are unhappy with the TD distribution, why not just pick an earlier date fund? I would personally not bother planning more than 5 years out!
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BogleMelon
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Re: Quieting TD fund

Post by BogleMelon » Thu Dec 15, 2016 9:53 am

CAsage wrote:It appears you are working very hard at redesigning complex portfolios, multiple times. Observation on this one: Age-20 in bonds is sporty (i.e. risky). Why add TIPS at age 80 or so? Inflation generally not a risk with fewer years to live! And dropping to 5% stock - really low. Short term bonds might make more sense later, as duration should match targeted need.

If you are unhappy with the TD distribution, why not just pick an earlier date fund? I would personally not bother planning more than 5 years out!
Thank you for your advice. You are right, I was complicated things. I decided to do what you said, I changed my TD fund to an earlier date that looks aligned with both my current AA target and my future one.
Thanks again.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Peculiar_Investor
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Re: Quieting Target Date fund

Post by Peculiar_Investor » Thu Dec 15, 2016 10:02 am

You might get more replies if you expand the short-form in the topic title (click the edit button on the original post to make the change). As a Canadian investor, TD stands for TD Bank and their TD e-Series Funds so I almost bypassed reading this topic. Others not knowing what TD means might to the same.
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Re: Quieting Target Date fund

Post by livesoft » Thu Dec 15, 2016 10:37 am

I'm not going to look at the attachment.

But I will say that there seems to be a misconception that TD funds come only in one 90/10 asset allocation which is not true. So if you want something different than 90/10 don't quit Target Date funds, but simply switch to a 70/30 or 60/40 or a 30/70 Target Date fund. Or one with the asset allocation that you desire. And the AA's I mentioned are not the only AA's possible with TD funds.
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greg24
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Re: Quieting Target Date fund

Post by greg24 » Thu Dec 15, 2016 10:47 am

I don't like the asset allocations in the target date funds, I prefer the Life Strategy funds for similar usage.

Bud
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Re: Quieting Target Date fund

Post by Bud » Thu Dec 15, 2016 1:07 pm

greg24 wrote:I don't like the asset allocations in the target date funds, I prefer the Life Strategy funds for similar usage.
+1 I have only used LifeStategy funds... when and if I want to change the allocation, it only takes one transaction.

TropikThunder
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Re: Quieting Target Date fund

Post by TropikThunder » Thu Dec 15, 2016 3:52 pm

greg24 wrote:I don't like the asset allocations in the target date funds, I prefer the Life Strategy funds for similar usage.
I don't understand the distinction you are trying to make between TR and LS funds. They are both funds-of-funds, using Vanguard Total US Stock, Total Int'l Stock, Total US Bond, and Total Int'l Bond at various allocations. For each LS fund there's a TR fund with the same/similar allocation:

LifeStrategy Growth Fund: 80% stock, 20% bonds [48% US stock, 32% Int'l stock]/[14% US bond, 6% Int'l bond]
Target Retirement 2035: 80% stock, 20% bonds [48% US stock, 32% Int'l stock]/[14% US bond, 6% Int'l bond]

Both have 40% of the equity as In'tl, both have 30% of the bonds as Int'l. Are you saying you don't like the glidepath? E.g., TR 2035 will decrease stock allocation over time while LS Growth won't.

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Re: [Quiting] Target Date fund

Post by steve r » Thu Dec 15, 2016 4:30 pm

The thing you MAY be missing is human psychology.

In theory, your plan may work but my personal attempts to do so did not work. I would constantly second guess, rework, reconfigure etc. It is hard for me to create a plan at one age and stick with it 3 years out let alone 30 years.

I suspect my experiences are not uncommon. The more I studied things the more tempted I was to change this or that.

Will this apply to you? IDK ... but if you go with this idea, just be mindful that of the temptation to tinker.
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Re: [Quitting] Target Date fund

Post by Dulocracy » Fri Dec 16, 2016 2:08 pm

Some general ideas I have picked up on this site:

Most people (and most of the experts who write books and post on this site) do not recommend going lower than 25% equities.

Most recommend keeping your US/International percentage constant. (If you have a 60/40 split, for example, a 50 equity / 50 bond portfolio would slide from 30% US and 20% International to 15% US and 10% international as you glide down to 25% equity and 75% bonds.) The reason for keeping this constant is that, with market fluctuations, you may arbitrarily be creating losses that you otherwise would not have had my bumping your numbers around from time to time.

I plan on adding TIPS earlier than what you have. From what I have seen on this site, some like to keep a standard percentage of total bond to TIPS, while others increase the TIPS allocation, so there is no "general consensus" on how to do this. However, of those that recommend TIPS, most recommend starting them at least 10 years before retirement. Some say they are not needed, but of those that say that they are, most recommend 25% as a minimum percentage of bonds in TIPS. Personally, for the same reason of fluctuations that can occur, I plan on keeping the same percentage of TIPs, once I add them, but my plan states that I will have a higher percentage at 50%. Planning 10 years out avoids really bad things right before retirement. It also gives flexibility of how to merge into them in the event that some part of the market is out of whack at the time and you need a little more time to prevent yourself from locking in losses (for those of us with flexible glide paths).

Food for thought. :sharebeer
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arcticpineapplecorp.
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Re: [Quitting] Target Date fund

Post by arcticpineapplecorp. » Fri Dec 16, 2016 2:25 pm

Dulocracy wrote:Some general ideas I have picked up on this site:

Most people (and most of the experts who write books and post on this site) do not recommend going lower than 25% equities.

Most recommend keeping your US/International percentage constant. (If you have a 60/40 split, for example, a 50 equity / 50 bond portfolio would slide from 30% US and 20% International to 15% US and 10% international as you glide down to 25% equity and 75% bonds.) The reason for keeping this constant is that, with market fluctuations, you may arbitrarily be creating losses that you otherwise would not have had my bumping your numbers around from time to time.

I plan on adding TIPS earlier than what you have. From what I have seen on this site, some like to keep a standard percentage of total bond to TIPS, while others increase the TIPS allocation, so there is no "general consensus" on how to do this. However, of those that recommend TIPS, most recommend starting them at least 10 years before retirement. Some say they are not needed, but of those that say that they are, most recommend 25% as a minimum percentage of bonds in TIPS. Personally, for the same reason of fluctuations that can occur, I plan on keeping the same percentage of TIPs, once I add them, but my plan states that I will have a higher percentage at 50%. Planning 10 years out avoids really bad things right before retirement. It also gives flexibility of how to merge into them in the event that some part of the market is out of whack at the time and you need a little more time to prevent yourself from locking in losses (for those of us with flexible glide paths).

Food for thought. :sharebeer
Agreed (and good comments everyone). If you look at the link below to the Trinity Study at the bogleheads wiki it shows that if you go below 25% in stocks you reduce the success rate (that your portfolio will survive over the stated withdrawal period). For instance, in the past holding 25% in stocks and withdrawing 3% was successful over 30 years, but if you took out 4% would have only had a 71% success rate.

Holding less than 25% in stocks (100% bonds in the study) was only successful 100% of the time over 25 years and if you only took out 3% or less per year. Taking out 3% a year for 30 years was only successful 80% of the time and a 4% withdrawal rate would only be successful 46% of the time over 25 years and 20% of the time over 30 years (not good odds).

So yes, generally speaking for many investors it's recommended to have at least 25% or more in stocks even through retirement. The target date retirement funds are set up that way. And if you think about it if you retire in your 60s and live into your 90s that's 30 years to fund you're retirement. Where's the growth going to come from if not stocks? Now if, as Bill Bernstein says, "If you've won the game, stop playing" refers to you (meaning you have more than enough and don't have to worry about the devastating effects of inflation over a 30 year retirement period, then by all means go lighter on stocks. Just know the risks. Most people are afraid of volatility (which is short term risk) but the real risk is longevity (outliving your money) and the effects of inflation (which Dulocracy talked about TIPS to possibly help with or I-Bonds, stable value funds, etc.). Good luck.

read more here:

https://www.bogleheads.org/wiki/File:TrinityTable3.jpg
https://www.bogleheads.org/wiki/Safe_withdrawal_rates
https://www.bogleheads.org/wiki/Trinity_study_update
Last edited by arcticpineapplecorp. on Fri Dec 16, 2016 4:44 pm, edited 1 time in total.
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Taylor Larimore
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Good advice.

Post by Taylor Larimore » Fri Dec 16, 2016 3:11 pm

Thank you for your advice (CAsage). You are right, I was complicated things. I decided to do what you said, I changed my TD fund to an earlier date that looks aligned with both my current AA target and my future one.
BogleMelon:

Good advice which you are wise to follow.

Strive for simplicity--not complexity.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

BogleMelon
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Re: Good advice.

Post by BogleMelon » Fri Dec 16, 2016 3:23 pm

Taylor Larimore wrote:
Thank you for your advice (CAsage). You are right, I was complicated things. I decided to do what you said, I changed my TD fund to an earlier date that looks aligned with both my current AA target and my future one.
BogleMelon:

Good advice which you are wise to follow.

Strive for simplicity--not complexity.

Best wishes
Taylor
Thanks Taylor, if I have any little wisdom then it is only because of this amazing place and you amazing people!
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David Jay
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Re: Quieting Target Date fund

Post by David Jay » Fri Dec 16, 2016 4:37 pm

TropikThunder wrote:
greg24 wrote:I don't like the asset allocations in the target date funds, I prefer the Life Strategy funds for similar usage.
I don't understand the distinction you are trying to make between TR and LS funds. They are both funds-of-funds, using Vanguard Total US Stock, Total Int'l Stock, Total US Bond, and Total Int'l Bond at various allocations. For each LS fund there's a TR fund with the same/similar allocation:

LifeStrategy Growth Fund: 80% stock, 20% bonds [48% US stock, 32% Int'l stock]/[14% US bond, 6% Int'l bond]
Target Retirement 2035: 80% stock, 20% bonds [48% US stock, 32% Int'l stock]/[14% US bond, 6% Int'l bond]

Both have 40% of the equity as In'tl, both have 30% of the bonds as Int'l. Are you saying you don't like the glidepath? E.g., TR 2035 will decrease stock allocation over time while LS Growth won't.
Exactly. LS funds hold their asset allocation in-perpetuity. TR funds have a glidepath.

TR funds are a "set it and forget it" tool. LS works well for those who want to manage their glidepath (or lack there of). In my case, my asset allocation will be more conservative after retirement but before claiming SS benefits. After SS starts, my risk goes down considerably and I will want to actually INCREASE my stock allocation.

To hit specific target allocations, just hold a ratio of (2) LS funds - for 65/35, hold 25% LS Aggressive and 75% LS Moderate
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tj218
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Re: [Quitting] Target Date fund

Post by tj218 » Sat Dec 17, 2016 4:27 pm

I moved out Target (2045) this past summer. I admittedly hadn't paid attention to it over the past few years and was surprised how large of a % was in international. I'm not opposed to holding a small 10-20% international, but I am not wedded to either. But to me the bigger factor was the AA. I'm mid 30s and felt 90% stocks was just too high, especially with the stock market at record high levels. I know it's anti-Boglehead, but it made me quite uncomfortable.

I switched to VBIAX (Balanced Index) and Total Stock Market. My AA is now 70/30 with no foreign exposure outside of US companies, I feel more confident that if a downturn hits I won't be as exposed as I was before.

sambb
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Re: [Quitting] Target Date fund

Post by sambb » Sat Dec 17, 2016 5:21 pm

if you invest only in the target fund in tax deferred for the next 30 years, and nothing else, I bet you would be just fine in most cases.

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greg24
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Re: Quieting Target Date fund

Post by greg24 » Mon Dec 19, 2016 4:19 pm

TropikThunder wrote:
greg24 wrote:I don't like the asset allocations in the target date funds, I prefer the Life Strategy funds for similar usage.
I don't understand the distinction you are trying to make between TR and LS funds. They are both funds-of-funds, using Vanguard Total US Stock, Total Int'l Stock, Total US Bond, and Total Int'l Bond at various allocations. For each LS fund there's a TR fund with the same/similar allocation:

LifeStrategy Growth Fund: 80% stock, 20% bonds [48% US stock, 32% Int'l stock]/[14% US bond, 6% Int'l bond]
Target Retirement 2035: 80% stock, 20% bonds [48% US stock, 32% Int'l stock]/[14% US bond, 6% Int'l bond]

Both have 40% of the equity as In'tl, both have 30% of the bonds as Int'l. Are you saying you don't like the glidepath? E.g., TR 2035 will decrease stock allocation over time while LS Growth won't.
I don't like the glidepath. What if I want 80/20, but I don't plan to retire in 2035? It seems like the TD funds hold a fairly high ptg of equities, and glide sharply near retirement.

I'm looking at the TD 2035 fund on the Vanguard site, and I may just be slow, but I don't see a specific description of the glide path, simply "The funds continue to adjust for approximately seven years after that date until their allocations match that of the Target Retirement Income Fund. "

I'd prefer to select the LS 80/20, and can move the funds to a different LS fund when I want to. I imagine a lot of people in the TD funds end up in AA that they don't even realize they're in.

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Taylor Larimore
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Re: [Quitting] Target Date fund

Post by Taylor Larimore » Mon Dec 19, 2016 5:18 pm

I don't like the glidepath. What if I want 80/20, but I don't plan to retire in 2035? It seems like the TD funds hold a fairly high ptg of equities, and glide sharply near retirement.

Greg:

Assuming your Target or Life Cycle fund is in a tax-advantaged account (where it should be), if you don't like the stock/bond allocation, you can easily exchange to another stock/bond allocation in either type fund without cost. However, Vanguard Target Funds have 12 choices; LifeCycle Funds only 4 choices.

Happy Holiday!
Taylor
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Re: [Quitting] Target Date fund

Post by inbox788 » Mon Dec 19, 2016 9:13 pm

IMO, the optimal number of funds is 1. This can be best done with a lifestrategy or target date. You could always switch funds (especially in a tax advantaged account) if you find one of the other single funds doesn't meet your needs. Others go VT/BND or VTI/VXUS/BND or similar to achieve more tailored asset allocations and glidepaths, but involve a little more management. IF you're fairly happy with the lifestrategy/target date fund, but find just one thing wrong with it, you could potentially augment it with say 10% in VT. But any more than 1 additional fund and you might as well manually decide what to do. I've seen folks with 5 or more funds and some target date funds mixed in and that's about the most complex situation imaginable.

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