Vanguard Target Retirement Fund to Investor Shares

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schutzk21
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Vanguard Target Retirement Fund to Investor Shares

Post by schutzk21 » Sat Feb 18, 2017 12:53 pm

Hello everyone. I am looking to start investing with Vanguard mutual funds in my Roth IRA. I think I may know the answers to my questions, but I wanted to get some reassurance before I start investing.

I plan to put the minimum $1,000 in Vanguard Target 2050 fund. When I have enough money to buy Vanguard Total International Stock, Total US Stock, and Total Bond Investor Shares that have a minimum investment of $3,000; how would I go about doing this? Does this mean I will have to save up to $9K in my 2050 Target Fund in order to buy the 3 Investor shares funds at $3k a piece? As I am typing this, I know this looks self explanatory, but I just want to make sure I am doing this right. Thanks for your help!

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BL
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by BL » Sat Feb 18, 2017 12:58 pm

Yes, that would work if you want equal portions of each, or are willing to accept it until you can add more to some of the funds.

Perhaps just keep what you have until you have ~$50k, then you could buy Admiral funds of at least $10k each. That is what I would do.

schutzk21
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by schutzk21 » Sat Feb 18, 2017 1:02 pm

BL, would it not be smart to first get up to a certain point, and then buy the investor shares before then buying admiral shares? That was going to be the process I would take initially, but would it be ideal to just go from 2050 Target straight to the admiral shares and skipping the investor shares in the process?

RadAudit
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by RadAudit » Sat Feb 18, 2017 1:09 pm

schutzk21 wrote:BL, would it not be smart to first get up to a certain point, and then buy the investor shares before then buying admiral shares?


It sort of depends on what asset allocation you are aiming at. An equal weight among three funds would be more conservative (Higher allocation to bonds) than what you have now. And three funds would eliminate international bonds from your portfolio.

And, I didn't check on if going to three funds from a target date fund would raise or lower the weighted average of the portfolio's expense ratio (cost).

Sort of depends on what you want to do.
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CABob
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by CABob » Sat Feb 18, 2017 1:12 pm

Since the TR fund uses an allocated expense ratio from the investor class shares the fund holds there is no particular advantage to converting to investor class. Therefore I think waiting until you can invest in one or more Admiral class funds makes more sense to me. Depending on your desired allocation between the component funds you may find you can convert one of the funds (typically the total stock market) before the others are in a position to convert.
Bob

schutzk21
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by schutzk21 » Sat Feb 18, 2017 1:17 pm

Great, this all helps a ton. Thank you for all of your responses. I will start off with the Target fund and then convert to admiral shares 1 fund at a time when I have the right amount saved up.

lyrictulip
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by lyrictulip » Sat Feb 18, 2017 1:18 pm

One alternative would be to invest in equivalent ETF funds at their constituent weightings, which would get you Admiral class expense ratios for no real minimum, but in return for increased complexity. Which isn't to say you should do that - the simplicity of the TR funds has value, and the difference in expense ratio is really quite small.

schutzk21
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by schutzk21 » Sat Feb 18, 2017 3:06 pm

I have one other question. Say I wanted a three fund portfolio of 60% US Stock, 25% International Stock, and 15% Total Bond.

If I am contributing to my Roth IRA every 2 weeks with $100, would I just take that money every 2 weeks and buy $60 worth US stock, $25 worth of International, etc? Wouldn't this be a different way to rebalance every 2 weeks?

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BL
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by BL » Sat Feb 18, 2017 3:45 pm

schutzk21 wrote:BL, would it not be smart to first get up to a certain point, and then buy the investor shares before then buying admiral shares? That was going to be the process I would take initially, but would it be ideal to just go from 2050 Target straight to the admiral shares and skipping the investor shares in the process?


I would wait until you could buy at least one admiral, total stock market, for instance. The total extra cost is minimal for low $ amounts, as they are already low cost. Target funds are great!

rkhusky
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by rkhusky » Sat Feb 18, 2017 3:49 pm

BL wrote:Perhaps just keep what you have until you have ~$50k, then you could buy Admiral funds of at least $10k each. That is what I would do.

+1

If you are going to use the standard 3-fund portfolio, you might as well do this. The difference in expenses is puny until you get some real money in the account. Say the difference in expenses was 0.1% (I think it is less than that), then if you had $100K, the difference would be $100/yr, which would be less than the portfolio fluctuates every day (There are often 1% price changes in the market, which would mean that you are gaining or losing $1000 every week). If your portfolio is $10K divide the above by 10.

The only reason to go beyond the Target Retirement funds in a tax advantaged account is if you want to do something exotic, like 50% small value, 20% emerging markets and 30% Intermediate Treasury.

DSInvestor
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by DSInvestor » Sat Feb 18, 2017 3:52 pm

CABob wrote:Since the TR fund uses an allocated expense ratio from the investor class shares the fund holds there is no particular advantage to converting to investor class.

There may be a cost disadvantage to use investor shares rather than the TR fund. TR funds actually have a lower cost than using the Investor shares separately. This is because TR funds hold Total Bond Market Index II er=0.09% rather than Total Bond Market Index VBMFX er=0.16%.

Total Bond Market Index II is not available to retail investors. This fund was created to be used by Vanguard's funds of funds (TR and LS funds) to isolate the shareholders of the regular Total Bond Market fund from rebalancing actions by funds of funds.

pyld76
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Re: Vanguard Target Retirement Fund to Investor Shares

Post by pyld76 » Sat Feb 18, 2017 4:49 pm

Put the money into the TR fund in your Roth IRA. So long as you don't intend to start taxable investing or have to consider another account like a 401k, build the balance up to $50-60k, and then think about splitting it into constituent Admiral shares of the individual funds that you wish to use to make up your allocation.

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