Vanguard Target fund vs 5 ETF's or Funds?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
DanFrancis
Posts: 6
Joined: Wed Jun 21, 2017 12:38 am

Vanguard Target fund vs 5 ETF's or Funds?

Post by DanFrancis » Fri Jun 23, 2017 11:25 pm

Right now I have 300K in a Vanguard Target-date Retirement fund. It looks like my fees would be reduced a bit if I held my money in 5 different Vanguard ETF's or Mutual Funds and re-balanced it myself quarterly/yearly. Is it worth the extra effort? Or should I just let Vanguard do all the re-balancing for me? What are others doing?

mhalley
Posts: 5187
Joined: Tue Nov 20, 2007 6:02 am

Re: Vanguard Target fund vs 5 ETF's or Funds?

Post by mhalley » Fri Jun 23, 2017 11:30 pm

in this poll, the td fund came out ahead as a recommendation, but I imagine most older bogleheads do not use the td fund. Whether the decreased cost is worth the rebalancing hassle is up to the individual to decide.
viewtopic.php?t=155111

dbr
Posts: 24132
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard Target fund vs 5 ETF's or Funds?

Post by dbr » Sat Jun 24, 2017 8:53 am

The question is really whether or not the asset allocation as the fund proceeds along its glide path suits you and whether the tax location makes sense for you. Probably only a minority of investors find a TD fund meets both of those criteria, but if they are met I imagine a lot of people would be very happy to stay in TD and not worry about a nearly negligible extra cost.

livesoft
Posts: 57209
Joined: Thu Mar 01, 2007 8:00 pm

Re: Vanguard Target fund vs 5 ETF's or Funds?

Post by livesoft » Sat Jun 24, 2017 9:42 am

I've been using a Target Retirement fund as a benchmark against my separate fund portfolio for the past few years. I will say that one can do better than the Target fund, but one has to be very very good at rebalancing to do so. I don't believe that most investors can do better than the Target fund.

So if you do not have a taxable account and will not practice tax-loss harvesting, then you should stick with the Target Retirement fund in my opinion.

But you can also do the experiment yourself. With a $300K portfolio, you can keep half in your Target Date fund and put the other half in your separate funds. You can even make contributions and withdrawals in each half-portfolio on the same days. Then you can report back in this thread which half was better, whatever "better" means. Thanks!

I also want to add that it really doesn't matter to you if someone else does the experiment for themselves. Since they are not you and you are not them, I don't think you would match what they did with rebalancing and portfolio management. That is, their experience will not help you because you will be different enough to change the outcome much of the time.
This signature message sponsored by sscritic: Learn to fish.

KT785
Posts: 79
Joined: Fri Jul 11, 2014 2:21 pm

Re: Vanguard Target fund vs 5 ETF's or Funds?

Post by KT785 » Sat Jun 24, 2017 10:04 am

livesoft wrote:II will say that one can do better than the Target fund, but one has to be very very good at rebalancing to do so. I don't believe that most investors can do better than the Target fund.
+1

I use the Vanguard Target Date 2050 fund in both my 401k and Roth IRA (and my wife's 401k and Roth IRA)--though our 401ks are in the Trust Select version with a 0.05% expense ratio. :D

Convenience is a factor, but one of the larger drivers for me in leveraging the Target Date Funds is that it prevents me from needlessly tinkering with my portfolio which may undoubtedly cause more harm than good. Ultimately, I think the Target Date Funds I use help protect me from my own good intentions . . . . and likewise keep me from constantly second guessing my asset allocation.

backslash2718
Posts: 13
Joined: Tue Feb 14, 2017 3:07 pm
Location: Washington DC

Re: Vanguard Target fund vs 5 ETF's or Funds?

Post by backslash2718 » Sat Jun 24, 2017 11:17 am

livesoft wrote:So if you do not have a taxable account and will not practice tax-loss harvesting, then you should stick with the Target Retirement fund in my opinion.
This. The real benefit of splitting out the TR fund into its components is for use in TLH.

User avatar
ruralavalon
Posts: 11864
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Vanguard Target fund vs 5 ETF's or Funds?

Post by ruralavalon » Sat Jun 24, 2017 11:27 am

DanFrancis wrote:Right now I have 300K in a Vanguard Target-date Retirement fund. It looks like my fees would be reduced a bit if I held my money in 5 different Vanguard ETF's or Mutual Funds and re-balanced it myself quarterly/yearly. Is it worth the extra effort? Or should I just let Vanguard do all the re-balancing for me? What are others doing?
The target date fund with have a slightly higher weighted expense ratio, will have an asset allocation and glide path that you can't control, and will rebalance and manage itself completely hands off.

The 3-5 separate funds will have slightly lower weighted average expense ratio, will let you choose your asset allocation and any adjustments in asset allocation over time, and so will require a little portfolio management from you. You probably won't need to rebalance more often than every year or two.

You can calculate the impact of the difference in weighted expense ratios.

Low expense ratios are critical to long-term investing performance, but small differences have a smaller impact. Vanguard blog post, "Stopping the silent killer of returns". Please see the table at the end of the post, "Cumulative impact of fees on ending wealth at various time horizons." Also, here is a calculator you could use to estimate the impact of differences in investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar article. “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

How much you value simplicity and totally hands off portfolio management is strictly personal, and can not be a calculation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Post Reply