Vanguard Target Retirement Funds added to 401k

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KCRoyals
Posts: 7
Joined: Sun Aug 20, 2017 8:20 pm

Vanguard Target Retirement Funds added to 401k

Post by KCRoyals » Wed Sep 13, 2017 5:36 pm

I just got a notice that my 401k is adding Vanguard Target Retirement Funds. My wife and I are both 38 y/o and have access to the same 401k.
We are maxing out contributions. Mine is a traditional contribution, my wife's is ROTH.

Current breakdown:
His Traditional 401k - $410k - listed below is both current % held and contribution % (auto re-adjusted every quarter)
Amer Beacon LC Value 1 (AADEX) - 10% of total, Expense Ratio of 0.60%
Vanguard 500 Index Admiral (VFIAX) - 15% of total, ER of 0.04%
MainStay Large Cap Growth ( MLAIX) - 20% of total, ER of 0.75%
Columbia MidCap Value R4 (CFDRX) - 5% of total, ER of 0.93%
AMG Mgrs Fairpoint MidCap 1 (ABMIX) - 15% of total, ER of 0.88%
T.Rowe Price Mid-Cap Growth (RPMGX) - 15% of total, ER of 0.77%
Wells Fargo Sm Cap Growth (WSCGX) - 10% of total, ER of 1.01%
Oakmark International Inv (OAKIX) - 10% of total, ER of 1.05%

Her Roth 401k - $240k - listed below is both current % held and contribution % (auto re-adjusted every quarter)
Vanguard Wellington Adm (VWENX) - 20% of total, ER of 0.16%
Vanguard 500 Index Admiral (VFIAX) - 10% of total, ER of 0.04%
Vanguard PrimeCap Adm (VPMAX) - 5% of total, ER of 0.33%
Harbor Capital Appreciation (HACAX) - 10% of total, ER of 0.70%
T.Rowe Price Mid-Cap Growth (RPMGX) - 15% of total, ER 0.77%
DFA US Targeted Value 1 (DFFVX) - 10% of total, ER of 0.37%
Oppenheimer Intern Growth Y (OIGYX) - 25% of total, ER of 0.89%
T.Rowe Price Health (PRHSX) - 5% of total, ER of 0.77%

Any reason why we shouldn't both go to the new Vanguard Target Retirement Fund??? I have been wanting to simplify and lower ER since I found THIS GREAT FORUM. Seems like now I may have a great opportunity. I am leaning toward Vanguard Target Retirement 2035 Fund (VTTHX). Would appreciate any feedback.

ebrasmus21
Posts: 58
Joined: Tue Nov 29, 2016 6:06 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by ebrasmus21 » Wed Sep 13, 2017 5:44 pm

If my 401k had that option I'd be very tempted. Curious what others will say.

Slothmeister
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Joined: Sun Sep 10, 2017 11:48 am

Re: Vanguard Target Retirement Funds added to 401k

Post by Slothmeister » Wed Sep 13, 2017 5:49 pm

Simplify and lower your expense ratio. I think that makes perfect sense. I'm sure others on here with much more knowledge will give you more insight.

JBTX
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Joined: Wed Jul 26, 2017 12:46 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by JBTX » Wed Sep 13, 2017 6:12 pm

Short answer I'd say yes, use the target funds.

But what I don't know is

1. What is the ER of the VG target funds?
2. What are you trying to accomplish with your current allocations? A Target retirement fund will have different allocations than what you have. If there is a specific reason your allocation is the way it is, then the target fund will deviate from it. Is that OK?

That said, assuming the target funds have low ER, I think you are better off switching to them.

sambb
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Re: Vanguard Target Retirement Funds added to 401k

Post by sambb » Wed Sep 13, 2017 6:33 pm

YES, do it/ Target is perfect for tax deferred in so many ways/

KCRoyals
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Joined: Sun Aug 20, 2017 8:20 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by KCRoyals » Thu Sep 14, 2017 7:34 am

Thanks for the responses!!

1. What is the ER of the VG target funds?
2. What are you trying to accomplish with your current allocations? A Target retirement fund will have different allocations than what you have. If there is a specific reason your allocation is the way it is, then the target fund will deviate from it. Is that OK?

1) ER of the VG funds is 0.15%.
2) I am wanting to get an AA of 80/20 (stock/bond) and with the stock breakdown being about 66/33 (domestic/international).

goingup
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Joined: Tue Jan 26, 2010 1:02 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by goingup » Thu Sep 14, 2017 8:07 am

It's a no brainer to use a Target fund in your 401K. Look at the composition rather than the date to choose the one you want.

You'll save at least .50 in ER by using the TR fund, and with your balance that's real money. $410K * .50% = $2,050 saved. Besides the savings, the diversification of the Target fund is hard to beat.

dbk
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Joined: Sat Aug 26, 2017 2:50 am

Re: Vanguard Target Retirement Funds added to 401k

Post by dbk » Thu Sep 14, 2017 8:57 am

goingup wrote:
Thu Sep 14, 2017 8:07 am
You'll save at least .50 in ER by using the TR fund, and with your balance that's real money. $410K * .50% = $2,050 saved. Besides the savings, the diversification of the Target fund is hard to beat.
Target Funds of Vanguard invests in other Vanguard Funds (Total US, Total Intl, Total US bond, Total Intl. bond). For overall ER, shouldn't we count ER for each of those funds plus ER for Target Fund itself?

I believe all of those target funds should be Institutional or Trust oriented - so, ER should be much less than investor class.

dbr
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Re: Vanguard Target Retirement Funds added to 401k

Post by dbr » Thu Sep 14, 2017 9:02 am

dbk wrote:
Thu Sep 14, 2017 8:57 am
goingup wrote:
Thu Sep 14, 2017 8:07 am
You'll save at least .50 in ER by using the TR fund, and with your balance that's real money. $410K * .50% = $2,050 saved. Besides the savings, the diversification of the Target fund is hard to beat.
Target Funds of Vanguard invests in other Vanguard Funds (Total US, Total Intl, Total US bond, Total Intl. bond). For overall ER, shouldn't we count ER for each of those funds plus ER for Target Fund itself?

I believe all of those target funds should be Institutional or Trust oriented - so, ER should be much less than investor class.
No, TR funds do not pay individual ERs plus an addition. One will have to look at the fund documentation to find out what will be charged in that plan. The OP has volunteered on his own to invest in a number of funds that have excessive ERs compared to some of the choices available.

goingup
Posts: 2635
Joined: Tue Jan 26, 2010 1:02 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by goingup » Thu Sep 14, 2017 9:04 am

dbk wrote:
Thu Sep 14, 2017 8:57 am
goingup wrote:
Thu Sep 14, 2017 8:07 am
You'll save at least .50 in ER by using the TR fund, and with your balance that's real money. $410K * .50% = $2,050 saved. Besides the savings, the diversification of the Target fund is hard to beat.
Target Funds of Vanguard invests in other Vanguard Funds (Total US, Total Intl, Total US bond, Total Intl. bond). For overall ER, shouldn't we count ER for each of those funds plus ER for Target Fund itself?

I believe all of those target funds should be Institutional or Trust oriented - so, ER should be much less than investor class.
No. The ER of a Target Fund is the ER listed--in this case .15. To find out the ER of any fund in your 401K you have to consult your company's 401K Plan Documents, often a PDF available online.

mega317
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Re: Vanguard Target Retirement Funds added to 401k

Post by mega317 » Thu Sep 14, 2017 11:01 am

KCRoyals wrote:
Thu Sep 14, 2017 7:34 am

2) I am wanting to get an AA of 80/20 (stock/bond) and with the stock breakdown being about 66/33 (domestic/international).
Just be aware that the Target funds are 60/40 US/international. In my opinion this is close enough to your desired 66/33 that the difference is worth the simplicity and ER savings.

jgdsss
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Joined: Mon May 16, 2016 11:31 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by jgdsss » Thu Sep 14, 2017 7:31 pm

Coincidence, my husband just changed jobs and there are several Target Retirement funds in their offerings. We can choose those or customize. I'm not sure why we wouldn't use the Target Retirement Funds, as a few others here have mentioned. The one has an ER of .15%.

I'm curious, he has option for 401k or a Roth401k. Do you have an opinion on one vs the other? It seems as if you have the same option in your plan. Thanks!

KCRoyals
Posts: 7
Joined: Sun Aug 20, 2017 8:20 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by KCRoyals » Thu Sep 14, 2017 8:58 pm

A lot of what you read about choosing between a traditional and Roth 401k involves around what you think your tax liability will be at retirement. Who knows?? So my wife and I do both. We set mine up as traditional and hers as Roth.
Others here will give you a much better answer:)

PFInterest
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Joined: Sun Jan 08, 2017 12:25 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by PFInterest » Thu Sep 14, 2017 9:04 pm

I think the bigger question is why Roth 401k?

But yes, the TDF are great options.

selters
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Joined: Thu Feb 27, 2014 9:26 am

Re: Vanguard Target Retirement Funds added to 401k

Post by selters » Fri Sep 15, 2017 4:28 am

mega317 wrote:
Thu Sep 14, 2017 11:01 am
KCRoyals wrote:
Thu Sep 14, 2017 7:34 am

2) I am wanting to get an AA of 80/20 (stock/bond) and with the stock breakdown being about 66/33 (domestic/international).
Just be aware that the Target funds are 60/40 US/international. In my opinion this is close enough to your desired 66/33 that the difference is worth the simplicity and ER savings.
The international portion can be watered down with the S&P 500 index fund - if desired. But it will also water down the bond allocation. This effect can offset by using a target retirement date fund with a higher bond allocation. All of this requires some maintenance and knowledge of asset allocation. Especially since the bond allocation in target retirement date funds is not static. The added complexity is almost surely not worth it. But it can be done.

Just go 100% target retirement date fund, I'd say.

rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Vanguard Target Retirement Funds added to 401k

Post by rkhusky » Fri Sep 15, 2017 7:24 am

KCRoyals wrote:
Thu Sep 14, 2017 8:58 pm
A lot of what you read about choosing between a traditional and Roth 401k involves around what you think your tax liability will be at retirement. Who knows?? So my wife and I do both. We set mine up as traditional and hers as Roth.
Others here will give you a much better answer:)
How about using the tax savings from using a traditional 401k to fund a Roth IRA? That provides enough diversity for most people. Traditional is also good if you plan to retire early, before pension and SS. During this period, use the traditional to fund living expenses and conversions to Roth. I like the idea of saving 25% on taxes when contributing, and then paying 0%, 10%, and 15% when withdrawing.

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