Vanguard Target Fund Changes

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cavman22
Posts: 4
Joined: Wed Oct 04, 2017 1:47 pm
Location: Denver

Vanguard Target Fund Changes

Post by cavman22 » Wed Oct 04, 2017 1:58 pm

Hello,

I'm new here, but I've been reading the forum for over a year. I've picked up a lot of advice here and it's helped change "my ways". I'm probably not quite a boglehead but working toward it.

I'm 31, married, 1 child, and work for a fortune 100 company outside Denver, CO. Our company offers several funds through Vanguard and matches 50% of 6%. I've been doing that or more for the 5 years I've been here(Currently @ 12% + Match).

Anyway, long story short, I logged into Vanguard yesterday and noticed my investments had been exchanged from Target Retirement 2050 to Target Retire 2050 Trust II. Does anyone know anything about the change? I do see that the expense ratios went form .16 to .08, which is good, and the allocation's are almost identical. I didn't know if it's because i hit some type of milestone (Also coincidentally hit $50K mark in that particular account, same time) or if they just changed all of their target funds? I've had zero communication from Vanguard

Did this happen to anyone else?

Thanks, look forward to being a contributor here.

ofckrupke
Posts: 283
Joined: Mon Jan 10, 2011 2:26 pm

Re: Vanguard Target Fund Changes

Post by ofckrupke » Wed Oct 04, 2017 3:41 pm

Welcome.

Your employer evidently changed its plan to use Vanguard-managed Collective Investment Trusts (CITs) for its target-date investment menu instead of mutual funds.

CITs operate a little differently from mutual funds in that they don't cast off dividends - the value per investment unit or share just increases
faster than the share price on the corresponding mutual fund's shares, by the amount of internal re-investment made possible by retaining
rather than distributing dividends. If dividends for your target date fund were set up in your account to be automatically reinvested into more shares of the same fund, then the growth pattern of your holding in the CIT will be identical to holding the same-target-dated mutual fund since they are both managed to the same composition of stocks and bonds - except that as you've noticed already the internal expense of the CIT is lower, so the absolute growth should be something like 0.16%-0.08% = 0.08% higher annually.

Most likely your employer has made the move because the due diligence indicates the basic investment risk/return is identical except for the expense-ratio benefit to its participants (like you), and to fail to make the change would expose the company to increased risk of class action for fiduciary negligence. It's an improvement to your plan.

You can find documentation for your CIT at institutional.vanguard.com if your employer plan's online interface doesn't have links.

livesoft
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Re: Vanguard Target Fund Changes

Post by livesoft » Wed Oct 04, 2017 4:04 pm

Vanguard has no responsibility for this, but your employer does. Did your employer not tell anyone? That's not good even though it is an improvment.
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abuss368
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Re: Vanguard Target Fund Changes

Post by abuss368 » Wed Oct 04, 2017 9:02 pm

I suspect your employer made this change to the plan. I would expect a communication to plan participants notifying of the change prior to it becoming effective.
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cavman22
Posts: 4
Joined: Wed Oct 04, 2017 1:47 pm
Location: Denver

Re: Vanguard Target Fund Changes

Post by cavman22 » Thu Oct 05, 2017 8:43 am

Thanks for the information all. I logged into vanguard this morning and i did receive a confirmation explaining it was an employer driven change. Still nothing from my employer, but as long as its for the better i guess i dont care. Sounds like the CIT's are just fine and comparable to the previous target funds?

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