Vanguard Target Date Funds

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ANKLEDEEP
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Vanguard Target Date Funds

Post by ANKLEDEEP » Thu Mar 08, 2018 2:39 am

Wanted to hear thought on using a Target date Vanguard fund for ROTH ITA for mid 30 year old.

I had a Edward Jones rep at a home and garden show this past weekend tell me he “hates them” tho he couldn’t give me a clear reason why.

Wondering because my ROTH is in a Vanguard 2050 fund currently.

Pros and Cons?

Thanks

lack_ey
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Re: Vanguard Target Date Funds

Post by lack_ey » Thu Mar 08, 2018 3:05 am

I would say that they're largely inoffensive, within the norm for the category in terms of risks. Vanguard's target date series has the most assets under management. As another indication of their acceptance, Morningstar's analysts give them a gold rating, and they're not exactly passive-only diehards.

Compared to most others, they're significantly cheaper than average and only use index funds. Many others use actively managed funds inside, but there are others using index funds as well. I can't think of a strong reason to dislike theirs as opposed to other similar funds, unless you really don't like index funds. Most all of the other funds of this type include both stocks and bonds, with many being similarly aggressive out 30+ years from the target date. Vanguard uses an above-average percentage of international assets but not really notably so.

Particularly with the long-dated funds that are 90% equity, there's not really too much to say. The fund will behave like the underlying components, and the fund doesn't even need to do much rebalancing over time to try to keep around 90%. There's not a lot of trading, so even if you don't like the rebalancing procedure and frequency, that doesn't have much an impact.

There are also some criticisms of target date funds more generally. First of all, any one-size-fits-all kind of solution is not going to be necessarily best tailored to any given person's situation. Without knowing more about your other accounts and objectives it's not possible to assess how this would fit for you as opposed to some other allocation. Some disagree with the premise of the glidepath, though as I said earlier it's rather in the mainstream of thought.

It would be easier to respond to specific criticisms, but I don't particularly think most Edward Jones reps novel insights worth listening to anyway, and they have clear conflicts of interest.

TwstdSista
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Re: Vanguard Target Date Funds

Post by TwstdSista » Thu Mar 08, 2018 5:05 am

Target Date funds are fantastic, assuming the expense ratio is low. Vanguard has some of the best TD funds in the business.

Edward Jones is not fantastic. They are sales people who use high ER funds and make tons of money off the ignorance of their clients.

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oldcomputerguy
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Re: Vanguard Target Date Funds

Post by oldcomputerguy » Thu Mar 08, 2018 6:26 am

ANKLEDEEP wrote:
Thu Mar 08, 2018 2:39 am
Wanted to hear thought on using a Target date Vanguard fund for ROTH ITA for mid 30 year old.

I had a Edward Jones rep at a home and garden show this past weekend tell me he “hates them” tho he couldn’t give me a clear reason why.

He probably hates them because a target-date fund does all the "management" that a 30-year-old needs, at one-tenth the cost that Edward Jones would charge. He can't make his boat payment that way.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

Silk McCue
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Re: Vanguard Target Date Funds

Post by Silk McCue » Thu Mar 08, 2018 8:26 am

The Edward Jones rep doesn't like Target Date Funds because if they can make you question whether or not they are a good fit for you then they can "help you out" by taking you on as a client and charge you high fees for an overly complex investment strategy and make lots of money off of you. All the time making you think complex is good and that you are doing "better" with them.

Forget that these are called Target Date Funds and that they have a date associated with them. The only thing that matters is the asset allocation of the fund, the diversity of the funds holdings, and the expense of holding the fund. I utilize them because they fit my needs.

I can't imagine giving Edward Jones 1.35% AUM fees annually. As an example imagine you have $1 Million dollars in your account at EJ 40 years from now. The annual AUM fee will be (1.35%) $13,500 that year. For the Vanguard TD 2050 the fees will be (.15%) or $1500. It's even worse than this because had the annual returns before fees been the same under both scenarios the Vanguard TD account would be worth $400,000 more at $1.4 Million dollars. Ouch!

3funder
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Re: Vanguard Target Date Funds

Post by 3funder » Thu Mar 08, 2018 8:31 am

TwstdSista wrote:
Thu Mar 08, 2018 5:05 am
Target Date funds are fantastic, assuming the expense ratio is low. Vanguard has some of the best TD funds in the business.

Edward Jones is not fantastic. They are sales people who use high ER funds and make tons of money off the ignorance of their clients.
+1. If a Vanguard Target Date Fund can't get the job done, we're all screwed.

Texanbybirth
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Re: Vanguard Target Date Funds

Post by Texanbybirth » Thu Mar 08, 2018 10:07 am

3funder wrote:
Thu Mar 08, 2018 8:31 am
TwstdSista wrote:
Thu Mar 08, 2018 5:05 am
Target Date funds are fantastic, assuming the expense ratio is low. Vanguard has some of the best TD funds in the business.

Edward Jones is not fantastic. They are sales people who use high ER funds and make tons of money off the ignorance of their clients.
+1. If a Vanguard Target Date Fund can't get the job done, we're all screwed.
That's a great quote! :D

MJW
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Re: Vanguard Target Date Funds

Post by MJW » Thu Mar 08, 2018 10:17 am

ANKLEDEEP wrote:
Thu Mar 08, 2018 2:39 am
I had a Edward Jones rep at a home and garden show this past weekend tell me he “hates them” tho he couldn’t give me a clear reason why.
He hates them because they are the antithesis of his professional existence.

They are a fine, practical choice for most investors.

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David Jay
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Re: Vanguard Target Date Funds

Post by David Jay » Thu Mar 08, 2018 10:17 am

3funder wrote:
Thu Mar 08, 2018 8:31 am
If a Vanguard Target Date Fund can't get the job done, we're all screwed.
Or to paraphrase "neurosphere": If you don't know whether a Target Date fund is right for you, it is.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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parsi1
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Re: Vanguard Target Date Funds

Post by parsi1 » Thu Mar 08, 2018 10:19 am

I am 100% in Vanguard target retirement in my 401K. a low cost managed fund that is invested only in index funds and they do the rebalancing.
I was doing it myself by investing in individual index funds but was always struggling with asset allocation and didn’t know when to rebalance.
Now I don’t worry about it and haven’t touched it for over 5-years. Just contribute with every paycheck and leave the rest to Vanguard.

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parsi1
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Re: Vanguard Target Date Funds

Post by parsi1 » Thu Mar 08, 2018 10:21 am

David Jay wrote:
Thu Mar 08, 2018 10:17 am
3funder wrote:
Thu Mar 08, 2018 8:31 am
If a Vanguard Target Date Fund can't get the job done, we're all screwed.
Or to paraphrase "neurosphere": If you don't know whether a Target Date fund is right for you, it is.
+1, but I would add a Vanguard in there, all the target dated funds are not the same.

dbr
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Re: Vanguard Target Date Funds

Post by dbr » Thu Mar 08, 2018 10:22 am

I "hate" them because:

1. They are advertised to be purchased by a date of retirement, which is bad financial advice being given by a mutual fund company that should not be giving advice to naive investors who should not be taking advice from a mutual fund company.

2. They have had a history of changing asset allocation without clear explanation. I don't mean glide path. A set and forget investor should not have this happen.

3. TD funds change asset allocation according to a glide path that is is imposed without the naive investor being clear that the asset allocations are appropriate.

4. TD funds are not necessarily tax efficient in taxable accounts, which may or may not be understood by the investor.

5. TD funds hide the actual nature of the portfolio from the investor who should be investing with awareness as to asset allocation.

6. TD funds are a more complicated portfolio component when they are one item in a portfolio that has many sorts of funds in different locations. While the fund itself manages to be rebalanced, rebalancing the entire portfolio is less clearcut.

7. One may not actually want some of the components of the TD fund but one gets them anyway without thinking about it.

8. A minor quibble is that even very cost effective TD funds are still not always the lowest cost the investor might manage.

dbr
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Re: Vanguard Target Date Funds

Post by dbr » Thu Mar 08, 2018 10:23 am

David Jay wrote:
Thu Mar 08, 2018 10:17 am
3funder wrote:
Thu Mar 08, 2018 8:31 am
If a Vanguard Target Date Fund can't get the job done, we're all screwed.
Or to paraphrase "neurosphere": If you don't know whether a Target Date fund is right for you, it is.
I disagree. In that case the investor does not know what he is doing, and that is never good. It is harder to figure out that a target date fund is the right investment than it is to figure out that, for example, a three fund portfolio is the right investment.

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Re: Vanguard Target Date Funds

Post by tfb » Thu Mar 08, 2018 10:29 am

ANKLEDEEP wrote:
Thu Mar 08, 2018 2:39 am
I had a Edward Jones rep at a home and garden show this past weekend tell me he “hates them” tho he couldn’t give me a clear reason why.
Because they are so simple but he still can't beat them? I'd hate them too if I'm put into that position.
Last edited by tfb on Thu Mar 08, 2018 10:30 am, edited 1 time in total.
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radiowave
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Re: Vanguard Target Date Funds

Post by radiowave » Thu Mar 08, 2018 10:29 am

An alternative to the VG Target Date retirment funds is the LIfeStrategy suite, e.g. moderate growth which is a fixed asset allocation vs. glidepath. There no right or wrong issue here, just what works best for the individual investor.
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Taylor Larimore
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Re: Vanguard Target Date Funds

Post by Taylor Larimore » Thu Mar 08, 2018 10:31 am

I had a Edward Jones rep at a home and garden show this past weekend tell me he “hates them” tho he couldn’t give me a clear reason why.
ANKLEDEEP:

Of course "he couldn't give me a clear reason why." Any low cost target-date fund is superior to anything an Edward Jones rep will offer.

Best wishes
Taylor
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dbr
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Re: Vanguard Target Date Funds

Post by dbr » Thu Mar 08, 2018 10:31 am

radiowave wrote:
Thu Mar 08, 2018 10:29 am
An alternative to the VG Target Date retirment funds is the LIfeStrategy suite, e.g. moderate growth which is a fixed asset allocation vs. glidepath. There no right or wrong issue here, just what works best for the individual investor.
I agree that LS funds and various balanced funds might be a better choice to some of my comments about TR funds, but not to all of them. It is indeed a question of fit for the investor.

MJW
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Re: Vanguard Target Date Funds

Post by MJW » Thu Mar 08, 2018 10:31 am

dbr wrote:
Thu Mar 08, 2018 10:23 am
I disagree. In that case the investor does not know what he is doing, and that is never good. It is harder to figure out that a target date fund is the right investment than it is to figure out that, for example, a three fund portfolio is the right investment.
I agree that investors have a responsibility to themselves to understand what they are getting into. I doubt the EJ rep "hates" the target date funds for the reasons you outlined above. Hopefully an investor would choose one of these funds because they have decided the concerns you cited are an acceptable trade-off for whatever benefit they hope to derive from them.

I also agree that Vanguard's tinkering with the funds can be problematic, but I don't see as much of an issue with the pre-determined glidepath for someone that would otherwise worry and stress over making the "right" call.

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David Jay
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Re: Vanguard Target Date Funds

Post by David Jay » Thu Mar 08, 2018 12:06 pm

dbr wrote:
Thu Mar 08, 2018 10:23 am
David Jay wrote:
Thu Mar 08, 2018 10:17 am
3funder wrote:
Thu Mar 08, 2018 8:31 am
If a Vanguard Target Date Fund can't get the job done, we're all screwed.
Or to paraphrase "neurosphere": If you don't know whether a Target Date fund is right for you, it is.
I disagree. In that case the investor does not know what he is doing, and that is never good. It is harder to figure out that a target date fund is the right investment than it is to figure out that, for example, a three fund portfolio is the right investment.
I think most on this forum would agree that more understanding is better. But I think that is exactly neurosphere's point.

An early-20s individual with a new job and a new 401K. They don't know what to do, so they do nothing. Isn't it a lot better to get them going with a Target Date fund? This is how I advised my own daughter.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

smithmmark
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Re: Vanguard Target Date Funds

Post by smithmmark » Thu Mar 08, 2018 12:37 pm

David Jay wrote:
Thu Mar 08, 2018 12:06 pm
dbr wrote:
Thu Mar 08, 2018 10:23 am
David Jay wrote:
Thu Mar 08, 2018 10:17 am
3funder wrote:
Thu Mar 08, 2018 8:31 am
If a Vanguard Target Date Fund can't get the job done, we're all screwed.
Or to paraphrase "neurosphere": If you don't know whether a Target Date fund is right for you, it is.
I disagree. In that case the investor does not know what he is doing, and that is never good. It is harder to figure out that a target date fund is the right investment than it is to figure out that, for example, a three fund portfolio is the right investment.
I think most on this forum would agree that more understanding is better. But I think that is exactly neurosphere's point.

An early-20s individual with a new job and a new 401K. They don't know what to do, so they do nothing. Isn't it a lot better to get them going with a Target Date fund? This is how I advised my own daughter.
I agree. My daughter's 403(b) has Vanguard Target Date funds. I advised her to contribute to the 2060 fund and don't worry about it.

PatrickA5
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Re: Vanguard Target Date Funds

Post by PatrickA5 » Thu Mar 08, 2018 2:58 pm

dbr wrote:
Thu Mar 08, 2018 10:22 am
I "hate" them because:

1. They are advertised to be purchased by a date of retirement, which is bad financial advice being given by a mutual fund company that should not be giving advice to naive investors who should not be taking advice from a mutual fund company.

2. They have had a history of changing asset allocation without clear explanation. I don't mean glide path. A set and forget investor should not have this happen.

3. TD funds change asset allocation according to a glide path that is is imposed without the naive investor being clear that the asset allocations are appropriate.

4. TD funds are not necessarily tax efficient in taxable accounts, which may or may not be understood by the investor.

5. TD funds hide the actual nature of the portfolio from the investor who should be investing with awareness as to asset allocation.

6. TD funds are a more complicated portfolio component when they are one item in a portfolio that has many sorts of funds in different locations. While the fund itself manages to be rebalanced, rebalancing the entire portfolio is less clearcut.

7. One may not actually want some of the components of the TD fund but one gets them anyway without thinking about it.

8. A minor quibble is that even very cost effective TD funds are still not always the lowest cost the investor might manage.
While all of this is true, the vast majority of people don't know this and will never spend the time to know this. They are better off with a TD fund than Edward Jones or, for that matter, expensive actively managed funds. While I understand every point you made, I still have 95% of my retirement money in VG LS Moderate and will leave it there until we start withdrawing in a few years. Could I make a few more dollars trying to figure out how to cure the 8 problems above? Maybe. But, I like simple.

mancich
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Re: Vanguard Target Date Funds

Post by mancich » Thu Mar 08, 2018 3:10 pm

Vanguard Target Funds are great. We have the 2025 fund and I am very happy with it. There is the bond inefficiency aspect if held outside a retirement account. But they are a great overall solution if you don't want to mix your own

radiowave
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Re: Vanguard Target Date Funds

Post by radiowave » Thu Mar 08, 2018 6:35 pm

David Jay wrote:
Thu Mar 08, 2018 12:06 pm
. . .
I think most on this forum would agree that more understanding is better. But I think that is exactly neurosphere's point.

An early-20s individual with a new job and a new 401K. They don't know what to do, so they do nothing. Isn't it a lot better to get them going with a Target Date fund? This is how I advised my own daughter.
and works for older investors at well. I have VG TD funds available at ER 0.08% in my work account, so mix them with other 3 fund part of the portfolio. Takes a little more effort following the total AA, but I have that plugged into my spreadsheet.
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youngpleb
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Re: Vanguard Target Date Funds

Post by youngpleb » Thu Mar 08, 2018 7:48 pm

ANKLEDEEP wrote:
Thu Mar 08, 2018 2:39 am
Wanted to hear thought on using a Target date Vanguard fund for ROTH ITA for mid 30 year old.

I had a Edward Jones rep at a home and garden show this past weekend tell me he “hates them” tho he couldn’t give me a clear reason why.

Wondering because my ROTH is in a Vanguard 2050 fund currently.

Pros and Cons?

Thanks
I'd say this:

Pros: Pretty much runs itself. Rebalances automatically. Good selection of highly-diversified mutual funds. Low ER so you are also saving money there.

Cons: Depending on how much you've got, you could possibly get a slightly lower ER if you had your funds manually selected. The target fund might also have too much cash for your liking (doesn't apply to Vanguard's funds but it does for other companies so I'm throwing this in for other readers' sake). You might not want a different rebalancing strategy.

I honestly don't really see why anyone would hate a target fund, unless it was cutting into their livelihood.
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ANKLEDEEP
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Re: Vanguard Target Date Funds

Post by ANKLEDEEP » Fri Mar 09, 2018 7:51 am

Thank you to all for your replies…

Your responses just reassured my confidence in my investment choices.

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Re: Vanguard Target Date Funds

Post by pkcrafter » Fri Mar 09, 2018 8:48 am

I'll bet the EJ guy would quickly change his mind if you told him you would pay an annual fee of 1.5% for the TR fund. :happy

Paul
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