Vanguard Target Retirement Funds - Investor vs Admiral Shares

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southerndoc
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Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by southerndoc » Mon May 13, 2019 2:29 am

Does anyone have an idea why Vanguard uses investor shares instead of admiral shares in its target retirement funds?

After examining them, I would love to just put my money in a TR fund and let it be. However, the ER is 0.15% compared to VTSAX 0.04% and VFWAX 0.11%.

One would think Vanguard would try to move its composition to admiral shares to lower the ER.

EDIT: corrected ER
Last edited by southerndoc on Mon May 13, 2019 7:28 am, edited 1 time in total.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by Eagle33 » Mon May 13, 2019 2:36 am

I do not know Vanguard's reasoning for no TD Admiral funds. But I would guess some of the added ER cost is because having to balance AA.
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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by Barry Barnitz » Mon May 13, 2019 2:54 am

HI:

Our blog post, along with the linked blog post by Oblivious Investor, may help explain the regulatory and practical constraints on Vanguard's target retirement funds. See Vanguard fund-of-funds and investor shares.

regards,
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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by Explorer » Mon May 13, 2019 6:00 am

Barry Barnitz wrote:
Mon May 13, 2019 2:54 am
HI:

Our blog post, along with the linked blog post by Oblivious Investor, may help explain the regulatory and practical constraints on Vanguard's target retirement funds. See Vanguard fund-of-funds and investor shares.

regards,
Thanks. I suppose the same reasons apply to another fund of funds - the STAR fund.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by rkhusky » Mon May 13, 2019 6:44 am

Which TR fund has an ER of 0.17%? The ones I've checked range from 0.12% - 0.15%. The difference from the individual funds is very small. You just need to decide if the benefits of the TR funds are worth the small cost difference.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by retiredjg » Mon May 13, 2019 7:18 am

I think you should just use the target funds. Even though the ER is higher, they are still considered low cost. That tiny increase in cost should not be enough to sway you away.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by abuss368 » Mon May 13, 2019 7:26 am

You have to weigh the convenience of an all in one fund versus the individual funds.
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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by southerndoc » Mon May 13, 2019 7:28 am

rkhusky wrote:
Mon May 13, 2019 6:44 am
Which TR fund has an ER of 0.17%? The ones I've checked range from 0.12% - 0.15%. The difference from the individual funds is very small. You just need to decide if the benefits of the TR funds are worth the small cost difference.
Typo, sorry. 0.15%.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by southerndoc » Mon May 13, 2019 7:28 am

retiredjg wrote:
Mon May 13, 2019 7:18 am
I think you should just use the target funds. Even though the ER is higher, they are still considered low cost. That tiny increase in cost should not be enough to sway you away.
Isn't that like saying there is no benefit to the Admiral funds?

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by retiredjg » Mon May 13, 2019 7:36 am

southerndoc wrote:
Mon May 13, 2019 7:28 am
retiredjg wrote:
Mon May 13, 2019 7:18 am
I think you should just use the target funds. Even though the ER is higher, they are still considered low cost. That tiny increase in cost should not be enough to sway you away.
Isn't that like saying there is no benefit to the Admiral funds?
No. It's like saying that you are willing to pay a little bit to get something you want. Having your investments rebalanced for you is also a benefit.

Your goal should be to have a low cost portfolio. There is no requirement to have the lowest possible cost portfolio.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by rkhusky » Mon May 13, 2019 1:34 pm

southerndoc wrote:
Mon May 13, 2019 7:28 am
Isn't that like saying there is no benefit to the Admiral funds?
The makeup of the Admiral funds is identical to the Investor funds. So, why pay more for the exact same thing?

The TR funds handle all rebalancing and glide path adjustments for you. All you need to do is contribute. You don't need look at anything besides your account balance. How much is that worth?

If you want the lowest cost, you could move to the Fidelity Zero funds. Their difference from Vanguard's individual funds is about the same as the difference between the TR funds and Vanguard's individual funds. However, that ER savings comes with some restrictions and potential downsides. The individual investor needs to determine how much those are worth.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by JBTX » Mon May 13, 2019 3:49 pm

southerndoc wrote:
Mon May 13, 2019 7:28 am
retiredjg wrote:
Mon May 13, 2019 7:18 am
I think you should just use the target funds. Even though the ER is higher, they are still considered low cost. That tiny increase in cost should not be enough to sway you away.
Isn't that like saying there is no benefit to the Admiral funds?
You will not be rebalancing daily, so your asset allocation will vary more without target date funds, thus your returns and risk will also vary modestly.

Is something like .07 or.08 worth it to automatically rebalance? Would think so but there is no right or wrong answer to that.

You can get as low as.08 in some 401ks via institutional shares or their equivalent.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by anil686 » Mon May 13, 2019 3:59 pm

I agree the rebalancing is different. Rick Ferri wrote an article some years ago now on different rebalancing timing options and bands showed portfolio results. The difference in technique of rebalancing far overwhelms the small difference in ER...

https://www.forbes.com/sites/rickferri/ ... cda75f1f53

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by alex_686 » Mon May 13, 2019 4:05 pm

I have a slightly negative view on this. Funds of Funds (FoF) have their own layers of expenses that they must pay. Not much, but some.

The better way, in my opinion, is to use institutional share class and record the FoF's expenses as a separate expense. Breaks out the expenses, clearly shows who is paying what.

The other way if what Vanguard is doing. Buy the retail share class, and then the retail share class kicks some of those fees back to the FoF to cover the FoF's costs.

The net result is the same, maybe. You kind of get the same expense ratio under either method. My issue is more about transparency. Maybe the underlying funds are subsidizing the FoF. Or maybe the FoF is subsidizing the underlying fund. Just really hard to tell.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by southerndoc » Mon May 13, 2019 5:26 pm

Apparently I was making more of this than what it's worth. I finally had time to play out the numbers. On a $1 mil portfolio with 70% US (VTSAX, ER 0.04%) and 30% ex-US (VFWAX, ER 0.11%), the difference came out to be $890/year. Don't get me wrong, that is a decent amount of money that can be used to purchase other things. That is only 0.09% of the portfolio.

For now, I think I'll continue splitting between VTSAX and VFWAX for the sole reason as I do not own bonds right now.

The $890/year invested with 5% return for 25 years yields $50,000 additional retirement money. For me, that's worth rebalancing. I actually rebalance monthly when I make my employee/employer contributions by using a spreadsheet and increasing funds to an underperformer and decreasing funds to what is doing well.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by Silence Dogood » Tue May 14, 2019 10:45 am

retiredjg wrote:
Mon May 13, 2019 7:36 am
southerndoc wrote:
Mon May 13, 2019 7:28 am
retiredjg wrote:
Mon May 13, 2019 7:18 am
I think you should just use the target funds. Even though the ER is higher, they are still considered low cost. That tiny increase in cost should not be enough to sway you away.
Isn't that like saying there is no benefit to the Admiral funds?
No. It's like saying that you are willing to pay a little bit to get something you want. Having your investments rebalanced for you is also a benefit.

Your goal should be to have a low cost portfolio. There is no requirement to have the lowest possible cost portfolio.
This is such an important point that all too often gets overlooked here on the Bogleheads.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by mariezzz » Tue May 14, 2019 5:24 pm

The real issue with Vanguard Target Retirement Funds is whether you agree with Vanguard on the amount and kinds of international they include. You're buying their AA if you go with these funds.

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Re: Vanguard Target Retirement Funds - Investor vs Admiral Shares

Post by montanagirl » Tue May 14, 2019 5:56 pm

There's always Balanced Fund.

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