Vanguard target date fund vs vanguard 3 funds portfolio

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Mario2222
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Vanguard target date fund vs vanguard 3 funds portfolio

Post by Mario2222 »

My wife is thinking to switch her Roth IRA investment from vanguard target date fund 2045 to vanguard 3 funds portfolio. Total stock market & total international and total bonds.She doesn't like the high percentage of the international stocks 35 to 36%. Any thoughts?
pkcrafter
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by pkcrafter »

Mario2222 wrote: Wed Aug 19, 2020 9:13 pm My wife is thinking to switch her Roth IRA investment from vanguard target date fund 2045 to vanguard 3 funds portfolio. Total stock market & total international and total bonds.She doesn't like the high percentage of the international stocks 35 to 36%. Any thoughts?
The TR fund has 40% of stock holdings in international. Most members here like less than that.

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David Jay
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by David Jay »

Mario2222 wrote: Wed Aug 19, 2020 9:13 pm My wife is thinking to switch her Roth IRA investment from vanguard target date fund 2045 to vanguard 3 funds portfolio. Total stock market & total international and total bonds.She doesn't like the high percentage of the international stocks 35 to 36%. Any thoughts?
She can switch at any time without any fees or tax implications in a Vanguard Roth IRA. Not wanting to hold a large allocation of international is an understandable reason for not using a TargetRetirement fund.
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Actin
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by Actin »

3 fund
+ Control ratios individually
+ lower ER
-requires manual rebalancing

TD fund
+ Ratios adjusted automatically
- higher ER
- high international equity
- holds international bonds
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Watty
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by Watty »

Mario2222 wrote: Wed Aug 19, 2020 9:13 pm My wife is thinking to switch her Roth IRA investment from vanguard target date fund 2045 to vanguard 3 funds portfolio. Total stock market & total international and total bonds.She doesn't like the high percentage of the international stocks 35 to 36%. Any thoughts?
What percentage of international stocks does she like?

If she want to move to 25 or 30 percent international stocks that is one thing but if she wants to go to 0% international stocks that is likely too extreme.

I had a Vanguard Target date fund and I was more concerned about the international bonds that it had then the international stocks.

The Vanguard target date funds also have international bonds that pay next to nothing with interest rates so low and have a lot of risk that they will get clobbered if interest rates go up. The international bond fund has a duration of 8.4 years so if interest rates go up by 1% you would expect the international bond fund would be expected to do down by about 8.4%. Since rates are so low there is little chance that interest rates will go down a lot more so (at least to me) is does not look like it has much possible upside.

They are also hedged for currency exchange rate changes so they will not go up or down in value if the US dollar goes up or down. That makes them less of a hedge against a falling US dollar.

The International bond fund also has 28.2% in bonds that are rated Baa which a lot of risk for a fund that pays you essentially nothing for taking that risk.

I have similar concerns about the domestic total bond index fund. Here is a post I did this spring that I did when I was considering moving away from the bond funds, especially the international bond fund.

viewtopic.php?f=1&t=306096

I really like the idea of target date funds but I ended up moving my money from them to a three fund portfolio where my bond money is in a short term TIPS mutual fund.

When things get past the election and the pandemic settles down I may switch back to a target date fund that is not Vanguards so that I will not have the international bonds.

This is blatant market timing and stock picking so I don't recommend that for everyone but it seems pretty safe so I don't expect a lot of downside(or upside) but that lets me sleep well at night.
L82GAME
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by L82GAME »

Actin wrote: Wed Aug 19, 2020 10:31 pm 3 fund
+ Control ratios individually
+ lower ER
-requires manual rebalancing

TD fund
+ Ratios adjusted automatically
- higher ER
- high international equity
- holds international bonds
Depending on other investment accounts (e.g., 401k, Trad. IRA, taxable brokerages), Three Fund Portfolios also allow for flexibility in Asset Location to maximize a total portfolio’s tax efficiency in both the accumulation and decumulation phases.
Last edited by L82GAME on Wed Aug 19, 2020 10:46 pm, edited 1 time in total.
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absolute zero
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by absolute zero »

Why don’t you share with her the white paper from Vanguard on why they advocate international equity investments? Or, look up the target date funds with her from Vanguard, Fidelity, Schwab, State Street, etc. Perhaps if she sees that every major asset management firm recommends international diversification, she will view international investing as a reasonable strategy.
Topic Author
Mario2222
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by Mario2222 »

She wants no more than 20% in international stocks.
absolute zero
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by absolute zero »

Mario2222 wrote: Wed Aug 19, 2020 11:06 pm She wants no more than 20% in international stocks.
If that’s what she wants, then it sounds like a target date fund isn’t right for her.
Dominic
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Re: Vanguard target date fund vs vanguard 3 funds portfolio

Post by Dominic »

L82GAME wrote: Wed Aug 19, 2020 10:43 pm
Actin wrote: Wed Aug 19, 2020 10:31 pm 3 fund
+ Control ratios individually
+ lower ER
-requires manual rebalancing

TD fund
+ Ratios adjusted automatically
- higher ER
- high international equity
- holds international bonds
Depending on other investment accounts (e.g., 401k, Trad. IRA, taxable brokerages), Three Fund Portfolios also allow for flexibility in Asset Location to maximize a total portfolio’s tax efficiency in both the accumulation and decumulation phases.
Using separate funds might make it possible to avoid high-fee funds in employer accounts. I didn't have any good bond or international options in my old 401k, so I had to overweight those asset classes in my IRA.
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