Target date fund vs life strategy fund

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Target date fund vs life strategy fund

Post by Mario2222 »

Asking for a friend. He wants to open a Roth IRA and invest the money in one balanced fund for the rest of his life. He is thinking about using vanguard target date fund 2050 or vanguard lifestrategy moderate growth fund VSMGX. He wants to invest in both domestic and international stocks. He wants to start his investment with 7K. He is 39 years old. Any recommendations?
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Re: Target date fund vs life strategy fund

Post by RadAudit »

Hard to say without more info. Look here viewtopic.php?f=1&t=6212 for format to ask questions.
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Re: Target date fund vs life strategy fund

Post by terran »

These funds each hold the same underlying funds, but in different proportions (different asset allocations). Both hold roughly 40% of their stocks in international and 30% of their bonds in international. The life strategy fund is about 60/40 stocks/bonds and will stay that way forever (barring a policy change from Vanguard). The 2050 target date fund is about 90/10 stocks/bonds and will begin to adjust in 2030 (as the 2040 fund has this year) eventually becoming 50/50 in 2050 (as the 2020 fund is), 35/65 in 2055 (as the 2015 fund is) and finally 30/70 stock/bond (as the target retirement fund is).

So basically, the target date fund will remain much more aggressive for the next 10 years and then will start reducing its equity allocation as your friend approaches a 2050 retirement date, then continue to reduce the equity allocation in retirement becoming less aggressive than the life strategy fund.

The target date fund seems like the better current option to me as 60/40 seems like too much in bonds for someone just started to save for retirement (not everyone shares that opinion though), however I don't like that they continue to reduce the equity allocation in retirement when research I've seen seems to suggest a rising equity glidepath would be better. That might be more for early (longer) retirements though. Maybe dropping to 30/70 ten years into a traditional 30 year retirement is fine, and that's probably what Vanguard its decisions on.

See the Portfolio & Management page for the = ... rowth Fund and Target Retirement 2050 Fund to examine this information directly. Look at the other target date funds (you can click the options are "Which Target Retirement Fund fits your timeline?" to see the fund information) to see how the fund will adjust as time goes on.
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