Vanguard Target Date Funds Question

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shifty358
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Vanguard Target Date Funds Question

Post by shifty358 »

I am going to pull my Roth IRA out of Wealthfront and switch to Vanguard. I'm wavering on if I want to self-manage a three fund portfolio or just dump it all into a Target Date Fund (to alleviate having to rebalance). My question is, does Vanguard still apply the expense ratios on the individual funds within those Target Date Funds or are you only charged the upfront expense ratio on the Target Date Fund itself?
lakpr
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Re: Vanguard Target Date Funds Question

Post by lakpr »

shifty358 wrote: Thu Apr 01, 2021 11:54 am I am going to pull my Roth IRA out of Wealthfront and switch to Vanguard. I'm wavering on if I want to self-manage a three fund portfolio or just dump it all into a Target Date Fund (to alleviate having to rebalance). My question is, does Vanguard still apply the expense ratios on the individual funds within those Target Date Funds or are you only charged the upfront expense ratio on the Target Date Fund itself?
You are only charged what's disclosed as fee on the Target Date fund itself. That is 0.15% currently, whereas the underlying funds have expense ratios of 0.04% to 0.07% [ Not 0.19% to 0.23% I mean ... ]
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Re: Vanguard Target Date Funds Question

Post by pkcrafter »

shifty358 wrote: Thu Apr 01, 2021 11:54 am I am going to pull my Roth IRA out of Wealthfront and switch to Vanguard. I'm wavering on if I want to self-manage a three fund portfolio or just dump it all into a Target Date Fund (to alleviate having to rebalance). My question is, does Vanguard still apply the expense ratios on the individual funds within those Target Date Funds or are you only charged the upfront expense ratio on the Target Date Fund itself?
I just wanted to let you know that the correct way to do a transfer is called a custodian to custodian direct transfer, and it is initiated by the receiving company (Vanguard in this case). If you are moving funds, you have to be sure that Vanguard carries them, or you could sell them in the current account before transferring.

Paul
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dbr
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Re: Vanguard Target Date Funds Question

Post by dbr »

shifty358 wrote: Thu Apr 01, 2021 11:54 am I am going to pull my Roth IRA out of Wealthfront and switch to Vanguard. I'm wavering on if I want to self-manage a three fund portfolio or just dump it all into a Target Date Fund (to alleviate having to rebalance). My question is, does Vanguard still apply the expense ratios on the individual funds within those Target Date Funds or are you only charged the upfront expense ratio on the Target Date Fund itself?
I'm going to pull the standard Boglehead response of create and ask/answer questions you aren't asking in this thread.

What that would be is the observation that very few people building significant investments would have a Roth IRA and nothing else. That means you have various assets in different kinds of accounts. In such a case using balanced funds such as TR funds may be more complicated and awkward to manage than settling on a three fund portfolio and locating different investments for best advantage. A Roth, for example, might be the placement for stocks but a tax deferred 401k the placement for bonds. If money is going into a taxable account a TR fund there is probably a bad idea, and so on.

There is a guide for how to ask for more comprehensive advice if you want: viewtopic.php?f=1&t=6212

Your actual question already has the answer that the all-in ER is very low but more than you pay for separate funds.

Another you-didn't-ask-but is the observation that TR funds make a selection of international allocation you may not like, as well as international bonds, and also still require making the right selection for overall asset allocation, which should not be done by year of retirement label. Also those funds follow a glidepath over time that may not actually be what you want or what you want in that account. In the past TR fund managers at various brokers have decided on somewhat arbitrary changes in fund allocation.

That said if all there is to the issue is putting some money in that account and wanting someone to keep it allocated according to a plan for a not high cost, then a TR fund is fine.
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shifty358
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Re: Vanguard Target Date Funds Question

Post by shifty358 »

dbr wrote: Thu Apr 01, 2021 7:28 pm
shifty358 wrote: Thu Apr 01, 2021 11:54 am I am going to pull my Roth IRA out of Wealthfront and switch to Vanguard. I'm wavering on if I want to self-manage a three fund portfolio or just dump it all into a Target Date Fund (to alleviate having to rebalance). My question is, does Vanguard still apply the expense ratios on the individual funds within those Target Date Funds or are you only charged the upfront expense ratio on the Target Date Fund itself?
I'm going to pull the standard Boglehead response of create and ask/answer questions you aren't asking in this thread.

What that would be is the observation that very few people building significant investments would have a Roth IRA and nothing else. That means you have various assets in different kinds of accounts. In such a case using balanced funds such as TR funds may be more complicated and awkward to manage than settling on a three fund portfolio and locating different investments for best advantage. A Roth, for example, might be the placement for stocks but a tax deferred 401k the placement for bonds. If money is going into a taxable account a TR fund there is probably a bad idea, and so on.

There is a guide for how to ask for more comprehensive advice if you want: viewtopic.php?f=1&t=6212

Your actual question already has the answer that the all-in ER is very low but more than you pay for separate funds.

Another you-didn't-ask-but is the observation that TR funds make a selection of international allocation you may not like, as well as international bonds, and also still require making the right selection for overall asset allocation, which should not be done by year of retirement label. Also those funds follow a glidepath over time that may not actually be what you want or what you want in that account. In the past TR fund managers at various brokers have decided on somewhat arbitrary changes in fund allocation.

That said if all there is to the issue is putting some money in that account and wanting someone to keep it allocated according to a plan for a not high cost, then a TR fund is fine.
Thank you for the response, and you're correct in that I have multiple investment vehicles (401K, Roth IRA, and a taxable brokerage account). After reading what you said about the international allocation within the TR funds, I have to agree that I have no interest in having international bonds in my portfolio, so I'll stick to the three-fund portfolio. One additional question, though; once the in-kind transfer goes through to Vanguard, do you recommend keeping the original securities as-is or selling off all assets once it's inside the Vanguard fund and allocating all the money to VTSAX, VTIAX, and VBTLX? I know there's no tax implications either way because it's a Roth account, but maybe I'm missing something? Thanks again.
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Re: Vanguard Target Date Funds Question

Post by retired@50 »

shifty358 wrote: Tue Apr 13, 2021 10:34 am
I have multiple investment vehicles (401K, Roth IRA, and a taxable brokerage account).
Because you have multiple investment accounts, you should read this wiki page (linked below). It will help you place the right assets in the right accounts. Since you intend to manage a 3 fund portfolio, each account doesn't need to be identical. Think of all the accounts as a single portfolio.

Tax efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
dbr
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Re: Vanguard Target Date Funds Question

Post by dbr »

shifty358 wrote: Tue Apr 13, 2021 10:34 am
Thank you for the response, and you're correct in that I have multiple investment vehicles (401K, Roth IRA, and a taxable brokerage account). After reading what you said about the international allocation within the TR funds, I have to agree that I have no interest in having international bonds in my portfolio, so I'll stick to the three-fund portfolio. One additional question, though; once the in-kind transfer goes through to Vanguard, do you recommend keeping the original securities as-is or selling off all assets once it's inside the Vanguard fund and allocating all the money to VTSAX, VTIAX, and VBTLX? I know there's no tax implications either way because it's a Roth account, but maybe I'm missing something? Thanks again.
I think the reply just above is relevant. In general one should devise a portfolio allocation across all ones accounts as a whole but distribute, or locate, individual funds for best tax efficiency. Probably most people put the highest returning assets, the stock fund, in the Roth.

There is a kind of logic here that one does not start by looking at the different accounts and finding funds to put in them but rather one starts by looking at what the assets are and then one finds which accounts to put them in.
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Re: Vanguard Target Date Funds Question

Post by rgs92 »

Adding to Dbr's comments, I too was wondering about Vanguard's Target funds oddly high allocation to the International Bond Market. Why not just use Total Bond Market instead?

(I do note that International Bonds often have negative yield, but that would be market timing, but still, why have a target allocation to it at all? Fidelity's Freedom Index funds do not include this, for instance.)
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Re: Vanguard Target Date Funds Question

Post by humblecoder »

I just wanted to point out that tax efficient placement and use of target date funds are not mutually exclusive.

In my case, I hold a target date fund in my tax-deferred (Traditional) 401k. It contains all of my taxable bond holdings plus domestic and international stock. I can do this because the amount of my taxable bond allocation is much less than the total size of my Traditional 401k. I chose to do this because A. I like simplicity and B. my 401k has really really cheap target date fund options.

I supplement this with having part of the stock allocation in my Roth account and my taxable account.

So in summary, this is how my assets are placed:

Traditional 401k: Bonds, Domestic Stocks, International Stocks (all held in a target date fund)
Roth: Additional Domestic Stocks
Taxable: Additional Domestic Stocks, Additional International Stocks, Tax Advantaged Bonds

So I still have tax efficient placement while having the simplicity of a target date fund!
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Re: Vanguard Target Date Funds Question

Post by retired@50 »

rgs92 wrote: Tue Apr 13, 2021 11:42 am Adding to Dbr's comments, I too was wondering about Vanguard's Target funds oddly high allocation to the International Bond Market. Why not just use Total Bond Market instead?

(I do note that International Bonds often have negative yield, but that would be market timing, but still, why have a target allocation to it at all? Fidelity's Freedom Index funds do not include this, for instance.)
Vanguard's own research has come to the conclusion that using international bonds makes sense.
See links:
About target date funds in general: https://personal.vanguard.com/pdf/ISGTDF.pdf

About international bonds: https://personal.vanguard.com/pdf/inter ... income.pdf

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
jimkinny
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Re: Vanguard Target Date Funds Question

Post by jimkinny »

rgs92 wrote: Tue Apr 13, 2021 11:42 am Adding to Dbr's comments, I too was wondering about Vanguard's Target funds oddly high allocation to the International Bond Market. Why not just use Total Bond Market instead?

(I do note that International Bonds often have negative yield, but that would be market timing, but still, why have a target allocation to it at all? Fidelity's Freedom Index funds do not include this, for instance.)
Vanguard writes on their website that hedged international bonds adds diversification. As I recall, international bonds made a portfolio slightly less volatile.
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Re: Vanguard Target Date Funds Question

Post by beyou »

Note that each fund has a prospectus PDF with more details about fees and more, than on the website summary. It is very clear about the fees :

Annual Fund Operating Expenses

Acquired Fund Fees and Expenses Total Annual Fund Operating Expenses
0.15% 0.15%

Acquired means the fees from underlying funds, and since total is same, no extra charge for the wrapper.

Note if you want domestic only then there are many other balanced funds such as VBIAX and tax-managed balanced for a taxable account, but these eliminate int bonds and stocks. I wouldn’t recommend but if you are sure you want ease and no international, they are options, though with less choices of AA.

Finally, the asset location if you are young and mostly hold stocks, not so impactful yet. If you are having a larger amount of bonds, then maybe this does matter and putting a total bond into a 401k or IRA may make sense, equities in taxable. Asset location is marginally useful at low bond interest rates, and hard to take advantage of depending on desired AA and relative size of each acct. Simplifying with Target Date funds in IRA, 401k was not a bad idea, and your reason to move away (international) IMO is not a good reason.
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Re: Vanguard Target Date Funds Question

Post by Swimmer »

beyou wrote: Tue Apr 13, 2021 12:18 pm Note that each fund has a prospectus PDF with more details about fees and more, than on the website summary. It is very clear about the fees :

Annual Fund Operating Expenses

Acquired Fund Fees and Expenses Total Annual Fund Operating Expenses
0.15% 0.15%
Acquired means the fees from underlying funds, and since total is same, no extra charge for the wrapper.
Note if you want domestic only then there are many other balanced funds such as VBIAX and tax-managed balanced for a taxable account, but these eliminate int bonds and stocks. I wouldn’t recommend but if you are sure you want ease and no international, they are options, though with less choices of AA.

Finally, the asset location if you are young and mostly hold stocks, not so impactful yet. If you are having a larger amount of bonds, then maybe this does matter and putting a total bond into a 401k or IRA may make sense, equities in taxable. Asset location is marginally useful at low bond interest rates, and hard to take advantage of depending on desired AA and relative size of each acct. Simplifying with Target Date funds in IRA, 401k was not a bad idea, and your reason to move away (international) IMO is not a good reason.

That would be true if ERs for underlying funds were all .15. I don’t believe that’s the case. I need to double check but I think you do pay extra for the wrapper.
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Re: Vanguard Target Date Funds Question

Post by beyou »

:greedy
Swimmer wrote: Tue Apr 13, 2021 4:18 pm
beyou wrote: Tue Apr 13, 2021 12:18 pm Note that each fund has a prospectus PDF with more details about fees and more, than on the website summary. It is very clear about the fees :

Annual Fund Operating Expenses

Acquired Fund Fees and Expenses Total Annual Fund Operating Expenses
0.15% 0.15%
Acquired means the fees from underlying funds, and since total is same, no extra charge for the wrapper.
Note if you want domestic only then there are many other balanced funds such as VBIAX and tax-managed balanced for a taxable account, but these eliminate int bonds and stocks. I wouldn’t recommend but if you are sure you want ease and no international, they are options, though with less choices of AA.

Finally, the asset location if you are young and mostly hold stocks, not so impactful yet. If you are having a larger amount of bonds, then maybe this does matter and putting a total bond into a 401k or IRA may make sense, equities in taxable. Asset location is marginally useful at low bond interest rates, and hard to take advantage of depending on desired AA and relative size of each acct. Simplifying with Target Date funds in IRA, 401k was not a bad idea, and your reason to move away (international) IMO is not a good reason.

That would be true if ERs for underlying funds were all .15. I don’t believe that’s the case. I need to double check but I think you do pay extra for the wrapper.
Each underlying fund has a different ER so it is blended.
Also I think the ER for underlying is based on the old “investor class” fees. Do not assume you are investing in the Admiral funds. A fund of funds can invest in a different share class not available to all, similar to 401k.
At one time you needed a larger investment to make 3 Admiral minimums for 3 funds, so Target was priced so you
can’t do a backdoor to get the Admiral rates without Admiral balances. They fixed this for the underlying funds (making Admiral lower min) but they need to fix this to inherit the new ER too

But if one wants ease of no rebalancing, might be willing to pay extra. At smaller balances this matters little, and if they fix Targets to be in line with underlying funds (at least the new low ER low min options) then Target would be competitive again with alternatives, as it was before recent changes.
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Re: Vanguard Target Date Funds Question

Post by BL »

beyou wrote: Tue Apr 13, 2021 5:21 pm :greedy
Swimmer wrote: Tue Apr 13, 2021 4:18 pm
beyou wrote: Tue Apr 13, 2021 12:18 pm Note that each fund has a prospectus PDF with more details about fees and more, than on the website summary. It is very clear about the fees :

Annual Fund Operating Expenses

Acquired Fund Fees and Expenses Total Annual Fund Operating Expenses
0.15% 0.15%
Acquired means the fees from underlying funds, and since total is same, no extra charge for the wrapper.
Note if you want domestic only then there are many other balanced funds such as VBIAX and tax-managed balanced for a taxable account, but these eliminate int bonds and stocks. I wouldn’t recommend but if you are sure you want ease and no international, they are options, though with less choices of AA.

Finally, the asset location if you are young and mostly hold stocks, not so impactful yet. If you are having a larger amount of bonds, then maybe this does matter and putting a total bond into a 401k or IRA may make sense, equities in taxable. Asset location is marginally useful at low bond interest rates, and hard to take advantage of depending on desired AA and relative size of each acct. Simplifying with Target Date funds in IRA, 401k was not a bad idea, and your reason to move away (international) IMO is not a good reason.

That would be true if ERs for underlying funds were all .15. I don’t believe that’s the case. I need to double check but I think you do pay extra for the wrapper.
Each underlying fund has a different ER so it is blended.
Also I think the ER for underlying is based on the old “investor class” fees. Do not assume you are investing in the Admiral funds. A fund of funds can invest in a different share class not available to all, similar to 401k.
At one time you needed a larger investment to make 3 Admiral minimums for 3 funds, so Target was priced so you
can’t do a backdoor to get the Admiral rates without Admiral balances. They fixed this for the underlying funds (making Admiral lower min) but they need to fix this to inherit the new ER too

But if one wants ease of no rebalancing, might be willing to pay extra. At smaller balances this matters little, and if they fix Targets to be in line with underlying funds (at least the new low ER low min options) then Target would be competitive again with alternatives, as it was before recent changes.
+1
It used to require 10k to get Admiral funds and 3k for the index version.
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Re: Vanguard Target Date Funds Question

Post by beyou »

BL wrote: Tue Apr 13, 2021 7:30 pm
beyou wrote: Tue Apr 13, 2021 5:21 pm :greedy
Swimmer wrote: Tue Apr 13, 2021 4:18 pm
beyou wrote: Tue Apr 13, 2021 12:18 pm Note that each fund has a prospectus PDF with more details about fees and more, than on the website summary. It is very clear about the fees :

Annual Fund Operating Expenses

Acquired Fund Fees and Expenses Total Annual Fund Operating Expenses
0.15% 0.15%
Acquired means the fees from underlying funds, and since total is same, no extra charge for the wrapper.
Note if you want domestic only then there are many other balanced funds such as VBIAX and tax-managed balanced for a taxable account, but these eliminate int bonds and stocks. I wouldn’t recommend but if you are sure you want ease and no international, they are options, though with less choices of AA.

Finally, the asset location if you are young and mostly hold stocks, not so impactful yet. If you are having a larger amount of bonds, then maybe this does matter and putting a total bond into a 401k or IRA may make sense, equities in taxable. Asset location is marginally useful at low bond interest rates, and hard to take advantage of depending on desired AA and relative size of each acct. Simplifying with Target Date funds in IRA, 401k was not a bad idea, and your reason to move away (international) IMO is not a good reason.

That would be true if ERs for underlying funds were all .15. I don’t believe that’s the case. I need to double check but I think you do pay extra for the wrapper.
Each underlying fund has a different ER so it is blended.
Also I think the ER for underlying is based on the old “investor class” fees. Do not assume you are investing in the Admiral funds. A fund of funds can invest in a different share class not available to all, similar to 401k.
At one time you needed a larger investment to make 3 Admiral minimums for 3 funds, so Target was priced so you
can’t do a backdoor to get the Admiral rates without Admiral balances. They fixed this for the underlying funds (making Admiral lower min) but they need to fix this to inherit the new ER too

But if one wants ease of no rebalancing, might be willing to pay extra. At smaller balances this matters little, and if they fix Targets to be in line with underlying funds (at least the new low ER low min options) then Target would be competitive again with alternatives, as it was before recent changes.
+1
It used to require 10k to get Admiral funds and 3k for the index version.
Actually further back it was $50k for Admiral shares, lowered to to 10 for index funds then later to 3. There are still Admiral active funds with 50k minimums. So Targets would have had to have much higher minimums somehow or more simply invest in the Investor equivalent. I personally think that was a terrible but probably legally necessary policy. The whole point of giving a fee break to large investors is that it costs less to service a smaller number of larger customers. There is no direct contact with customers from the perspective of the underlying funds. It does reduce client support to have a client with one fund instead of many (less potential issues that can arise and result in customer service interaction, and Target attracts hands off investors). But there are rules to follow and if you promise a low fee to big investors, and then give it to SOME smaller investors, going to be legal challenges to deal with.

I just don’t see why today with Target funds holding only index funds, why the fees aren’t a bit lower, but Vanguard still is the best deal out there for fees on Target funds. Son has Fidelity 401k, and it defaulted to a Fidelity Target fund that had much higher fees than Vanguard. Fortunately his 401k allowed use of low fee index funds and can auto rebalance, so we “made our own” balanced fund. Told him to review AA every 5 years and adjust auto-rebalance target if you want a glide path like a Target fund.
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Re: Vanguard Target Date Funds Question

Post by Tattarrattat »

 "... Vanguard still is the best deal out there for fees on Target funds..."

Not sure that's entirely true. Schwab does their index target funds the cheapest, 0.08%. Vanguard and Fidelity are neck and neck at around 0.12% or so.
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Re: Vanguard Target Date Funds Question

Post by Horton »

Tattarrattat wrote: Sat Apr 17, 2021 2:58 pm  "... Vanguard still is the best deal out there for fees on Target funds..."

Not sure that's entirely true. Schwab does their index target funds the cheapest, 0.08%. Vanguard and Fidelity are neck and neck at around 0.12% or so.
4bp difference is noise. Any of the index TDFs from those companies would be a fine choice.
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Re: Vanguard Target Date Funds Question

Post by vineviz »

retired@50 wrote: Tue Apr 13, 2021 11:59 am
rgs92 wrote: Tue Apr 13, 2021 11:42 am Adding to Dbr's comments, I too was wondering about Vanguard's Target funds oddly high allocation to the International Bond Market. Why not just use Total Bond Market instead?

(I do note that International Bonds often have negative yield, but that would be market timing, but still, why have a target allocation to it at all? Fidelity's Freedom Index funds do not include this, for instance.)
Vanguard's own research has come to the conclusion that using international bonds makes sense.
See links:
About target date funds in general: https://personal.vanguard.com/pdf/ISGTDF.pdf

About international bonds: https://personal.vanguard.com/pdf/inter ... income.pdf

Regards,
Also, for the most part what appears to be a “negative yield” is nothing of the sort. It’s an unfortunate reporting convention: the expected return of hedged international total bond fund is typically slightly higher than that of US total bond fund, regardless of what gets reported as the SEC yield.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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