Why doesn't Vanguard stay the course?
Why doesn't Vanguard stay the course?
So, I've always found several "all-in-one" funds appealing. For instance, I personally like the concept of Vanguard's managed payout fund. I also like the simplicity and low cost of the Vanguard Life strategies. Then there are all-in-one ETFs (non-Vanguard) that have come out, that seem to be very diversified, such as Cambria's GAA's
But here's my problem with virtually everyone one of them. If you invest in one today, you know what your mix is cause you can look it up. But almost all of their parent companies are constantly tweaking the mix in the funds, or sometimes just the percentages of each, and other times they outright change what assets make up the mix. The way I understand the beauty of portfolio rebalancing, is that it doesn't really work right, if you're constantly changing these things. In fact, this is essentially as bad as an investor who's never really staying the course, and constantly switching to the asset du-jour, flavor of the day.
So Ive decided there's really no way around having to set up the portfolio yourself, which each asset class piece, that you (or your adviser) rebalances on your own. And speaking of advisers, i imagine they're all just as bad as the funds/ETFs themselves about not changing over the long course. Invariably, something will get popular, (e.g. REIT funds a decade ago), and then they'll add it.
But here's my problem with virtually everyone one of them. If you invest in one today, you know what your mix is cause you can look it up. But almost all of their parent companies are constantly tweaking the mix in the funds, or sometimes just the percentages of each, and other times they outright change what assets make up the mix. The way I understand the beauty of portfolio rebalancing, is that it doesn't really work right, if you're constantly changing these things. In fact, this is essentially as bad as an investor who's never really staying the course, and constantly switching to the asset du-jour, flavor of the day.
So Ive decided there's really no way around having to set up the portfolio yourself, which each asset class piece, that you (or your adviser) rebalances on your own. And speaking of advisers, i imagine they're all just as bad as the funds/ETFs themselves about not changing over the long course. Invariably, something will get popular, (e.g. REIT funds a decade ago), and then they'll add it.
Re: Why doesn't Vanguard stay the course?
Much like a new Dodge the manufacturer is taking a superior product and making it even better through the use of the latest innovations in financial engineering.
Re: Why doesn't Vanguard stay the course?
^That's right. Suppose one was still "staying the course" from before index funds became prevalent?
Re: Why doesn't Vanguard stay the course?
So you think you can beat an all in one fund. Do you think you can create a better search engine than Google or a better smart phone than Apple? I doubt it, but everyone knows better than Vanguard when it comes to the all in one funds. Well okay, good luck!
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Re: Why doesn't Vanguard stay the course?
The reason we say 'stay the course' (if we're being honest) is because the average investor makes consistently terrible decisions ... The investor shortfall on funds is still enormous, so anything you can say to make them tweak less is going to improve most investors' returns
But that's not to say a large, well-researched organisation sticking to academic principles can't do a better job .. In fact, I've started recommending Vanguard Lifestrategy to friends and associates more since they made the decision to increase their international weightings, because sometimes when valuations drift too far (as they did running up to the Tech crash, or the Japanese market crash) it can be a mistake to follow
The changes are tiny, in the scheme of things, and won't have a dramatic effect on portfolio returns ... But if I'm recommending Vanguard LS to someone who's likely to be holding it for 20-30+ years, I'm glad it's not stubbornly fixed to a specific asset allocation .. If risk or opportunity really shifted in something it was invested in, I'd have more confidence knowing they can reposition appropriately ... After all, the standard 60:40 portfolio used to be 60% bonds .. In the 60s, few portfolios wouldn't have a sizeable allocation to gold .. We do change our perspectives on things
But that's not to say a large, well-researched organisation sticking to academic principles can't do a better job .. In fact, I've started recommending Vanguard Lifestrategy to friends and associates more since they made the decision to increase their international weightings, because sometimes when valuations drift too far (as they did running up to the Tech crash, or the Japanese market crash) it can be a mistake to follow
The changes are tiny, in the scheme of things, and won't have a dramatic effect on portfolio returns ... But if I'm recommending Vanguard LS to someone who's likely to be holding it for 20-30+ years, I'm glad it's not stubbornly fixed to a specific asset allocation .. If risk or opportunity really shifted in something it was invested in, I'd have more confidence knowing they can reposition appropriately ... After all, the standard 60:40 portfolio used to be 60% bonds .. In the 60s, few portfolios wouldn't have a sizeable allocation to gold .. We do change our perspectives on things
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
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Re: Why doesn't Vanguard stay the course?
Yes, rather easily - as can any US investor with a taxable account. Tax location, increased TLH opportunities (holding the funds individually), lower weighted ER and the availability of superior fixed income products as an individual investor can yield a superior result (higher risk-adjusted after tax return).synpacket wrote:So you think you can beat an all in one fund.... Well okay, good luck!
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Re: Why doesn't Vanguard stay the course?
I don't know why Vanguard doesn't stay the course in its target date funds. I think they should do it more than they have done.
I could say that target date funds are, in reality, more about giving HR departments a decent way to default people into a suitable 401(k) choice--they are more about giving each group of retirees, those retiring in 2020, 2030, 2040 etc. a portfolio that is acceptable today in 2016, then they are about giving each retiree a complete lifetime plan... even though that's how they are billed.
I don't like what Vanguard has done. I think it is particularly annoying that someone who bought into one of the middle funds at inception in 2003 would have found, ten years later, that their stock allocation had not decreased, because the generally goosing up of stock allocations across the board in 2006 was so large that it actually was more than ten year's decline along the glide slope.
Morningstar did a piece on glide path "instability" and I believe they found that T. Rowe Price (which has very aggressive target date funds) had stayed the course better than Vanguard.
I don't know why Vanguard does lots of things they do. But they give me good tools to invest the way I want to, and I don't begrudge the fact that not everything they do is exactly what a purist Boglehead might want.
And I don't think the changes they've made in the target date funds matter much.
I could say that target date funds are, in reality, more about giving HR departments a decent way to default people into a suitable 401(k) choice--they are more about giving each group of retirees, those retiring in 2020, 2030, 2040 etc. a portfolio that is acceptable today in 2016, then they are about giving each retiree a complete lifetime plan... even though that's how they are billed.
I don't like what Vanguard has done. I think it is particularly annoying that someone who bought into one of the middle funds at inception in 2003 would have found, ten years later, that their stock allocation had not decreased, because the generally goosing up of stock allocations across the board in 2006 was so large that it actually was more than ten year's decline along the glide slope.
Morningstar did a piece on glide path "instability" and I believe they found that T. Rowe Price (which has very aggressive target date funds) had stayed the course better than Vanguard.
I don't know why Vanguard does lots of things they do. But they give me good tools to invest the way I want to, and I don't begrudge the fact that not everything they do is exactly what a purist Boglehead might want.
And I don't think the changes they've made in the target date funds matter much.
Last edited by nisiprius on Wed Jan 27, 2016 12:10 pm, edited 1 time in total.
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Re: Why doesn't Vanguard stay the course?
The changes I've seen are far too small to make a meaningful difference ..
But ... long-term, how many of us are still holding 25% gold? .. Markets are always changing (the market doesn't have fixed allocations - and neither would you if you followed Bogle's advice of not rebalancing); academia's evolving; global macroeconomic risks change
If any of us still had a totally fixed portfolio from the 1960s (conceivable if we bought young), it would presumably look quite strange to investors today
But ... long-term, how many of us are still holding 25% gold? .. Markets are always changing (the market doesn't have fixed allocations - and neither would you if you followed Bogle's advice of not rebalancing); academia's evolving; global macroeconomic risks change
If any of us still had a totally fixed portfolio from the 1960s (conceivable if we bought young), it would presumably look quite strange to investors today
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: Why doesn't Vanguard stay the course?
I think Nisi has it about right. I would not say Vanguard is a paragon of virtue in all aspects of investing. However, no one is prevented from following a plan that suits them and the instruments are available at Vanguard to do it.
Re: Why doesn't Vanguard stay the course?
individual investors also tweak it. Look at all the threads during bear markets. So the idea that every boglehead can stick to a plan perfectly is false. at least with vanguard, i feel that experts are involved and the overall changes arent a big deal to my overall plan. Stay the course sounds great, and for me, LS or target funds help me to stay the course, not hurt.
Re: Why doesn't Vanguard stay the course?
I'm not too worried about the tinkering that Vanguard has done. Much of what I see on this forum can be thrown under the category of analysis paralysis. It's like people just don't want to let go of the notion that they can make a HUGE difference. Bogle and also Taylor constantly remind us that simplicity usually wins in the end. Buy the LS/TDF funds, add to them periodically and forget about it. But what if this happens??? What if that happens??? What can I do???? Nothing. Vanguard funds are excellent, low cost and they have served us well. I doubt I could find a better option elsewhere.
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Re: Why doesn't Vanguard stay the course?
You ask a very good and provocative question, OP.
I am not a Vanguard investor, am not familiar with their products, and cannot pretend to speak for them.
However, to me, "stay the course" does not mean keep doing what you think is right today in the face of new, conflicting information. If I really believed that, I would still be chasing the latest high performers as I was in the mid-1990s.
I interpret the phrase (for my own use, anyway) as not panicking when emotions tell me to ditch what my brain tells me is right and run (like now that the market is 20% +/- off its high), or what some "guru" tries to tempt me to do with his/her statistical tricks on TV.
Admittedly that is a rather loose interpretation of the phrase, which I think was not the best choice of words.
But in fact I am constantly questioning my own assumptions and always will, and if I become convinced that what I assumed was "true" in 2016 was an error I will (I hope) correct my mistakes. This is what I did in the late 90s when I stopped chasing stocks and invested in index funds. Maybe something like that will happen again and I will abandon index funds. I don't know. But for now I have no better idea of what to do, so I stick with my current "truths".
I would like to give Vanguard the benefit of the doubt and assume that is what they are doing as well, constantly tweaking things as they recognize mistakes or are presented with new information. If they did not do that, and just stuck to their guns, I would not want to invest with them.
I am not a Vanguard investor, am not familiar with their products, and cannot pretend to speak for them.
However, to me, "stay the course" does not mean keep doing what you think is right today in the face of new, conflicting information. If I really believed that, I would still be chasing the latest high performers as I was in the mid-1990s.
I interpret the phrase (for my own use, anyway) as not panicking when emotions tell me to ditch what my brain tells me is right and run (like now that the market is 20% +/- off its high), or what some "guru" tries to tempt me to do with his/her statistical tricks on TV.
Admittedly that is a rather loose interpretation of the phrase, which I think was not the best choice of words.
But in fact I am constantly questioning my own assumptions and always will, and if I become convinced that what I assumed was "true" in 2016 was an error I will (I hope) correct my mistakes. This is what I did in the late 90s when I stopped chasing stocks and invested in index funds. Maybe something like that will happen again and I will abandon index funds. I don't know. But for now I have no better idea of what to do, so I stick with my current "truths".
I would like to give Vanguard the benefit of the doubt and assume that is what they are doing as well, constantly tweaking things as they recognize mistakes or are presented with new information. If they did not do that, and just stuck to their guns, I would not want to invest with them.
Re: Why doesn't Vanguard stay the course?
It is possible to tinker harmlessly or even to some advantage. It is possible to tinker in ways that do a great deal of damage. I have no problem with tinkering in general, but the tinkerer is on their own responsibility. That is not different from the fact that the planner is on his own responsibility to start with.
You can't invest by aphorism. I am surprised that someone has not already mentioned that when the wind changes the set of the sails and the course(s) steered have to change to reach the same end-point. That would be one more meaningless aphorism.
I also do not like target date funds that don't follow the same rules now that they did when they were purchased and I don't like the sense that buying such funds amounts too much to taking investing advice from a mutual fund company.
You can't invest by aphorism. I am surprised that someone has not already mentioned that when the wind changes the set of the sails and the course(s) steered have to change to reach the same end-point. That would be one more meaningless aphorism.
I also do not like target date funds that don't follow the same rules now that they did when they were purchased and I don't like the sense that buying such funds amounts too much to taking investing advice from a mutual fund company.
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Re: Why doesn't Vanguard stay the course?
Interesting question and one I am concerned about as well.
Anyone, including Vanguard, can use all sorts of justifications of changing allocations to subassets, but doesn't change the fact it is active management. The bigger question is why. Are they doing it as performance chasing or trying to improve a better mousetrap. With their long history of excellent stewardship I like to believe it is the latter and not the former, but who really knows?
The interesting thing is in 10 years when they try to backfill data to say, "If this fund was started in 1970 instead of its inception in 1998 it would have done x". What indexes and % assigned are they going to use to fill in the backfill data? The current % (after many changes) or those that were originally set in 1998, for example? This constant changing does increase backfill biases and thus leading to incorrect data on data mining data before a fund operated.
Good luck.
Anyone, including Vanguard, can use all sorts of justifications of changing allocations to subassets, but doesn't change the fact it is active management. The bigger question is why. Are they doing it as performance chasing or trying to improve a better mousetrap. With their long history of excellent stewardship I like to believe it is the latter and not the former, but who really knows?
The interesting thing is in 10 years when they try to backfill data to say, "If this fund was started in 1970 instead of its inception in 1998 it would have done x". What indexes and % assigned are they going to use to fill in the backfill data? The current % (after many changes) or those that were originally set in 1998, for example? This constant changing does increase backfill biases and thus leading to incorrect data on data mining data before a fund operated.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
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Re: Why doesn't Vanguard stay the course?
These arguments never sound easy to me. It sounds like work, time, and knowledge. I already have one full time job and it's unrelated to finance or investing. So I have no reason to think I know better than Vanguard. In fact, I'm pretty sure I'd just screw it up, sooner or later.FillorKill wrote:Yes, rather easily - as can any US investor with a taxable account.
Re: Why doesn't Vanguard stay the course?
Does anyone else see the irony of people that invest in cap' weighted index funds complaining about a fund company making component changes to their funds?
Oh that dang S&P keeps changing it's index! Oh my! I want my 1999 "stay the course" S&P 500 fund! I liked my Crown Cork & Seal and they dropped it!!! That isn't the way it was when I bought it!
Oh that dang S&P keeps changing it's index! Oh my! I want my 1999 "stay the course" S&P 500 fund! I liked my Crown Cork & Seal and they dropped it!!! That isn't the way it was when I bought it!
Re: Why doesn't Vanguard stay the course?
I think Life Strategy funds became much better with their elimination of Asset Allocation Fund:
http://www.obliviousinvestor.com/vangua ... egy-funds/
http://www.obliviousinvestor.com/vangua ... egy-funds/
Re: Why doesn't Vanguard stay the course?
Expertise applies when designing search engines and smartphones. Not so much when designing asset allocations. That's one of the ideas behind BH philosophy and this site.synpacket wrote:So you think you can beat an all in one fund. Do you think you can create a better search engine than Google or a better smart phone than Apple? I doubt it, but everyone knows better than Vanguard when it comes to the all in one funds. Well okay, good luck!
Leonard |
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Re: Why doesn't Vanguard stay the course?
I do tinker with my portfolio from time to time, as my understanding and the funds available to me change, and I probably enjoy it more than I should. But if anyone is going to tinker with my portfolio I want it to be me. That way I'm not tempted to blame anyone else, and I'm more likely to stick with a decision when I understand the reasons behind it.
And it's easy to be overly impressed by expertise in investing. As Mr. Bogle would say, nobody knows nuthin'
P.S. If anyone really wants a one-fund stay-the-course solution, Vanguard has a good one: VBIAX.
And it's easy to be overly impressed by expertise in investing. As Mr. Bogle would say, nobody knows nuthin'
Day trading is a full time job. Running a lazy portfolio is, um, pretty lazy.I already have one full time job and it's unrelated to finance or investing.
P.S. If anyone really wants a one-fund stay-the-course solution, Vanguard has a good one: VBIAX.
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Re: Why doesn't Vanguard stay the course?
This is a good question. I suspect some of it has to do with economies of scale, or even the Warren Buffett effect - Warren is so big that when he buys something, he moves markets. Behemoths like Vanguard are simply playing on a different financial stage than we are.
That is, Vanguard is so big that they might not suffer the same repercussions from not staying the course that smaller entities do.
That is, Vanguard is so big that they might not suffer the same repercussions from not staying the course that smaller entities do.
Re: Why doesn't Vanguard stay the course?
On the merits of the actual changes, of the last several years' changes Vanguard has made, not only to all-in-one funds but other ones like for example nature of the index EM fund tracks, I'm in favor of some and against others. For example a pretty minor one I agree with is changing their EM index to exclude South Korea, which it's now silly to call a 'developing' country, Taiwan either but one removed is better than neither. A slightly larger one I'm skeptical of is China A shares in EM index. I don't see much point to currency hedged foreign bonds added to the all-in-ones. The slightly higher % of foreign stocks in those make sense IMO. And so on.
But as to the 'principle' of not tinkering, that's based on the assumption it's an individual doing the tinkering and they can't do it rationally, but will fall victim to behavioral problems which lose money, or it slips in into making major changes (Vang's aren't very major) for bad reasons. There's no valid general principle of no tinkering over time assuming the tinkerer knows what they are doing and is rationally motivated. The prohibition against tinkering is under the assumption you're doing it yourself and can't do it rationally. Vanguard's not you.
But as to the 'principle' of not tinkering, that's based on the assumption it's an individual doing the tinkering and they can't do it rationally, but will fall victim to behavioral problems which lose money, or it slips in into making major changes (Vang's aren't very major) for bad reasons. There's no valid general principle of no tinkering over time assuming the tinkerer knows what they are doing and is rationally motivated. The prohibition against tinkering is under the assumption you're doing it yourself and can't do it rationally. Vanguard's not you.
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Re: Why doesn't Vanguard stay the course?
A question I keep brooding over is whether I personally ought to switch to a Vanguard target-date or LifeStrategy fund. The problem isn't so much the expenses, or the higher-than-I-like international stocks, or the international bonds, or Vanguard's annoyingly large course deviations. The really big difference is that I just plain like my TIPS too much. The difference between my TIPS allocation and Vanguard's is just really too big to bridge. Of course I could use a Vanguard all-in-one fund for part of my portfolio, and a separate outrigger TIPS fund... but that way lies madness.
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Re: Why doesn't Vanguard stay the course?
Interesting. T. Rowe Price's allocation utility just recommended that I should be in 80% stocks, despite being in my 50s and nominally 5 years from retirement. I guess they're just overall aggressive.nisiprius wrote: Morningstar did a piece on glide path "instability" and I believe they found that T. Rowe Price (which has very aggressive target date funds) had stayed the course better than Vanguard.
Re: Why doesn't Vanguard stay the course?
That's odd since their target 2020 fund is just 60% stocks. 2025 is 68%fposte wrote:Interesting. T. Rowe Price's allocation utility just recommended that I should be in 80% stocks, despite being in my 50s and nominally 5 years from retirement. I guess they're just overall aggressive.nisiprius wrote: Morningstar did a piece on glide path "instability" and I believe they found that T. Rowe Price (which has very aggressive target date funds) had stayed the course better than Vanguard.
Re: Why doesn't Vanguard stay the course?
We're all indexers in the end, so I think these conversations boil down to nitpicking. I just like arguing in favor of a single fund. So to your comment, I'm not so sure it's as simple we like to think. If it were that easy, why did it take Bogle to come along with the vision of creating an index fund. And didn't everyone call him crazy? Now it seems so obvious, and we think it's so easy anyone can do it. I'm not so sure.leonard wrote:Expertise applies when designing search engines and smartphones. Not so much when designing asset allocations.
Re: Why doesn't Vanguard stay the course?
I have a vanguard target date fund as my entire IRA. It didn't bother me at all when Vanguard switched the target date fund to a higher international allocation. It seemed like a reasonable change backed up by research, which fit with one of their core values (diversified holdings) by increasing our exposure to the whole world rather than focusing as heavily on US stocks/bonds. Also, they notified me when they were making the change, and if I had decided I didn't want that much international stock in my asset allocation, it would have been easy to transfer my money to U.S. total stock market and total bond market funds.
Re: Why doesn't Vanguard stay the course?
IMO, Vanguard made a much worse change when they took the Tax Managed International Fund and made it The Developed Market Index Fund. This changed the entire character of the fund and the reason for holding it. Worst of all, since this was a tax managed fund, it was held only in taxable accounts. Thus, a long term holder of the fund had substantial unrealized capital gains that made it expensive to move to a different fund if the holder did not like the change. So, I am now invested in the Developed Market fund when I wanted to be in a Tax Managed fund, and there is nothing I can do about it unless I want to increase my income taxes significantly.
Re: Why doesn't Vanguard stay the course?
I have wondered if this is the case and am glad to see that someone studied it. TRP asset allocation funds do a moderate amount of tactical allocation; nevertheless they are more stable than the Vanguard equivalents. Also, these tilts are most notable for their negative allocations, such as tilts in recent years away from US small cap, energy, and Apple. I much prefer these to the SCV-REIT-EM tilts that seem to attract many Vanguard investors and end up with a much more stable investment.nisiprius wrote: Morningstar did a piece on glide path "instability" and I believe they found that T. Rowe Price (which has very aggressive target date funds) had stayed the course better than Vanguard.
Would a retirement fund with a constant 40/60 stock/bond allocation and half its bonds in inflation-protected securities fit your needs? You might want to take a look at TRP Retirement Balanced (TRRIX). In addition almost all of its domestic large cap exposure is in an S&P500 index fund and its domestic small/mid caps are moving in a passive direction (You can read about this in any TRP retiremennt fund annual report.)nisiprius wrote:A question I keep brooding over is whether I personally ought to switch to a Vanguard target-date or LifeStrategy fund. The problem isn't so much the expenses, or the higher-than-I-like international stocks, or the international bonds, or Vanguard's annoyingly large course deviations. The really big difference is that I just plain like my TIPS too much.
You say you don't object to a higher ER or international stocks and bonds, so this may fit your needs.
Re: Why doesn't Vanguard stay the course?
Isn't tinkering required at the fund level?
I mean, if a country like South Korea is no longer an emerging market, you must treat it as such or else the fund over-allocates into what is actually Foreign Developed.
I think funds have to make some adjustments in order to maintain correct classifications.
I mean, if a country like South Korea is no longer an emerging market, you must treat it as such or else the fund over-allocates into what is actually Foreign Developed.
I think funds have to make some adjustments in order to maintain correct classifications.
Re: Why doesn't Vanguard stay the course?
I agree with your concerns. I understand that there may be new products e.g. TIPS that might be ideally suited to all in one funds that were created earlier. Also, changes that occurred to Mutual Fund Money Market funds as a result of the financial crisis made them less valuable for all in one funds due to the yield almost going to zero.
That being said I like to know what I'm buying and in retirement trying to select investments that would be relatively the same is important to me. I decided against VG TD and Life Strategy Funds due to their frequent and sometimes major changes. I choose VG Balanced Index Fund and Wellesley Income Fund (though "active") for my TIRA instead. I had to supplement those with several fixed income choices e.g. CD ladder, Short Term Bond index funds, and TIPS fund to get the allocation I wanted. More complex - yes but I hope more likely to be somewhat the same a decade down the road.
The last straw was the recent push to add International Bond Fund and increase International equity allocation significantly. I had a decent allocation to International equities in my taxable account so that change would have required me to incur cap gains to bring my overall allocation where I wanted. VG TD and Life Strategy Funds are to me slow motion active funds and should be bought with that in mind. As far as I can tell there is no restriction on these funds as far as changing the overall equity/fixed income allocations, what products are included or the glide path.
That being said I like to know what I'm buying and in retirement trying to select investments that would be relatively the same is important to me. I decided against VG TD and Life Strategy Funds due to their frequent and sometimes major changes. I choose VG Balanced Index Fund and Wellesley Income Fund (though "active") for my TIRA instead. I had to supplement those with several fixed income choices e.g. CD ladder, Short Term Bond index funds, and TIPS fund to get the allocation I wanted. More complex - yes but I hope more likely to be somewhat the same a decade down the road.
The last straw was the recent push to add International Bond Fund and increase International equity allocation significantly. I had a decent allocation to International equities in my taxable account so that change would have required me to incur cap gains to bring my overall allocation where I wanted. VG TD and Life Strategy Funds are to me slow motion active funds and should be bought with that in mind. As far as I can tell there is no restriction on these funds as far as changing the overall equity/fixed income allocations, what products are included or the glide path.
Re: Why doesn't Vanguard stay the course?
A fitting Question could also be:"Why don't investors stay the course ?" A savvy CFP once said investment companies naturally spend a lot of time looking at (and) evaluating investor psychology . Especially investors who request portfolio advice like Voyouger offers one time a year for free . Studies reveal a dismal 4% who actually follow all of the advice over time . They all have a million reasons for not doing so with biases, fear and greed being predominantly the reason . Those who pay for " a folio tune-up " do slightly better following said advice .
SeeMoe..
SeeMoe..
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Re: Why doesn't Vanguard stay the course?
1/2 TIPS & 1/2 VASGX would give you a nice 40/60 portfolio and obviously easy to rebalance.nisiprius wrote:A question I keep brooding over is whether I personally ought to switch to a Vanguard target-date or LifeStrategy fund. The problem isn't so much the expenses, or the higher-than-I-like international stocks, or the international bonds, or Vanguard's annoyingly large course deviations. The really big difference is that I just plain like my TIPS too much. The difference between my TIPS allocation and Vanguard's is just really too big to bridge. Of course I could use a Vanguard all-in-one fund for part of my portfolio, and a separate outrigger TIPS fund... but that way lies madness.
Re: Why doesn't Vanguard stay the course?
There are articles, and research that discuss this all the time. It's also probably one of the most mentioned comments/concerns on this forum. So this is very well known.SeeMoe wrote:A fitting Question could also be:"Why don't investors stay the course ?" A savvy CFP once said investment companies naturally spend a lot of time looking at (and) evaluating investor psychology . Especially investors who request portfolio advice like Voyouger offers one time a year for free . Studies reveal a dismal 4% who actually follow all of the advice over time . They all have a million reasons for not doing so with biases, fear and greed being predominantly the reason . Those who pay for " a folio tune-up " do slightly better following said advice .
SeeMoe..
I was actually vaulting off of this with my thread title, pointing out that Vanguard is just as guilty about not staying the course, despite them putting out articles imploring their investors to do this. And I'm glad to see that I'm not the only one frustrated about the fact that I cannot buy an all-in-one fund at even Vanguard, with the confidence that the only change to the fund that I select will be annual rebalancing. Instead, all I really know is what mix I bought at the time that I did, and who knows what that same fund will look like as short as 5 to 10 years later. To me, that is completely unacceptable, so I feel forced/obligated to just put the mix together myself and rebalance it myself.
My thought is, if Vanguard really wants a new mix, and wants to incorporate new investment types, then make a new fund. As I understand it, funds with as little as 100million are profitable. So leave my fund alone, please.
I saw another point made above that I really agree with, which is, if i wanted an active fund, trust me Vanguard, I would have bought one.
Re: Why doesn't Vanguard stay the course?
It looks like this tinkering is headed in the direction of Total World Stock and Total World Bond.K8ya wrote:Isn't tinkering required at the fund level?
I mean, if a country like South Korea is no longer an emerging market, you must treat it as such or else the fund over-allocates into what is actually Foreign Developed.
I think funds have to make some adjustments in order to maintain correct classifications.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
Re: Why doesn't Vanguard stay the course?
making changes like removing a stock or country that no longer fits the index is fine or call it tinkering. What VG does to the TD and Life Strategy funds is way beyond tinkering. They changed the equity to fixed income allocations soon after the funds were introduced and added and subtracted funds many times. Not all the moves were bad but you really don't know what you are buying. The latest non tinkering is ramping up international equities and adding international bonds. Very different than tinkering because an country or stock has moved from a classification.
Re: Why doesn't Vanguard stay the course?
I would call some things "adjusting," the purpose being keeping things the way they were always intended to be. I would call tinkering when the intent changes. Vanguard has definitely tinkered with the TR funds.
Re: Why doesn't Vanguard stay the course?
I would somewhat accept that but I still think it tends to be in the eye of the beholder, depending how to define 'the way things were always supposed to be'. For example I mentioned moving South Korea to developed and another poster essentially said "what else could they do if it *is* now 'developed'?". But there's more controversy on the somewhat similar point of including the China A-shares market, those have been part of 'emerging' in theory just not practically applicable to the index fund format. Some might reasonably believe they still aren't.dbr wrote:I would call some things "adjusting," the purpose being keeping things the way they were always intended to be. I would call tinkering when the intent changes. Vanguard has definitely tinkered with the TR funds.
Again I sort of agree with a distinction between even China A in one fund v. all-in-one's changing their international weight for example, but only sort of: from Vang's perspective those are also similar moves. From their POV 'the way things should have always been' is max diversification. That's subject to the practical limitations of particular markets, also empirical research as to what has diversification benefits, either may change.
And again while it's fair for any investor to want single funds or all-in-one's to conform with their own ideas, I don't see a valid concept of 'stay the course' which would prohibit Vanguard making periodic changes, including 'tinkering' ones even that's really separate. 'Stay the course' is at least partly a behavioral technique for individuals presumed to be subject to a money-losing-biased irrational slippery slope if they start making changes. That doesn't necessarily apply to Vanguard. If one believes Vang has other motives besides fund holder/owner interests, which is occasionally suggested in such discussions, that's a different issue. Likewise if it were really rapid fire significant and inconsistent changes, but I don't think so.
Re: Why doesn't Vanguard stay the course?
Didn't know that I Was " off topic" regards your post . Your solution to make your own " balanced fund folio" makes sense . That is what I learned to do years ago with X number of various stock fund and bond funds , to include international . All taxable bonds are in our IRA's, tax exempt bonds and all stock funds in the taxable folio . Working out well too in this down market despite the target of 45/55 currently at 40/60ish,..(Will have to google my preceding question regards "investors staying the course" , as you say it is a common topic in posts ?)azanon wrote:There are articles, and research that discuss this all the time. It's also probably one of the most mentioned comments/concerns on this forum. So this is very well known.SeeMoe wrote:A fitting Question could also be:"Why don't investors stay the course ?" A savvy CFP once said investment companies naturally spend a lot of time looking at (and) evaluating investor psychology . Especially investors who request portfolio advice like Voyouger offers one time a year for free . Studies reveal a dismal 4% who actually follow all of the advice over time . They all have a million reasons for not doing so with biases, fear and greed being predominantly the reason . Those who pay for " a folio tune-up " do slightly better following said advice .
SeeMoe..
I was actually vaulting off of this with my thread title, pointing out that Vanguard is just as guilty about not staying the course, despite them putting out articles imploring their investors to do this. And I'm glad to see that I'm not the only one frustrated about the fact that I cannot buy an all-in-one fund at even Vanguard, with the confidence that the only change to the fund that I select will be annual rebalancing. Instead, all I really know is what mix I bought at the time that I did, and who knows what that same fund will look like as short as 5 to 10 years later. To me, that is completely unacceptable, so I feel forced/obligated to just put the mix together myself and rebalance it myself.
My thought is, if Vanguard really wants a new mix, and wants to incorporate new investment types, then make a new fund. As I understand it, funds with as little as 100million are profitable. So leave my fund alone, please.
I saw another point made above that I really agree with, which is, if i wanted an active fund, trust me Vanguard, I would have bought one.
SeeMoe..
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Re: Why doesn't Vanguard stay the course?
FWIW, I wasn't saying you were off-topic. I was just saying that the issue of individual investors staying, or not staying, "on course" is already well known, documented, and discussed. And, certainly, that's very related to what I believe causes the same problems when Vanguard does it on behalf of a balanced fund holder.
Re: Why doesn't Vanguard stay the course?
I thought it went without saying on BH - creating your own asset allocation with index funds.synpacket wrote:We're all indexers in the end, so I think these conversations boil down to nitpicking. I just like arguing in favor of a single fund. So to your comment, I'm not so sure it's as simple we like to think. If it were that easy, why did it take Bogle to come along with the vision of creating an index fund. And didn't everyone call him crazy? Now it seems so obvious, and we think it's so easy anyone can do it. I'm not so sure.leonard wrote:Expertise applies when designing search engines and smartphones. Not so much when designing asset allocations.
Leonard |
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Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? |
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If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Re: Why doesn't Vanguard stay the course?
This precise issue is a large part of why I do not use Vanguard's target date funds.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
Re: Why doesn't Vanguard stay the course?
I was really unhappy with upping international bonds to 30% of the bond allocation without increasing the overall bond allocation. As I don't have enough to meet the fund minimums to do a custom allocation, I have to accept it. Hopefully the changes won't make that big a difference over the course of a few decades.
No, I don't see the irony. The S&P 500 index changes because market cap weights change. They don't drop companies because of manager decisions. Companies weed themselves out when their market cap decreases.sreynard wrote:Does anyone else see the irony of people that invest in cap' weighted index funds complaining about a fund company making component changes to their funds?
Oh that dang S&P keeps changing it's index! Oh my! I want my 1999 "stay the course" S&P 500 fund! I liked my Crown Cork & Seal and they dropped it!!! That isn't the way it was when I bought it!
Re: Why doesn't Vanguard stay the course?
Why a few decades? You can switch to separate funds once you have enough to meet the $3000/fund minimum. And really, I doubt it matters much in the long run whatever the returns are when your account is merely $1,000-10,000. When you're just starting out, savings rate matters more than AA.sawhorse wrote:I was really unhappy with upping international bonds to 30% of the bond allocation without increasing the overall bond allocation. As I don't have enough to meet the fund minimums to do a custom allocation, I have to accept it. Hopefully the changes won't make that big a difference over the course of a few decades.
Mind, Vanguard tinkering with Target Retirement and LifeStrategy funds is one reason I hesitate holding them in taxable.
Re: Why doesn't Vanguard stay the course?
Let's face it Vanguard has built up a lot of trust with its investors. So for many they trust Vanguard to make changes to Life Strategy and TD funds that are appropriate and reasonable to support the basic mission of these funds. When it comes to the changes that they have made many of them made sense e.g. ditching the Asset Allocation Fund. People who would likely trash other fund companies for making ongoing significant changes to all in one funds find it easy to give Vanguard a bit of a free pass.
There are a couple of things that keep me wary of these funds
1. Most funds have a prospectus that defines with reasonable limits on the portfolio manager even if it is only for 80% of the assets and with a disclaimer of in unusual times being able to do what it takes to protect the best interest of the shareholders. e.g. a US small cap fund can't usually decide to invest a large percentage of their assets in large caps, Europe or High Yield bonds. It doesn't seem that the VG TD or Life Strategy Funds have those type of limits.
I don't think most Bogleheads would normally advocate most people invest in such an unconstrained fund - such is the power of the trust Vanguard has earned that even the most ardent true believers in stay the course seem to be ok with this portfolio freedom. I admire Vanguard but giving that much freedom of action to any group doesn't bode well. There will always tend to be a bias toward tinkering in my opinion. While the motives may be pure we supposedly believe that, in general, staying the course is better since often tinkering is a result of being overly influence by recent trends.
2. These funds are not well suited for taxable accounts since if you don't like the changes you may have to incur cap gain taxes to get out the fund.
They don't seem to be well suited in tax advantaged accounts if the investor also has large taxable investments . Again, significant changes in a TD fund held in an TIRA may require sales of taxable investments, incurring a possible unnecessary cap gain in order to maintain the overall allocation desired. The recent ramping up of international equities is a good example. If you decide not to sell international equities in your taxable account you are basically letting Vanguard drive your overall allocation.
Any time you choose an all in one fund you usually have to make some compromise as far as allocation or fund make up. I can live with that. You can often do other things to get close to the investment portfolio/allocation you want. But, to make that compromise and adjustments initially and then to have to keep making adjustments defeats the purpose of having an all in one fund for me.
There are a couple of things that keep me wary of these funds
1. Most funds have a prospectus that defines with reasonable limits on the portfolio manager even if it is only for 80% of the assets and with a disclaimer of in unusual times being able to do what it takes to protect the best interest of the shareholders. e.g. a US small cap fund can't usually decide to invest a large percentage of their assets in large caps, Europe or High Yield bonds. It doesn't seem that the VG TD or Life Strategy Funds have those type of limits.
I don't think most Bogleheads would normally advocate most people invest in such an unconstrained fund - such is the power of the trust Vanguard has earned that even the most ardent true believers in stay the course seem to be ok with this portfolio freedom. I admire Vanguard but giving that much freedom of action to any group doesn't bode well. There will always tend to be a bias toward tinkering in my opinion. While the motives may be pure we supposedly believe that, in general, staying the course is better since often tinkering is a result of being overly influence by recent trends.
2. These funds are not well suited for taxable accounts since if you don't like the changes you may have to incur cap gain taxes to get out the fund.
They don't seem to be well suited in tax advantaged accounts if the investor also has large taxable investments . Again, significant changes in a TD fund held in an TIRA may require sales of taxable investments, incurring a possible unnecessary cap gain in order to maintain the overall allocation desired. The recent ramping up of international equities is a good example. If you decide not to sell international equities in your taxable account you are basically letting Vanguard drive your overall allocation.
Any time you choose an all in one fund you usually have to make some compromise as far as allocation or fund make up. I can live with that. You can often do other things to get close to the investment portfolio/allocation you want. But, to make that compromise and adjustments initially and then to have to keep making adjustments defeats the purpose of having an all in one fund for me.
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Re: Why doesn't Vanguard stay the course?
Sawhorse,
The S&P 500 is not necessarily the 500 largest companies in the US. The S&P 500 is a set of large companies selected by Committee. They are supposed to be representative of the economy and market.
It has been generally representative of the market but the changes in the makeup of the index over time are significant and are not solely based on market cap.
It was first because building a fund to track 500 stocks was manageable and cost effective. It took several years of going to school on the 500 fund before it was feasible to prepare an extension index fund or a total market fund, which usually use some options and sampling in an effort to be close.
The tinkering with the LifeStrategy Funds doesn't bother me though I can't figure out how I'm better off with hedged international bonds--I think I lose most of the diversification benefit through the extra expense required for hedging the currencies. The change in the glide slope for the TR funds is more concerning since they are marketed to set and forget investors.
Harry
The S&P 500 is not necessarily the 500 largest companies in the US. The S&P 500 is a set of large companies selected by Committee. They are supposed to be representative of the economy and market.
It has been generally representative of the market but the changes in the makeup of the index over time are significant and are not solely based on market cap.
It was first because building a fund to track 500 stocks was manageable and cost effective. It took several years of going to school on the 500 fund before it was feasible to prepare an extension index fund or a total market fund, which usually use some options and sampling in an effort to be close.
The tinkering with the LifeStrategy Funds doesn't bother me though I can't figure out how I'm better off with hedged international bonds--I think I lose most of the diversification benefit through the extra expense required for hedging the currencies. The change in the glide slope for the TR funds is more concerning since they are marketed to set and forget investors.
Harry