Differences between retirement-oriented funds?

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GaryA505
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Joined: Wed Feb 08, 2017 1:59 pm
Location: New Mexico

Differences between retirement-oriented funds?

Post by GaryA505 »

There's something I've been wondering about and maybe someone here has some insight on this. I've noticed that some retirement-oriented mutual funds have totally different portfolios. If you take a look inside the target date funds of Vanguard, Fidelity, and TRP, yes they all contain very similar holdings. However, if you look at Vanguard's Managed Payout (VPGDX) and Wellesley Income, they contain dramatically difficult holdings. VPGDX in particular has a portfolio that nobody seems to be able to explain. Maybe these differences simply suggest that there may be many different viable ways to create a portfolio for producing "retirement" income. Any thoughts?
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
mhalley
Posts: 10424
Joined: Tue Nov 20, 2007 5:02 am

Re: Differences between retirement-oriented funds?

Post by mhalley »

A common saying here is "there are many roads to Dublin". As evidenced by wci post 150 portfolios better than yours, there are many ways to construct a reasonable portfolio. No one simple asset allocation is perfect and works for everyone. If there was, then every tr fund would have the same aa and the same glidepath. The managed payout funds haven't garnered a lot of love here, maybe once they have 10 years on them.
lack_ey
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Joined: Wed Nov 19, 2014 10:55 pm

Re: Differences between retirement-oriented funds?

Post by lack_ey »

The target date-style retirement funds from most fund families fall in the mainstream of thought, with most trying to run a portfolio that looks inoffensive and is not far from conventional wisdom for what is thought to be prudent and relatively low volatility to manage income and withdrawals in retirement. These are one-size-fits-all solutions.

Vanguard Managed Payout has a different objective and mandate, seeking to keep up with inflation while paying out significant distributions, around 4%. This necessitates a riskier allocation, and it is managed by Vanguard's quant team, who use what's closer to an endowment-style portfolio. What about this do you think that nobody is able to explain?

Some target date-style funds from some smaller fund companies might do something a bit different as well. But Vanguard, Fidelity (active and passive), T. Rowe Price, American Funds, the government TSP plan, Blackrock, DFA, etc. do follow a glidepath ending in a lowish equity percentage (about 25-40%, maybe a hair higher).
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: Differences between retirement-oriented funds?

Post by dbr »

GaryA505 wrote: Sun Sep 10, 2017 11:52 pm Maybe these differences simply suggest that there may be many different viable ways to create a portfolio for producing "retirement" income. Any thoughts?
^This, together with an arguable fact that the success of a retirement investing portfolio is weakly affected by asset allocation (aka investment choice) compared to the strong influence of withdrawal rate and luck. Luck means that results depend more on when you start retirement than on how you are invested for retirement. Unfortunately how the result will depend on when won't be known in full until you are dead.
livesoft
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Joined: Thu Mar 01, 2007 7:00 pm

Re: Differences between retirement-oriented funds?

Post by livesoft »

Investment products have changed over the years as time has passed and "studies" have given folks new information. Financial institutions cannot close old funds or do away with them because clients become attached to them. Plus laws have changed which make some things better nowadays than in the past.

So expect more laws to change, more research to be published, and new products to appear. That doesn't mean the new products are always better than the old products, but even if they sometimes are, that doesn't mean people will switch nor that the cost to switch is zero.
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