Vanguard Target Retirement Funds

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Vanguard Target Retirement Funds

Post by BlackHat » Wed Oct 11, 2017 4:52 pm


Are Vanguard retirement funds goal to maximize wealth? Who has the final say on what these funds contain?

Thank you, BlackHat
“Life is really simple, but we insist on making it complicated.” -- Confucius

John Laurens
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Re: Vanguard Target Retirement Funds

Post by John Laurens » Wed Oct 11, 2017 4:57 pm

Yes. On a risk adjusted basis. However, each person and their circumstances determine an individual’s ability and need to take risk.


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Re: Vanguard Target Retirement Funds

Post by lack_ey » Wed Oct 11, 2017 5:24 pm

They're intended to be a one-size-fits-all investing solution potentially suitable for a range of retirement investors to be held for the long term, through accumulation and decumulation.

It's not really about wealth maximization, and there are ancillary concerns about plan complexity (and the potential difficulty of advisers having to explain things to clients), capacity of potential investment strategies, transparency, and so on.

Also, how would you even define wealth maximization for an investment strategy? Highest expected value of annualized returns (averaging over probability over the set of possible outcomes)? Or final value given certain assumptions? What even are the assumptions about contributions and withdrawals? Perhaps highest for a given level of risk, considering that the funds do use bonds? What level of risk, and how do you define that? Whatever you say, that's not even necessarily the best or most appropriate strategy anyway. For example, one could place greater weight and emphasis on performance in relatively poor conditions (unlucky outcomes, those significantly below 50 percentile) rather than weighting equally.

It's Vanguard's equity index group that runs the funds day-to-day but I suppose big decisions about what to put in these things go high up, and I think Vanguard's research teams are involved.

In any case, Vanguard has actually written a good deal of white papers explaining what they do in these funds and why. There's for example from 2015 "Vanguard's approach to target-date funds" here:
Last edited by lack_ey on Wed Oct 11, 2017 5:28 pm, edited 2 times in total.

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Re: Vanguard Target Retirement Funds

Post by dbr » Wed Oct 11, 2017 5:26 pm

BlackHat wrote:
Wed Oct 11, 2017 4:52 pm

Are Vanguard retirement funds goal to maximize wealth? Who has the final say on what these funds contain?

Thank you, BlackHat
No. On the face if it bonds have lower expected return than stocks so a simple alternative that would better suit the goal of maximizing wealth would be to invest 100% in stocks the whole way. That is compared to sticking to a TR fund and following the glide path. It is even true in retirement while withdrawing that a 100% stock allocation offers a no worse safe withdrawal rate and no higher chance of failure at moderate withdrawal rates than the 30% stock allocation that you end up with.

The final say is yours because you can choose which TR fund to hold and switch back over time if you want, though probably not in a taxable account. Otherwise Vanguard has not only the final but all the say in the sense that the purchasers of the fund don't set the allocation of the fund.

Others can discuss why an investor might not want to be 100% stocks any time or all the time. The issue has been addressed in many threads.

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