Any logic to picking multiple target date funds?

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fortfun
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Any logic to picking multiple target date funds?

Post by fortfun » Wed Jan 24, 2018 9:31 pm

Just out of curiosity...

Say you plan to retire early, and you need your retirement to last 35+ years, for the purpose of making withdrawals, is there any logic to picking several target date funds? For example, you would withdraw from the earliest target date fund and let the one you'll need to use in 35 years grow/lose at a more aggressive rate.

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Noobvestor
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Re: Any logic to picking multiple target date funds?

Post by Noobvestor » Wed Jan 24, 2018 9:43 pm

No logic I can see. The idea is that Target Date funds provide a built-in glide path so you don't have to worry about moving toward safer assets as you approach/enter retirement. If you stacked a bunch of them, you'd effectively be taking the 'average' of the group, I think. So if you bought a Target Date 2035 and Target Date 2045, I assume that would be similar to putting it all in a Target Date 2040 (with maybe a little variance?).

There are 'bucket' strategies that involve taking from different parts of your portfolios at different stages, but I would think using Target Date funds would actually complicate that kind of approach. https://www.bogleheads.org/wiki/Buckets_of_Money
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Sandtrap
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Re: Any logic to picking multiple target date funds?

Post by Sandtrap » Wed Jan 24, 2018 9:47 pm

Curious to know what scenario it might make sense.
Otherwise, IMHO. . . . seems illogical.
Overlap and conflicting.
Bogle concepts are to keep things simple.
j :D

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Taylor Larimore
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Re: Any logic to picking multiple target date funds?

Post by Taylor Larimore » Wed Jan 24, 2018 10:02 pm

fortfun wrote:
Wed Jan 24, 2018 9:31 pm
Just out of curiosity...

Say you plan to retire early, and you need your retirement to last 35+ years, for the purpose of making withdrawals, is there any logic to picking several target date funds? For example, you would withdraw from the earliest target date fund and let the one you'll need to use in 35 years grow/lose at a more aggressive rate.
fortfun:

A primary advantage of target date funds is their simplicity. Target funds are usually best placed in retirement accounts where their stock/bond ratio can be changed at any time without cost. I can think of no good reason to own more than one in a single tax-advantaged account.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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fortfun
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Re: Any logic to picking multiple target date funds?

Post by fortfun » Wed Jan 24, 2018 10:08 pm

Taylor Larimore wrote:
Wed Jan 24, 2018 10:02 pm
fortfun wrote:
Wed Jan 24, 2018 9:31 pm
Just out of curiosity...

Say you plan to retire early, and you need your retirement to last 35+ years, for the purpose of making withdrawals, is there any logic to picking several target date funds? For example, you would withdraw from the earliest target date fund and let the one you'll need to use in 35 years grow/lose at a more aggressive rate.
fortfun:

A primary advantage of target date funds is their simplicity. Target funds are usually best placed in retirement accounts where their stock/bond ratio can be changed at any time without cost. I can think of no good reason to own more than one in a single tax-advantaged account.

Best wishes.
Taylor
Thanks Taylor. That's what I figured, but 35 years is a long time and I wasn't sure how they were designed to "last." Since it is the lowest ER option, from our employers, it's the one we are using. When I retire, I'll probably roll mine into the three fund portfolio and fine tune them for efficient withdrawals, as a previous poster indicated.

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Taylor Larimore
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Re: Any logic to picking multiple target date funds?

Post by Taylor Larimore » Wed Jan 24, 2018 10:21 pm

When I retire, I'll probably roll mine into the three fund portfolio and fine tune them for efficient withdrawals, as a previous poster indicated.
fortfun:

The above quote doesn't make sense. Target funds are great in retirement because you only need to make one withdrawal at a time and it doesn't change your asset allocation.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

billthecat
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Re: Any logic to picking multiple target date funds?

Post by billthecat » Wed Jan 24, 2018 10:30 pm

fortfun wrote:
Wed Jan 24, 2018 9:31 pm
Just out of curiosity...

Say you plan to retire early, and you need your retirement to last 35+ years, for the purpose of making withdrawals, is there any logic to picking several target date funds? For example, you would withdraw from the earliest target date fund and let the one you'll need to use in 35 years grow/lose at a more aggressive rate.
I asked this same question back in May (viewtopic.php?f=1&t=70015&p=3378938&hil ... t#p3378938). I don't know how to link to a specific post but it's buried there on the first page.

Basically you can do this if it helps you manage your spending but it's no different than investing in a single fund with a target date that reflects the weighted average of your multiple target date funds.

What I do now is invest in a target date fund with a target date in line with traditional retirement ages (~65), and then for my taxable account (for use during early retirement) I just put it into a robo advisor where I indicated I wanted it in 1-3 years and to last 45 years.

Either way, your aggregated asset allocation should be in line with your risk level (ability, willingness, and all that).

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Re: Any logic to picking multiple target date funds?

Post by The Wizard » Wed Jan 24, 2018 10:32 pm

Vanguard's target date funds transition to their Retirement Income fund (whatever it's called) at some point when the target year is reached.
You need to decide if that matches your desired AA from that point onwards.
In my case, I'm pretty sure it doesn't, so I don't use that type of fund...
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Taylor Larimore
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Re: Any logic to picking multiple target date funds?

Post by Taylor Larimore » Wed Jan 24, 2018 10:57 pm

The Wizard wrote:
Wed Jan 24, 2018 10:32 pm
Vanguard's target date funds transition to their Retirement Income fund (whatever it's called) at some point when the target year is reached.
You need to decide if that matches your desired AA from that point onwards.
In my case, I'm pretty sure it doesn't
, so I don't use that type of fund...
The Wizard:

Can you explain why you don't simply exchange to another target fund with the AA you prefer?

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Beehave
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Re: Any logic to picking multiple target date funds?

Post by Beehave » Wed Jan 24, 2018 11:06 pm

My opinion is that there can be very good reasons to bucketize into an array of target date funds.

1. Some funds have different compositions for different date ranges (not just different percentages of the same component). For example - - adding TIPS or even commodities in the target retirement fund but not in, say the 2025 on out. So there's sometimes genuine diversification of holdings within the fund family's components.

2. Even where #1 above is not the case, the automatic rebalancing in time ordered sequential buckets may psychologically help the OP stay the course during up- and downturns better would than a single "averaged equivalent" life strategy or single target date fund.

3. Alternatively, the different buckets might help the OP prune or add proportionately as desired to bonds or stocks by selectively withdrawing from or adding to different funds depending on market conditions. OK - this would be market timing but in the event of a crash for example, withdrawing from target retirement rather than target 2050 might make good sense and be better than having just one fund.

4. At some point withdrawals or additions to individual fundsmay be limited by fund closures, market conditions, or prior activities by the OP. Having several funds as opposed to one may be beneficial at such times. (Note - - this strategy could backfire if the total number of transactions per unit of time across all the OP's funds were limited for any reason and the OP wanted to move large amounts at once.)

For the record, I've done this type of bucketizing for the reasons stated, but, full disclosure, in doing so I've sometimes missed the simplicity cited by many others in this string who argue against this. If the OP tries this bucketizing and doesn't like it, there's ability to switch to a single target date or life strategy fund, so there's no harm trying this. Frankly, I like a compromise alternative of a simple barbell of one far out target date together with target retirement when point #1 above is in play to provide nice, simple, self-balancing flexibility.

I'd be interested in comments.

Best wishes.

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Re: Any logic to picking multiple target date funds?

Post by baw703916 » Wed Jan 24, 2018 11:19 pm

I actually am using two different "L Funds" in my TSP account (L funds = TSP version of target date funds).

Technically only one actually has a date: L2030 (about when I'll be retirement age).

Until recently, I had much of the rest of my TSP in the G fund (I distribute assets over several types of accounts). I decided to change to switch from G to L income (which is about 75% bonds--mostly G fund, but holds some stocks and is autorebalancing).

Part of the rationale of doing this is I can't really rebalance myself on a daily basis, but the L income does that for me.
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Re: Any logic to picking multiple target date funds?

Post by The Wizard » Wed Jan 24, 2018 11:46 pm

Taylor Larimore wrote:
Wed Jan 24, 2018 10:57 pm
The Wizard wrote:
Wed Jan 24, 2018 10:32 pm
Vanguard's target date funds transition to their Retirement Income fund (whatever it's called) at some point when the target year is reached.
You need to decide if that matches your desired AA from that point onwards.
In my case, I'm pretty sure it doesn't
, so I don't use that type of fund...
The Wizard:

Can you explain why you don't simply exchange to another target fund with the AA you prefer?

Thank you and best wishes.
Taylor
I prefer owning Individual funds at both TIAA and Vanguard. And my target AA in retirement is now 60/40 stocks/non-stocks...
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GerryL
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Re: Any logic to picking multiple target date funds?

Post by GerryL » Wed Jan 24, 2018 11:58 pm

This is the same question I asked on this forum back in 2013.

Laddering target date funds?
viewtopic.php?f=10&t=126636

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fortfun
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Re: Any logic to picking multiple target date funds?

Post by fortfun » Thu Jan 25, 2018 6:46 pm

Taylor Larimore wrote:
Wed Jan 24, 2018 10:21 pm
When I retire, I'll probably roll mine into the three fund portfolio and fine tune them for efficient withdrawals, as a previous poster indicated.
fortfun:

The above quote doesn't make sense. Target funds are great in retirement because you only need to make one withdrawal at a time and it doesn't change your asset allocation.

Best wishes.
Taylor
Good thing I have 15 years before I'll begin withdrawing. I have some learning to do, or just withdraw from the target date as is. Thanks!
Thanks Taylor!

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Re: Any logic to picking multiple target date funds?

Post by retiredjg » Thu Jan 25, 2018 7:05 pm

If I were doing it, I'd probably just adjust my entire portfolio to achieve the goal I want without using several target date funds. I might use 2 target funds to achieve a goal that is in-between though.

I noticed your plan was to do it differently - use less aggressive funds for money you expect to use sooner and more aggressive funds for money you expect to use later. Not my choice, but not a fund felony by any means. However, it does complicate your portfolio.

In practice, it simply does not matter. No matter what you put in there, your portfolio is either (making up a number here) 60/40 or it is not 60/40.

If 60/40 is your target you could theoretically use several target funds to achieve that or one target fund to achieve it or a LifeStragety fund to achieve it or individual funds to achieve it or some combination of the above to achieve it or even some combination not mentioned to achieve it. They will all be 60/40 and perform reasonably the same. There is nothing helpful or magical or harmful from putting aggressive funds in accounts you expect not to use soon and conservative funds in the accounts you expect to use first.

In any of the cases above, as you take money out, you may (or may not) need to rebalance the remainder to stay at your desired number. If you can see that, you can see that even if you put the most aggressive fund in the account you expect to use first....it won't matter because you will (or will not) need to rebalance back to goal as you take the money out.

Bringing this back to Taylor's nudge for simplicity, using the same target fund from one account to another is the simplest way to achieve your goal. I like simplicity but it does not suit everyone. If you like something else and if it makes sense to you and if you have the ability to manage it, then do it.

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Re: Any logic to picking multiple target date funds?

Post by Broken Man 1999 » Thu Jan 25, 2018 7:14 pm

An investor (high net worth) might select one Target Retirement Fund for retirement needs, and possibly another TRF for a legacy for younger folks, such as children, grandchildren.

I don't think I would set up/fund two goals in that manner, but it could work out, the legacy TRF changing as the recipients grow older, along with the retirement TRF doing the same for the retiree.

Might be pretty simple way to accomplish dual goals.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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fortfun
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Re: Any logic to picking multiple target date funds?

Post by fortfun » Thu Jan 25, 2018 9:17 pm

retiredjg wrote:
Thu Jan 25, 2018 7:05 pm
If I were doing it, I'd probably just adjust my entire portfolio to achieve the goal I want without using several target date funds. I might use 2 target funds to achieve a goal that is in-between though.

I noticed your plan was to do it differently - use less aggressive funds for money you expect to use sooner and more aggressive funds for money you expect to use later. Not my choice, but not a fund felony by any means. However, it does complicate your portfolio.

In practice, it simply does not matter. No matter what you put in there, your portfolio is either (making up a number here) 60/40 or it is not 60/40.

If 60/40 is your target you could theoretically use several target funds to achieve that or one target fund to achieve it or a LifeStragety fund to achieve it or individual funds to achieve it or some combination of the above to achieve it or even some combination not mentioned to achieve it. They will all be 60/40 and perform reasonably the same. There is nothing helpful or magical or harmful from putting aggressive funds in accounts you expect not to use soon and conservative funds in the accounts you expect to use first.

In any of the cases above, as you take money out, you may (or may not) need to rebalance the remainder to stay at your desired number. If you can see that, you can see that even if you put the most aggressive fund in the account you expect to use first....it won't matter because you will (or will not) need to rebalance back to goal as you take the money out.

Bringing this back to Taylor's nudge for simplicity, using the same target fund from one account to another is the simplest way to achieve your goal. I like simplicity but it does not suit everyone. If you like something else and if it makes sense to you and if you have the ability to manage it, then do it.
Thanks retiredjg! I think I'll stick with simple. Just wanted to double check before we change my wife's target date.

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Re: Any logic to picking multiple target date funds?

Post by austel » Mon Oct 15, 2018 8:54 pm

I guess I'm one of the few that do see a value in laddering TRFs. Here's an extreme case that might help. Let's say a 23 y.o. hits the Powerball and plans to retire at 35, in 2030. Clearly, his retirement needs are dramatically different from those of a 53 y.o who plans to retire at age 65, also in 2030. If both put all their retirement money in a 2030 TRF, which is probably appropriate for the 53yo, I would think that the 23yo would be stuck with a very conservative portfolio for ~50 years. Might it not make more sense for the 23yo to ladder some TRFs, say 2030, 2045, 2060?

But based on the collective wisdom of those who have disagreed on this thread, I'm sure I'm missing something! :D

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