Vanguard LifeStrategy Funds vs. Target Date Funds

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Windylotus
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Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Windylotus »

What's the difference in Vanguards Lifestrategy and Target Date funds? The AA adjusts through the glide path in the Target Date funds over time and the Lifestrategy funds keeps the same AA? Looks like the Lifestrategy is $3k minimum investment, Target date $1k.

What are the pro's/con's of this?

My Roth-IRA is 100% Target Date 2040 Funds.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by AntsOnTheMarch »

Choose TD if you want AA to adjust over your lifetime. Choose LS if you want a constant AA throughout. Any other differences are not major I think, but TD holds foreign bonds and I don’t recall offhand if LS does or not — or in what amounts.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by dbr »

willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
I tend to agree with this observation though it is up to the individual to decide on the actual allocation. But another problem is that in the past these funds have changed their allocations and I would not trust a fund company not to mess with things again. I think a better solution and really the simplest is a three fund approach with appropriate tax location. Rebalancing just isn't that much of a practical burden. A person should be staying involved with whether or not their investments are appropriate for their situation as years go by anyway.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

willthrill81 wrote: Fri Feb 16, 2018 10:03 am Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.
It must not be outside the recommended range according to the research at Vanguard, Fidelity, and the other large providers of target date funds. It would be interesting to see a Vanguard white paper discussing their choice of glide path for their target date funds. A quick search revealed only this conversation, where the interviewer was surprised that the terminal stock allocation was so large: https://retirementplans.vanguard.com/VG ... cript2.jsf

edit: Here is a white paper:https://personal.vanguard.com/pdf/icrtdf.pdf
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by dbr »

rkhusky wrote: Fri Feb 16, 2018 10:16 am
willthrill81 wrote: Fri Feb 16, 2018 10:03 am Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.
It must not be outside the recommended range according to the research at Vanguard, Fidelity, and the other large providers of target date funds. It would be interesting to see a Vanguard white paper discussing their choice of glide path for their target date funds. A quick search revealed only this conversation, where the interviewer was surprised that the terminal stock allocation was so large: https://retirementplans.vanguard.com/VG ... cript2.jsf
In the classic literature on withdrawal rates, such as the Trinity Study, the paradigm 30 year, 4% scenario seems to fall off the cliff kind of around 30% stocks and less, so it is arguable whether 30% is too low for the duration of retirement. You could say there is support for the glide path. I think if the fund ran out at 20% there could be charge of irresponsible asset management for retirement here. In my mind 40% is a much more comfortable number. But as is often commented, just investing in a portfolio rather than considering a larger picture involving annuities and other options is too narrow a context for retirement planning.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

dbr wrote: Fri Feb 16, 2018 10:23 am But as is often commented, just investing in a portfolio rather than considering a larger picture involving annuities and other options is too narrow a context for retirement planning.
The Vanguard white paper does touch on pensions and SS. In addition, the white paper addresses an average retiree that may have more modest resources than those on this forum. Plus, Vanguard must deal with participants that may not be as knowledgeable in financial matters, who may bail on the target retirement funds (and all stocks), if they experience too large a drop in their portfolio balance.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

rkhusky wrote: Fri Feb 16, 2018 10:42 am
dbr wrote: Fri Feb 16, 2018 10:23 am But as is often commented, just investing in a portfolio rather than considering a larger picture involving annuities and other options is too narrow a context for retirement planning.
The Vanguard white paper does touch on pensions and SS. In addition, the white paper addresses an average retiree that may have more modest resources than those on this forum. Plus, Vanguard must deal with participants that may not be as knowledgeable in financial matters, who may bail on the target retirement funds (and all stocks), if they experience too large a drop in their portfolio balance.
I'd say that Vanguard's choice of glidepath is more based around risk-averse investors rather than what was mathematically optimal (historically, of course). Review of their whitepaper seems to suggest this to me as well.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by iceport »

rkhusky wrote: Fri Feb 16, 2018 10:16 am
willthrill81 wrote: Fri Feb 16, 2018 10:03 am Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.
It must not be outside the recommended range according to the research at Vanguard, Fidelity, and the other large providers of target date funds. It would be interesting to see a Vanguard white paper discussing their choice of glide path for their target date funds. A quick search revealed only this conversation, where the interviewer was surprised that the terminal stock allocation was so large: https://retirementplans.vanguard.com/VG ... cript2.jsf

edit: Here is a white paper:https://personal.vanguard.com/pdf/icrtdf.pdf
Okay, but then there is this (sorry, link to the webcast and transcript no longer works):

From the Vanguard webcast, Webcast replay: Spending strategies for your retirement years:
We have a question from Jonathan in Philadelphia, right in our backyard. Jonathan asks, "What is your position on the 4% withdrawal rule at the time of retirement?" We talk about this a lot. Maria, why don't you start?

Maria Bruno: I think it's a good foundational question because that by far, I think, is the major question that we get these days primarily around the interest rate environment that we're in. We do believe that 4% is a reasonable starting point for someone who is entering retirement. I think it's probably a good idea to just take a step back and talk about what's baked into that 4%.

There's two main factors, one being time horizon. So, when you think about the 4% spending rule of thumb, what it's predicated upon is it assumes a balanced portfolio anywhere from 40% to 60% equity, for example, and over a 30-year time horizon research shows—and our research supports it as well—that by spending 4% inflation, dollar-adjusted, over a 30-year time horizon, there's a very strong likelihood that the portfolio would be sustained through that period.

<snip>

So time horizon is important. Asset allocation is another factor that's important. So we assume in these simulations of balanced portfolio anywhere, as I said, 40% to 60% equity. If you're more conservatively invested, then certainly, a lower sustainable withdrawal rate would make sense.

Conversely, if you're more aggressively allocated, then you could feasibly spend more, but the thing to keep in mind is, particularly with shorter time horizons, that the portfolio is basically exposed to more market risk or volatility risk. So the frequency of losses may not change, but the magnitude of losses might.
:?
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

willthrill81 wrote: Fri Feb 16, 2018 11:01 am I'd say that Vanguard's choice of glidepath is more based around risk-averse investors rather than what was mathematically optimal (historically, of course). Review of their whitepaper seems to suggest this to me as well.
I agree. Vanguard would suggest saving more, so that your withdrawal rate and stock allocation could be lower.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by whodidntante »

willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
I agree. Well said.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by CABob »

The glide path for the TR funds approach the TR income fund which has a 30/70 allocation while the LS Income fund has 20/80. The LS Conservative Growth fund has an allocation of 40/60. If you want a 30/70 allocation you can't get there with the LS funds without an additional fund. This may not be a significant issue for many but will be for some.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by stemikger »

For what it's worth Jack Bogle likes the fixed 60/40 AA. In fact in his updated Little Book on Common Sense Investing, it is referred to as the Bogle Model. However, you can do a lot worse than if you simply put it in one TDF and never look back. IMHO whatever enables you to stay the course would be ideal.

My plan is to keep it at 60/40 for life. I will even go one step further and pick the simple plain vanilla balanced index fund and never look back. I don't care about holding international, so that fund with its low ER is what I consider to be investing nirvana.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by 3funder »

Pretty hard to go wrong with either type, unless, of course, you completely misjudge your risk tolerance.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Windylotus »

willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
Thank you willthrill81. Would it make sense to stay in my target date 2040 fund until the AA reaches 60/40, then transition to the 60/40 LifeStrategy fund to avoid the overly conservative glidepath at that point? (DW and I are 20-25 years away from retirement)

I don't have enough accumulated in my Roth-IRA to do Admiral shares of a three or four fund portfolio at a $10k minimum investment for each. It would be nice to have the better E/R of the Admiral shares and the self-directed re-balancing option though.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

Windylotus wrote: Fri Feb 16, 2018 3:31 pm
willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
Thank you willthrill81. Would it make sense to stay in my target date 2040 fund until the AA reaches 60/40, then transition to the 60/40 LifeStrategy fund to avoid the overly conservative glidepath at that point? (DW and I are 20-25 years away from retirement)

I don't have enough accumulated in my Roth-IRA to do Admiral shares of a three or four fund portfolio at a $10k minimum investment for each. It would be nice to have the better E/R of the Admiral shares and the self-directed re-balancing option though.
That's certainly a plausible approach. If you want to avoid the bond drag that I referred to above, you could just go with a two-fund portfolio comprised of U.S. and international stock (ETFs are fine and have no minimum investment requirement, and you can move into the Admiral funds when you have enough invested) until you're ready to move into the LifeStrategy 60/40 fund.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Windylotus »

willthrill81 wrote: Fri Feb 16, 2018 3:39 pm
Windylotus wrote: Fri Feb 16, 2018 3:31 pm
willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
Thank you willthrill81. Would it make sense to stay in my target date 2040 fund until the AA reaches 60/40, then transition to the 60/40 LifeStrategy fund to avoid the overly conservative glidepath at that point? (DW and I are 20-25 years away from retirement)

I don't have enough accumulated in my Roth-IRA to do Admiral shares of a three or four fund portfolio at a $10k minimum investment for each. It would be nice to have the better E/R of the Admiral shares and the self-directed re-balancing option though.
That's certainly a plausible approach. If you want to avoid the bond drag that I referred to above, you could just go with a two-fund portfolio comprised of U.S. and international stock (ETFs are fine and have no minimum investment requirement, and you can move into the Admiral funds when you have enough invested) until you're ready to move into the LifeStrategy 60/40 fund.
Aren't there issues with dividend reinvestment's with ETFs? I don't have a lot of knowledge/experience with ETFs yet.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

Windylotus wrote: Fri Feb 16, 2018 3:44 pm
willthrill81 wrote: Fri Feb 16, 2018 3:39 pm
Windylotus wrote: Fri Feb 16, 2018 3:31 pm
willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
Thank you willthrill81. Would it make sense to stay in my target date 2040 fund until the AA reaches 60/40, then transition to the 60/40 LifeStrategy fund to avoid the overly conservative glidepath at that point? (DW and I are 20-25 years away from retirement)

I don't have enough accumulated in my Roth-IRA to do Admiral shares of a three or four fund portfolio at a $10k minimum investment for each. It would be nice to have the better E/R of the Admiral shares and the self-directed re-balancing option though.
That's certainly a plausible approach. If you want to avoid the bond drag that I referred to above, you could just go with a two-fund portfolio comprised of U.S. and international stock (ETFs are fine and have no minimum investment requirement, and you can move into the Admiral funds when you have enough invested) until you're ready to move into the LifeStrategy 60/40 fund.
Aren't there issues with dividend reinvestment's with ETFs? I don't have a lot of knowledge/experience with ETFs yet.
You can just use the dividends to buy more shares. There may be a little cash drag, but not enough to worry about if you don't have enough funds to buy Admiral shares yet.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

Keep in mind that without bonds you will not be able to purchase stocks when there is a decline. 10% bonds does not create that much drag. Also, while your portfolio is rather small, stock declines aren't that big of a deal. But once you have a larger portfolio, seeing a few $100K disappear is rather nerve wracking. For example, in the minor correction that just happened, I saw a year's worth of family expenses vanish in a week. They've mostly come back, but there was no guarantee of that.

You can expect such a correction every year or so, larger declines of 20-30% every five or six years, and you are likely to see a 50% decline or two in your lifetime - without any guarantee that the market will return to previous highs. That's the risk in stock market investing. You need to decide how much risk you can handle and how much risk you need to take to reach your goals.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Windylotus »

rkhusky wrote: Fri Feb 16, 2018 5:38 pm Keep in mind that without bonds you will not be able to purchase stocks when there is a decline. 10% bonds does not create that much drag. Also, while your portfolio is rather small, stock declines aren't that big of a deal. But once you have a larger portfolio, seeing a few $100K disappear is rather nerve wracking. For example, in the minor correction that just happened, I saw a year's worth of family expenses vanish in a week. They've mostly come back, but there was no guarantee of that.

You can expect such a correction every year or so, larger declines of 20-30% every five or six years, and you are likely to see a 50% decline or two in your lifetime - without any guarantee that the market will return to previous highs. That's the risk in stock market investing. You need to decide how much risk you can handle and how much risk you need to take to reach your goals.
rkhusky, thank you for the sound advice.

There is a lot to consider. I am constantly having the mental bond battle going on, weather to keep a bond position or go all equities. Other than my small target date Roth-IRA I was 100% equities through 2016-17. I'm now an 80/20 AA as at some point, this raging bull market is going to run out of steam as we may be seeing in the last couple of weeks.

I have a pretty high propensity for (calculated) risk, weather that's good or bad? Yes, a large portfolio would seem to need more conservative actions for protecting what you have. Thanks for your comments.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Taylor Larimore »

Windylotus wrote: Fri Feb 16, 2018 9:41 am What's the difference in Vanguards Lifestrategy and Target Date funds? The AA adjusts through the glide path in the Target Date funds over time and the Lifestrategy funds keeps the same AA? Looks like the Lifestrategy is $3k minimum investment, Target date $1k.

What are the pro's/con's of this?

My Roth-IRA is 100% Target Date 2040 Funds.
Windylotus:

Both Vanguard LifeStrategy Funds and Target Retirement Funds can be excellent funds when all accounts are tax-advantaged (IRAs, 401ks, etc.). However, if you have both tax-advantaged and taxable accounts, it is usually better to use individual funds like The Three-Fund Portfolio. This allows you to place tax-inefficient funds (like taxable bonds) in your tax-advantaged account(s) and tax-efficient fund(s) (like total stock market funds) in your taxable account.

I slightly prefer Vanguard Target Funds over their LifeStrategy funds for several reasons:

* Target Funds have 12 Asset Allocation choices; Life Strategy Funds only 4. Knowledgeable investors pay no attention to target dates. They pick these balanced funds based primarily on the fund's stock/bond ratio. Use this Vanguard Investor Questionnaire for help you with this very important decision. Assuming your Target or Life Strategy fund is in a tax-advantaged account, where it should be, you can easily exchange to another fund later without cost, penalty or tax.

* Target funds automatically become more conservative with age; LifeStrategy funds do not.

* Lower cost: Target funds minimum is $1,000; Life Strategy Funds minimum is $3,000 (as you stated).

* Young investors often prefer a smaller allocation to stocks than the 25% stock allocation in Life Strategy Funds. It is only a 10% allocation in Vanguard Target Funds.

* Slightly better diversification: The most conservative Target Fund holds 5 funds; the most conservative LifeStrategy Fund holds 4 funds.

I hope I have answered your question.

Best wishes.
Taylor
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Windylotus »

Taylor Larimore wrote: Fri Feb 16, 2018 6:27 pm
Windylotus wrote: Fri Feb 16, 2018 9:41 am What's the difference in Vanguards Lifestrategy and Target Date funds? The AA adjusts through the glide path in the Target Date funds over time and the Lifestrategy funds keeps the same AA? Looks like the Lifestrategy is $3k minimum investment, Target date $1k.

What are the pro's/con's of this?

My Roth-IRA is 100% Target Date 2040 Funds.
Windylotus:

Both Vanguard LifeStrategy Funds and Target Retirement Funds can be excellent funds when all accounts are tax-advantaged (IRAs, 401ks, etc.). However, if you have both tax-advantaged and taxable accounts, it is usually better to use individual funds like The Three-Fund Portfolio. This allows you to place tax-inefficient funds (like taxable bonds) in your tax-advantaged account(s) and tax-efficient fund(s) (like total stock market funds) in your taxable account.

I slightly prefer Vanguard Target Funds over their LifeStrategy funds for several reasons:

* Target Funds have 12 Asset Allocation choices; Life Strategy Funds only 4. Knowledgeable investors pay no attention to target dates. They pick these balanced funds based primarily on the fund's stock/bond ratio. Use this Vanguard Investor Questionnaire for help you with this very important decision. Assuming your Target or Life Strategy fund is in a tax-advantaged account, where it should be, you can easily exchange to another fund later without cost, penalty or tax.

* Target funds automatically become more conservative with age; LifeStrategy funds do not.

* Lower cost: Target funds minimum is $1,000; Life Strategy Funds minimum is $3,000 (as you stated).

* Young investors often prefer a smaller allocation to stocks than the 25% stock allocation in Life Strategy Funds. It is only a 10% allocation in Vanguard Target Funds.

* Slightly better diversification: The most conservative Target Fund holds 5 funds; the most conservative LifeStrategy Fund holds 4 funds.

I hope I have answered your question.

Best wishes.
Taylor
Thank you so much Taylor

As posted above, there seems to be several Bogleheads who feel the target date funds eventually moving to a 30/70 AA in the glidepath is too conservative? It seems some think a 60/40 AA into retirement captures the most chances for good returns while still maintaining a decent bond position? I'm curious of your thoughts on this?

Yes, all my and DW's investments are in a tax advantaged space (403(b) and Roth-IRA). We have no taxable currently.

On a side note, what an honor to get a reply from you. Your reputation on this site precedes you. Thank you so much for you service to this great nation. You truly are the greatest generation!
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Taylor Larimore »

Windylotus wrote: Fri Feb 16, 2018 6:44 pm
Taylor Larimore wrote: Fri Feb 16, 2018 6:27 pm
Windylotus wrote: Fri Feb 16, 2018 9:41 am What's the difference in Vanguards Lifestrategy and Target Date funds? The AA adjusts through the glide path in the Target Date funds over time and the Lifestrategy funds keeps the same AA? Looks like the Lifestrategy is $3k minimum investment, Target date $1k.

What are the pro's/con's of this?

My Roth-IRA is 100% Target Date 2040 Funds.
Windylotus:

Both Vanguard LifeStrategy Funds and Target Retirement Funds can be excellent funds when all accounts are tax-advantaged (IRAs, 401ks, etc.). However, if you have both tax-advantaged and taxable accounts, it is usually better to use individual funds like The Three-Fund Portfolio. This allows you to place tax-inefficient funds (like taxable bonds) in your tax-advantaged account(s) and tax-efficient fund(s) (like total stock market funds) in your taxable account.

I slightly prefer Vanguard Target Funds over their LifeStrategy funds for several reasons:

* Target Funds have 12 Asset Allocation choices; Life Strategy Funds only 4. Knowledgeable investors pay no attention to target dates. Use this Vanguard Investor Questionnaire for help you with this very important decision. Assuming your Target or Life Strategy fund is in a tax-advantaged account, where it should be, you can easily exchange to another fund with the allocation you want without cost, penalty or tax.

* Target funds automatically become more conservative with age; LifeStrategy funds do not.

* Lower cost: Target funds minimum is $1,000; Life Strategy Funds minimum is $3,000 (as you stated).

* Young investors often prefer a smaller allocation to stocks than the 25% stock allocation in Life Strategy Funds. It is only a 10% allocation in Vanguard Target Funds.

* Slightly better diversification: The most conservative Target Fund holds 5 funds; the most conservative LifeStrategy Fund holds 4 funds.

I hope I have answered your question.

Best wishes.
Taylor
Thank you so much Taylor

As posted above, there seems to be several Bogleheads who feel the target date funds eventually moving to a 30/70 AA in the glidepath is too conservative? It seems some think a 60/40 AA into retirement captures the most chances for good returns while still maintaining a decent bond position? I'm curious of your thoughts on this?

Windylotus
My thoughts on this:

"Knowledgeable investors pay no attention to target dates. They pick these balanced funds based primarily on the fund's stock/bond ratio." -- "Assuming your Target or Life Strategy fund is in a tax-advantaged account, where it should be, you can easily exchange to another fund later without cost, penalty or tax."
Yes, all my and DW's investments are in a tax advantaged space (403(b) and Roth-IRA). We have no taxable currently.


Pick the appropriate target fund (or LifeCycle fund) in each account and you will end up with just two funds holding thousands of diversified securities. Read my "Simplicity" link below to understand the value of "simplicity."
On a side note, what an honor to get a reply from you. Your reputation on this site precedes you. Thank you so much for you service to this great nation. You truly are the greatest generation!

Thank you for your kind words -- and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

Keep in mind that you aren’t locked into anything at this point. As Taylor said, you can change things very easily in a tax advantaged account. So, just decide what you want for the next year or two, 80/20, 90/10 or 100/0. And then do some reading and thinking and reevaluate in a year or two.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Windylotus »

rkhusky wrote: Fri Feb 16, 2018 8:52 pm Keep in mind that you aren’t locked into anything at this point. As Taylor said, you can change things very easily in a tax advantaged account. So, just decide what you want for the next year or two, 80/20, 90/10 or 100/0. And then do some reading and thinking and reevaluate in a year or two.
Thanks rkhusky,

Question: How does one truly evaluate their risk tolerance or proper AA? I'm just an ordinary guy who wants to retire comfortably (+$2M) in retirement. How does one know how much risk one should take? I have a fairly high risk tolerance with knowing I have 20+ years until retirement. Everyone on this site says it's a very personal thing, I'm just not completely sure where I fall on that risk/safety spectrum?

I like your suggestion of making some educated decision of AA for the next couple of years, continue educating and expanding my financial literacy, then reevaluate. From the first time I found this site, I have come full circle in my investment choices and decisions (thankfully). The more you learn, the more wisdom inadvertently creeps in. Thanks again for your insightful suggestions.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by tooluser »

dbr wrote: Fri Feb 16, 2018 10:12 am Rebalancing just isn't that much of a practical burden. A person should be staying involved with whether or not their investments are appropriate for their situation as years go by anyway.
I disagree in part. Some people have jobs that can demand 100% of their attention for weeks at a time. Many others choose to live as if that were true. Funds that have known allocations make it possible to remain at one's chosen level of investment risk when the market makes big moves, which can come at any time.

I am happy to pay $300-$400 per $million invested to have Vanguard do my rebalancing via LifeStrategy funds when I am unable or unwilling to make the move myself.

But I'm not a fan of the Target Date funds, because I want to choose my allocation risk, and none of the target date funds I have seen represent my situation and preferences.
Like good comrades to the utmost of their strength, we shall go on to the end. -- Winston Churchill
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by pascalwager »

Taylor Larimore wrote: Fri Feb 16, 2018 6:27 pm
Windylotus wrote: Fri Feb 16, 2018 9:41 am What's the difference in Vanguards Lifestrategy and Target Date funds? The AA adjusts through the glide path in the Target Date funds over time and the Lifestrategy funds keeps the same AA? Looks like the Lifestrategy is $3k minimum investment, Target date $1k.

What are the pro's/con's of this?

My Roth-IRA is 100% Target Date 2040 Funds.
Windylotus:

Both Vanguard LifeStrategy Funds and Target Retirement Funds can be excellent funds when all accounts are tax-advantaged (IRAs, 401ks, etc.). However, if you have both tax-advantaged and taxable accounts, it is usually better to use individual funds like The Three-Fund Portfolio. This allows you to place tax-inefficient funds (like taxable bonds) in your tax-advantaged account(s) and tax-efficient fund(s) (like total stock market funds) in your taxable account.

I slightly prefer Vanguard Target Funds over their LifeStrategy funds for several reasons:

* Target Funds have 12 Asset Allocation choices; Life Strategy Funds only 4. Knowledgeable investors pay no attention to target dates. They pick these balanced funds based primarily on the fund's stock/bond ratio. Use this Vanguard Investor Questionnaire for help you with this very important decision. Assuming your Target or Life Strategy fund is in a tax-advantaged account, where it should be, you can easily exchange to another fund later without cost, penalty or tax.

* Target funds automatically become more conservative with age; LifeStrategy funds do not.

* Lower cost: Target funds minimum is $1,000; Life Strategy Funds minimum is $3,000 (as you stated).

* Young investors often prefer a smaller allocation to stocks than the 25% stock allocation in Life Strategy Funds. It is only a 10% allocation in Vanguard Target Funds.

* Slightly better diversification: The most conservative Target Fund holds 5 funds; the most conservative LifeStrategy Fund holds 4 funds.

I hope I have answered your question.

Best wishes.
Taylor
On "customizing" a glide path: If you do this (see red-font above), you may end up without inflation protection just before and during retirement. Only the last two positions on the glide path (retirement and starting seven years before retirement) include the short-term TIPS fund.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

Windylotus wrote: Fri Feb 16, 2018 9:13 pm Question: How does one truly evaluate their risk tolerance or proper AA?
You should look at how much you expect to contribute to retirement funds over your lifetime and what different allocations have returned in the past, to get a feeling for how much risk you need to take to have a reasonable expectation of achieving your goals. For example, see https://personal.vanguard.com/us/insigh ... llocations

You may be able to use tools like FireCalc and CFireSim to see how different allocations have fared through the past (use a pension for your salary and make it larger than your expenses, with the difference going toward retirement accounts).

Here are some useful wiki articles: https://www.bogleheads.org/wiki/Risk_and_return and https://www.bogleheads.org/wiki/Assessi ... _tolerance.

Try to imagine losing 50% of your stocks. Would you view that as a buying opportunity or as the collapse of your plans for retirement? I think the answer must depend on how close one is to retirement and how much cushion one has in the value of their portfolio, among other things. Perhaps you never truly know until you've experienced it. For example, you've already lost 20% of your stock value and the news indicates that there is no end in sight (see 2008). Do you rebalance according to your plan, increase your allocation to stocks, decrease your allocation to stocks, or get out of the market entirely until the financial crisis has ended?
Last edited by rkhusky on Sat Feb 17, 2018 6:29 am, edited 1 time in total.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by burt »

rkhusky wrote: Fri Feb 16, 2018 10:42 am
dbr wrote: Fri Feb 16, 2018 10:23 am But as is often commented, just investing in a portfolio rather than considering a larger picture involving annuities and other options is too narrow a context for retirement planning.
The Vanguard white paper does touch on pensions and SS. In addition, the white paper addresses an average retiree that may have more modest resources than those on this forum. Plus, Vanguard must deal with participants that may not be as knowledgeable in financial matters, who may bail on the target retirement funds (and all stocks), if they experience too large a drop in their portfolio balance.
+1
"the white paper addresses an average retiree that may have more modest resources than those on this forum."
A person age 60 who is behind on retirement savings, does not have the ability to take risk.
What modest funds they have will be needed to pay the heating bill and property taxes (and other essential expenses).
If I had 80x expenses in savings... I too could be brave and go with 100% stocks.


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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Watty »

willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
That is easy to say when the stock market is still near an all time high.

It is true that 100% stocks will have a slightly higher expected return then 90% stocks but the same could be said about using margin to leverage your investments and invest with 125% stocks. (No I am not recommending that!) At some point using some bonds to reduce your volatility is well worthwhile.

Planning to make large changes in your asset allocation 10-15 years before you retire is also very risky since you cannot be sure that you will not run into career or health setbacks and actually be able to work until your planned retirement date. It was an exceptional case I know of several people that were in their 50's that were laid off after the stock market crash in 2008.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Leroy Jones »

I keep my TIRA in Vanguard Life Strategy Moderate Growth and my RIRA in Wellesley Admiral shares. This combination based on current values gives me an approximate 55 Stocks 45 Bonds. This is the way I plan to keep it for life since it allows me to sleep well even after the recent market upset. I will be retiring the end of this month at 65 and will not take SS until 66. :sharebeer
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Sammy_M »

dbr wrote: Fri Feb 16, 2018 10:23 am
rkhusky wrote: Fri Feb 16, 2018 10:16 am
willthrill81 wrote: Fri Feb 16, 2018 10:03 am Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.
It must not be outside the recommended range according to the research at Vanguard, Fidelity, and the other large providers of target date funds. It would be interesting to see a Vanguard white paper discussing their choice of glide path for their target date funds. A quick search revealed only this conversation, where the interviewer was surprised that the terminal stock allocation was so large: https://retirementplans.vanguard.com/VG ... cript2.jsf
In the classic literature on withdrawal rates, such as the Trinity Study, the paradigm 30 year, 4% scenario seems to fall off the cliff kind of around 30% stocks and less, so it is arguable whether 30% is too low for the duration of retirement. You could say there is support for the glide path. I think if the fund ran out at 20% there could be charge of irresponsible asset management for retirement here. In my mind 40% is a much more comfortable number. But as is often commented, just investing in a portfolio rather than considering a larger picture involving annuities and other options is too narrow a context for retirement planning.
A bit off topic from LS vs. TD funds, but I don't believe the Trinity study contemplated potential use of TIPS for the bond portion either. Inflation is what threatens high bond allocation portfolios.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by dbr »

tooluser wrote: Fri Feb 16, 2018 9:29 pm
dbr wrote: Fri Feb 16, 2018 10:12 am Rebalancing just isn't that much of a practical burden. A person should be staying involved with whether or not their investments are appropriate for their situation as years go by anyway.
I disagree in part. Some people have jobs that can demand 100% of their attention for weeks at a time. Many others choose to live as if that were true. Funds that have known allocations make it possible to remain at one's chosen level of investment risk when the market makes big moves, which can come at any time.
Most people would not have to deal with rebalancing assets more than every two years or so on average. In any case being "out of balance" for some period of time is not an issue to worry over. The only real issue is to not be grossly more risky than one wants.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

Watty wrote: Sat Feb 17, 2018 7:00 am
willthrill81 wrote: Fri Feb 16, 2018 10:03 am Personally, I find the 'glidepaths' for virtually all target date funds to be overly conservative. A 25 year old isn't likely to benefit from having 10% in bonds, for instance; there will not be a significant decrease in fund drawdowns, and this will merely serve as a drag on portfolio returns for 40 years. Further, most of these target date funds eventually move to a very conservative AA of something like 30/70, which is outside the recommended range suggested by the safe withdrawal rate research.

I think that a good argument can be made to be 100% equities until you're 10-15 years from retirement (assuming you can tolerate the volatility), then begin moving to something like a 60/40 portfolio and staying there indefinitely or perhaps even increasing your stock allocation after the first decade of retirement. If you just can't deal with the volatility of an all stock portfolio during your accumulating years, then I think that a 60/40 AA for life is likely to be fine. No muss, no fuss, no glidepath, and no need to ever change are definitely appealing.
That is easy to say when the stock market is still near an all time high.
My statement is based on historical, not current, market conditions.
Watty wrote: Sat Feb 17, 2018 7:00 amAt some point using some bonds to reduce your volatility is well worthwhile.
I said that.
Watty wrote: Sat Feb 17, 2018 7:00 amPlanning to make large changes in your asset allocation 10-15 years before you retire is also very risky since you cannot be sure that you will not run into career or health setbacks and actually be able to work until your planned retirement date. It was an exceptional case I know of several people that were in their 50's that were laid off after the stock market crash in 2008.
If you're not able to retire until 10-15 years from now, adding bonds to your portfolio won't enable you to retire 10-15 years early. 10-15 years from retirement, most investors will only have half or less of their desired (needed) portfolio. The sad truth of the matter is that if you're planning on retiring at 65 and get laid off at 50, you might be in real trouble. Being on a glidepath isn't going to help you much, if at all, in that situation. This is part of the reason that I'm shooting for retirement in my early 50s.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Windylotus »

[/quote]* Target Funds have 12 Asset Allocation choices; Life Strategy Funds only 4. Knowledgeable investors pay no attention to target dates. They pick these balanced funds based primarily on the fund's stock/bond ratio. Use this Vanguard Investor Questionnaire for help you with this very important decision. Assuming your Target or Life Strategy fund is in a tax-advantaged account, where it should be, you can easily exchange to another fund later without cost, penalty or tax.


On "customizing" a glide path: If you do this (see red-font above), you may end up without inflation protection just before and during retirement. Only the last two positions on the glide path (retirement and starting seven years before retirement) include the short-term TIPS fund.
[/quote]

pascalwager, when is the optimum time to add TIPS to your portfolio? Just before and during retirement? Seven years before? And once you add TIPS to your portfolio, will you always maintain that position as an inflation hedge?
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by pascalwager »

Windylotus wrote: Sat Feb 17, 2018 12:24 pm
* Target Funds have 12 Asset Allocation choices; Life Strategy Funds only 4. Knowledgeable investors pay no attention to target dates. They pick these balanced funds based primarily on the fund's stock/bond ratio. Use this Vanguard Investor Questionnaire for help you with this very important decision. Assuming your Target or Life Strategy fund is in a tax-advantaged account, where it should be, you can easily exchange to another fund later without cost, penalty or tax.


On "customizing" a glide path: If you do this (see red-font above), you may end up without inflation protection just before and during retirement. Only the last two positions on the glide path (retirement and starting seven years before retirement) include the short-term TIPS fund.
[/quote]

pascalwager, when is the optimum time to add TIPS to your portfolio? Just before and during retirement? Seven years before? And once you add TIPS to your portfolio, will you always maintain that position as an inflation hedge?
[/quote]

If you study the VG target funds, I think you'll notice that inflation protection is added seven years before retirement and remains constant throughout retirement. I think of it as providing a higher correlation to unexpected inflation for the bonds portion of my portfolio.

One other thing. About the VG target retirement income fund. The stocks/bonds ratio is only 30/70 and the Javier Estrada study showed that 30/70 (and below) had a high failure rate (12.8% for 30/70) and that 40/60 and above had low failure rates (3.5% and below). So, I don't use the VG income fund by itself, but add stocks to bring the ratio up to 60/40 (had the lowest failure rate: 0%). Of course, if you have a very large portfolio, then 30/70 might be adequate.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by crswvc »

stemikger wrote: Fri Feb 16, 2018 3:28 pmFor what it's worth Jack Bogle likes the fixed 60/40 AA.
This is a good starting point
On a un-related note is your avatar cat looking for Kyle?

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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

pascalwager wrote: Sat Feb 17, 2018 3:11 pm One other thing. About the VG target retirement income fund. The stocks/bonds ratio is only 30/70 and the Javier Estrada study showed that 30/70 (and below) had a high failure rate (12.8% for 30/70) and that 40/60 and above had low failure rates (3.5% and below). So, I don't use the VG income fund by itself, but add stocks to bring the ratio up to 60/40 (had the lowest failure rate: 0%). Of course, if you have a very large portfolio, then 30/70 might be adequate.[/color]
What was the withdrawal rate and the length of the retirement period for the Javier Estrada study? In the studies I've done for my own retirement, 30/70 had a 100% success rate.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

rkhusky wrote: Sat Feb 17, 2018 3:32 pm
pascalwager wrote: Sat Feb 17, 2018 3:11 pm One other thing. About the VG target retirement income fund. The stocks/bonds ratio is only 30/70 and the Javier Estrada study showed that 30/70 (and below) had a high failure rate (12.8% for 30/70) and that 40/60 and above had low failure rates (3.5% and below). So, I don't use the VG income fund by itself, but add stocks to bring the ratio up to 60/40 (had the lowest failure rate: 0%). Of course, if you have a very large portfolio, then 30/70 might be adequate.[/color]
What was the withdrawal rate and the length of the retirement period for the Javier Estrada study? In the studies I've done for my own retirement, 30/70 had a 100% success rate.
According to FIRECalc, a 30/70 portfolio using the 4% fixed plus CPI withdrawal method had a success rate of 87% (13% failure rate) for a 30 year period. A 40/60 portfolio had a 93% success rate, and a 60/40 portfolio had a 95.7% success rate, never mind that higher stock allocations lead to higher median ending balances.

I submit again that the 30/70 AA used by Vanguard for retirees is catering to some of the most conservative investors out there and is not historically optimal by a long shot for maximizing the success rate of a reasonable withdrawal strategy.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

willthrill81 wrote: Sat Feb 17, 2018 3:40 pm
rkhusky wrote: Sat Feb 17, 2018 3:32 pm
pascalwager wrote: Sat Feb 17, 2018 3:11 pm One other thing. About the VG target retirement income fund. The stocks/bonds ratio is only 30/70 and the Javier Estrada study showed that 30/70 (and below) had a high failure rate (12.8% for 30/70) and that 40/60 and above had low failure rates (3.5% and below). So, I don't use the VG income fund by itself, but add stocks to bring the ratio up to 60/40 (had the lowest failure rate: 0%). Of course, if you have a very large portfolio, then 30/70 might be adequate.[/color]
What was the withdrawal rate and the length of the retirement period for the Javier Estrada study? In the studies I've done for my own retirement, 30/70 had a 100% success rate.
According to FIRECalc, a 30/70 portfolio using the 4% fixed plus CPI withdrawal method had a success rate of 87% (13% failure rate) for a 30 year period. A 40/60 portfolio had a 93% success rate, and a 60/40 portfolio had a 95.7% success rate, never mind that higher stock allocations lead to higher median ending balances.

I submit again that the 30/70 AA used by Vanguard for retirees is catering to some of the most conservative investors out there and is not historically optimal by a long shot for maximizing the success rate of a reasonable withdrawal strategy.
I think a 3% withdrawal rate is reasonable, especially after taking Social Security. I do agree that it is conservative. Not the most conservative though. The Gov't TSP's target date funds flat line at 20/80 on their target date. But they do get a pension.

If you need to dial up the risk to reach your required withdrawal rate, that is what you need to do.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by pascalwager »

rkhusky wrote: Sat Feb 17, 2018 3:32 pm
pascalwager wrote: Sat Feb 17, 2018 3:11 pm One other thing. About the VG target retirement income fund. The stocks/bonds ratio is only 30/70 and the Javier Estrada study showed that 30/70 (and below) had a high failure rate (12.8% for 30/70) and that 40/60 and above had low failure rates (3.5% and below). So, I don't use the VG income fund by itself, but add stocks to bring the ratio up to 60/40 (had the lowest failure rate: 0%). Of course, if you have a very large portfolio, then 30/70 might be adequate.[/color]
What was the withdrawal rate and the length of the retirement period for the Javier Estrada study? In the studies I've done for my own retirement, 30/70 had a 100% success rate.
Four percent withdrawal over 30 years. Study covered 86 rolling 30-year periods from 1900 and ending in 2014.

See study here: http://web.iese.edu/JEstrada/PDF/Resear ... ett-AA.pdf
VT 60% / VFSUX 20% / TIPS 20%
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by rkhusky »

pascalwager wrote: Sat Feb 17, 2018 4:16 pm Four percent withdrawal over 30 years. Study covered 86 rolling 30-year periods from 1900 and ending in 2014.

See study here: http://web.iese.edu/JEstrada/PDF/Resear ... ett-AA.pdf
Thanks. I think that one needs to be careful about using the results of these types of studies, which are similar to calculations performed in CFireSim and FireCalc, as a measure of the probability of future success of a given portfolio. One needs to assess the probability that the future will be like the past, or that past economic conditions will be repeated in the future. That is, what is the probability of another Great Depression? Or what is the probability of inflation like the 70's, which is likely why many retirement portfolios whose start date is in the sixties ended in failure. Is that probability 5-10%, as suggested by using these type of analyses? Or is it more likely that those entrusted with safeguarding our economy will be looking for these types of economic conditions and will implement measures to prevent them, and that the next significant downturn will be the result of something that hasn't been seen before.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

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rkhusky wrote: Sat Feb 17, 2018 9:09 pmOr is it more likely that those entrusted with safeguarding our economy will be looking for these types of economic conditions and will implement measures to prevent them, and that the next significant downturn will be the result of something that hasn't been seen before.
All in all, I'd say that the Fed and other central banks have done a pretty good job over the last 35 years of keeping these as stable as they realistically can. I see no reason why that should change going forward, barring troubles from the deep debt that virtually all countries are in that they might not be able to get a handle on.

Year 2000 retirees had the worst go of it of any retirees since the 1970s, but those using something like the '4% rule' are in good shape right now at least (they could annuitize their remaining portfolio in TIPS and be guaranteed to make their retirement last 35 years).
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Johm221122 »

rkhusky wrote: Fri Feb 16, 2018 5:38 pm Keep in mind that without bonds you will not be able to purchase stocks when there is a decline. 10% bonds does not create that much drag. Also, while your portfolio is rather small, stock declines aren't that big of a deal. But once you have a larger portfolio, seeing a few $100K disappear is rather nerve wracking. For example, in the minor correction that just happened, I saw a year's worth of family expenses vanish in a week. They've mostly come back, but there was no guarantee of that.

You can expect such a correction every year or so, larger declines of 20-30% every five or six years, and you are likely to see a 50% decline or two in your lifetime - without any guarantee that the market will return to previous highs. That's the risk in stock market investing. You need to decide how much risk you can handle and how much risk you need to take to reach your goals.
+1 and you never know


BREAKING DOWN 'Lost Decade'
By most measures, the period from 2000 to 2009 was a true “lost decade” for most U.S. households, as steep declines in real estate and stock prices resulted in massive wealth erosion. The S&P 500 recorded its worst ever 10-year performance in that decade, with a total return including dividends of -9.1%, which was even worse than its performance during the 1930s depression.
https://www.investopedia.com/terms/l/lost-decade.asp
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

Johm221122 wrote: Sat Feb 17, 2018 9:36 pm
rkhusky wrote: Fri Feb 16, 2018 5:38 pm Keep in mind that without bonds you will not be able to purchase stocks when there is a decline. 10% bonds does not create that much drag. Also, while your portfolio is rather small, stock declines aren't that big of a deal. But once you have a larger portfolio, seeing a few $100K disappear is rather nerve wracking. For example, in the minor correction that just happened, I saw a year's worth of family expenses vanish in a week. They've mostly come back, but there was no guarantee of that.

You can expect such a correction every year or so, larger declines of 20-30% every five or six years, and you are likely to see a 50% decline or two in your lifetime - without any guarantee that the market will return to previous highs. That's the risk in stock market investing. You need to decide how much risk you can handle and how much risk you need to take to reach your goals.
+1 and you never know

BREAKING DOWN 'Lost Decade'
By most measures, the period from 2000 to 2009 was a true “lost decade” for most U.S. households, as steep declines in real estate and stock prices resulted in massive wealth erosion. The S&P 500 recorded its worst ever 10-year performance in that decade, with a total return including dividends of -9.1%, which was even worse than its performance during the 1930s depression.
https://www.investopedia.com/terms/l/lost-decade.asp
A 90/10 AA isn't going to provide significant 'protection' from poor stock performance.
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by pascalwager »

willthrill81 wrote: Sat Feb 17, 2018 9:57 pm
Johm221122 wrote: Sat Feb 17, 2018 9:36 pm
rkhusky wrote: Fri Feb 16, 2018 5:38 pm Keep in mind that without bonds you will not be able to purchase stocks when there is a decline. 10% bonds does not create that much drag. Also, while your portfolio is rather small, stock declines aren't that big of a deal. But once you have a larger portfolio, seeing a few $100K disappear is rather nerve wracking. For example, in the minor correction that just happened, I saw a year's worth of family expenses vanish in a week. They've mostly come back, but there was no guarantee of that.

You can expect such a correction every year or so, larger declines of 20-30% every five or six years, and you are likely to see a 50% decline or two in your lifetime - without any guarantee that the market will return to previous highs. That's the risk in stock market investing. You need to decide how much risk you can handle and how much risk you need to take to reach your goals.
+1 and you never know

BREAKING DOWN 'Lost Decade'
By most measures, the period from 2000 to 2009 was a true “lost decade” for most U.S. households, as steep declines in real estate and stock prices resulted in massive wealth erosion. The S&P 500 recorded its worst ever 10-year performance in that decade, with a total return including dividends of -9.1%, which was even worse than its performance during the 1930s depression.
https://www.investopedia.com/terms/l/lost-decade.asp
A 90/10 AA isn't going to provide significant 'protection' from poor stock performance.
In the Estrada Study, all stock allocations of 40% and above were successful. The 90/10 had a failure rate of only 2.3%.
VT 60% / VFSUX 20% / TIPS 20%
Johm221122
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by Johm221122 »

pascalwager wrote: Sun Feb 18, 2018 1:51 am
willthrill81 wrote: Sat Feb 17, 2018 9:57 pm
Johm221122 wrote: Sat Feb 17, 2018 9:36 pm
rkhusky wrote: Fri Feb 16, 2018 5:38 pm Keep in mind that without bonds you will not be able to purchase stocks when there is a decline. 10% bonds does not create that much drag. Also, while your portfolio is rather small, stock declines aren't that big of a deal. But once you have a larger portfolio, seeing a few $100K disappear is rather nerve wracking. For example, in the minor correction that just happened, I saw a year's worth of family expenses vanish in a week. They've mostly come back, but there was no guarantee of that.

You can expect such a correction every year or so, larger declines of 20-30% every five or six years, and you are likely to see a 50% decline or two in your lifetime - without any guarantee that the market will return to previous highs. That's the risk in stock market investing. You need to decide how much risk you can handle and how much risk you need to take to reach your goals.
+1 and you never know

BREAKING DOWN 'Lost Decade'
By most measures, the period from 2000 to 2009 was a true “lost decade” for most U.S. households, as steep declines in real estate and stock prices resulted in massive wealth erosion. The S&P 500 recorded its worst ever 10-year performance in that decade, with a total return including dividends of -9.1%, which was even worse than its performance during the 1930s depression.
https://www.investopedia.com/terms/l/lost-decade.asp
A 90/10 AA isn't going to provide significant 'protection' from poor stock performance.
In the Estrada Study, all stock allocations of 40% and above were successful. The 90/10 had a failure rate of only 2.3%.
Yes even when I was younger,I did 30% bonds(now 40%)
My point is I don't consider bonds a drag,but safety net
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burt
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by burt »

willthrill81 wrote: Sat Feb 17, 2018 3:40 pm
rkhusky wrote: Sat Feb 17, 2018 3:32 pm
pascalwager wrote: Sat Feb 17, 2018 3:11 pm One other thing. About the VG target retirement income fund. The stocks/bonds ratio is only 30/70 and the Javier Estrada study showed that 30/70 (and below) had a high failure rate (12.8% for 30/70) and that 40/60 and above had low failure rates (3.5% and below). So, I don't use the VG income fund by itself, but add stocks to bring the ratio up to 60/40 (had the lowest failure rate: 0%). Of course, if you have a very large portfolio, then 30/70 might be adequate.[/color]
What was the withdrawal rate and the length of the retirement period for the Javier Estrada study? In the studies I've done for my own retirement, 30/70 had a 100% success rate.
According to FIRECalc, a 30/70 portfolio using the 4% fixed plus CPI withdrawal method had a success rate of 87% (13% failure rate) for a 30 year period. A 40/60 portfolio had a 93% success rate, and a 60/40 portfolio had a 95.7% success rate, never mind that higher stock allocations lead to higher median ending balances.

I submit again that the 30/70 AA used by Vanguard for retirees is catering to some of the most conservative investors out there and is not historically optimal by a long shot for maximizing the success rate of a reasonable withdrawal strategy.
"I submit again that the 30/70 AA used by Vanguard for retirees is catering to some of the most conservative investors out there and is not historically optimal by a long shot for maximizing the success rate of a reasonable withdrawal strategy."

I know people who's retirement plan is to work as long as they can because they have inadequate savings at age 60.
Maybe, just maybe... they can work till age 70 with 20 years remaining.
The $200,000 they somehow managed to save over 40 years can not be risked. Period.
These people do not have the ability to take risk.

Asset allocation (risk) depends heavily on how big a bag of money you have at retirement.
With 80x expenses, I'd be pretty brave at 90/10.
If stuff hits the fan, I'd sell the condo in Hawaii.


burt
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willthrill81
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by willthrill81 »

burt wrote: Mon Feb 19, 2018 5:06 pm I know people who's retirement plan is to work as long as they can because they have inadequate savings at age 60.
Maybe, just maybe... they can work till age 70 with 20 years remaining.
The $200,000 they somehow managed to save over 40 years can not be risked. Period.
These people do not have the ability to take risk.
That illustrates my point: Vanguard is catering to the lowest common denominator in the final AA of these funds. Certainly some cannot afford to take much risk, but that's not true of everyone by a long shot.
The Sensible Steward
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burt
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Re: Vanguard LifeStrategy Funds vs. Target Date Funds

Post by burt »

willthrill81 wrote: Mon Feb 19, 2018 5:25 pm
burt wrote: Mon Feb 19, 2018 5:06 pm I know people who's retirement plan is to work as long as they can because they have inadequate savings at age 60.
Maybe, just maybe... they can work till age 70 with 20 years remaining.
The $200,000 they somehow managed to save over 40 years can not be risked. Period.
These people do not have the ability to take risk.
That illustrates my point: Vanguard is catering to the lowest common denominator in the final AA of these funds. Certainly some cannot afford to take much risk, but that's not true of everyone by a long shot.
Vanguard may be catering to the average customer.
Bogleheads are far from average.

burt
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