Who would buy a Target Fund whose date had passed?

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eosin
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Who would buy a Target Fund whose date had passed?

Post by eosin » Mon Jun 29, 2020 3:34 pm

I have Vanguard Target Date Fund 2045 (VTIVX) in my tax-advantaged accounts. Or more specifically, I have a shares of a VTIVX collective investment trust (CIT) in my tax-advantaged accounts.

After retirement, I will need to sell shares of VTIVX. On the other side of that sale, there would need to be a buyer. At that point, who would want to buy a Vanguard Target Date 2045 fund in the year 2050, 2055, or beyond? :?:

Would Vanguard at some point convert VTIVX (or in this case my VTIVX C.I.T.) into the underlying assets (Total Stock Market Index Fund, Bond Fund, etc.)? How does this work logistically?

Thank you in advance!

alex_686
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Re: Who would buy a Target Fund whose date had passed?

Post by alex_686 » Mon Jun 29, 2020 3:43 pm

First, you don't need to sell it to anybody. You put in your sale order, the underlying assets are liquidated from the fund. Few extra steps with a ETF, but the principle is the same.

Vangaurd's solution is to merge their target date fund into their Retirement Income Fund(?). Not sure of the name, but they have got one. Pretty standard solution.
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ResearchMed
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Re: Who would buy a Target Fund whose date had passed?

Post by ResearchMed » Mon Jun 29, 2020 3:44 pm

eosin wrote:
Mon Jun 29, 2020 3:34 pm
I have Vanguard Target Date Fund 2045 (VTIVX) in my tax-advantaged accounts. Or more specifically, I have a shares of a VTIVX collective investment trust (CIT) in my tax-advantaged accounts.

After retirement, I will need to sell shares of VTIVX. On the other side of that sale, there would need to be a buyer. At that point, who would want to buy a Vanguard Target Date 2045 fund in the year 2050, 2055, or beyond? :?:

Would Vanguard at some point convert VTIVX (or in this case my VTIVX C.I.T.) into the underlying assets (Total Stock Market Index Fund, Bond Fund, etc.)? How does this work logistically?

Thank you in advance!
My understanding, albeit not specifically with Vanguard, is that those Target Date type funds end up with the final "time", and then just sit there, keeping the holdings steady, other than for market fluctuations or dividends/etc. No one needs to "buy" anything from any seller.
Also, for Mutual Funds, the holdings can be redeemed by the <underwriters? who?> to become the actual holdings. That's why the NAV doesn't have premiums or discounts like the ETFs, which are bought and sold "intact", so the price can fluctuate beyond the underlying holdings.

You could ask Vanguard what their specific policy is, if it isn't already written down for the public (or perhaps in the prospectus?).

ETA: Alex_686 may have a more accurate answer, about merging the funds, but either way, they'd end up static until sold, once the target date is reached. "Static", except for market fluctuations and dividends/etc., of course.
It may vary with the vendor (?).

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bloom2708
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Re: Who would buy a Target Fund whose date had passed?

Post by bloom2708 » Mon Jun 29, 2020 3:48 pm

Target Income is the destination for all "year" funds. So you can perhaps buy Target 2020 yet, but it will fold into Target Income.
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eosin
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Re: Who would buy a Target Fund whose date had passed?

Post by eosin » Mon Jun 29, 2020 4:52 pm

bloom2708 wrote:
Mon Jun 29, 2020 3:48 pm
Target Income is the destination for all "year" funds. So you can perhaps buy Target 2020 yet, but it will fold into Target Income.
If I understand correctly, at some predetermined point past 2045, VTIVX will be folded into/automatically converted into a Target Income Fund which would keep a very conservative AA.
alex_686 wrote:
Mon Jun 29, 2020 3:43 pm
First, you don't need to sell it to anybody. You put in your sale order, the underlying assets are liquidated from the fund. Few extra steps with a ETF, but the principle is the same.

Vangaurd's solution is to merge their target date fund into their Retirement Income Fund(?). Not sure of the name, but they have got one. Pretty standard solution.
So, when the Target Income Fund is sold, the shares are liquidated and I would then get the NAV per share times the number of shares liquidated. The underlying assets behind the fund would then be sold on the market. So I myself wouldn't be "selling" the shares of the fund.

Thanks again - I'm new to this and appreciate everyone's expertise :sharebeer

02nz
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Re: Who would buy a Target Fund whose date had passed?

Post by 02nz » Mon Jun 29, 2020 4:58 pm

eosin wrote:
Mon Jun 29, 2020 4:52 pm
bloom2708 wrote:
Mon Jun 29, 2020 3:48 pm
Target Income is the destination for all "year" funds. So you can perhaps buy Target 2020 yet, but it will fold into Target Income.
If I understand correctly, at some predetermined point past 2045, VTIVX will be folded into/automatically converted into a Target Income Fund which would keep a very conservative AA.
alex_686 wrote:
Mon Jun 29, 2020 3:43 pm
First, you don't need to sell it to anybody. You put in your sale order, the underlying assets are liquidated from the fund. Few extra steps with a ETF, but the principle is the same.

Vangaurd's solution is to merge their target date fund into their Retirement Income Fund(?). Not sure of the name, but they have got one. Pretty standard solution.
So, when the Target Income Fund is sold, the shares are liquidated and I would then get the NAV per share times the number of shares liquidated. The underlying assets behind the fund would then be sold on the market. So I myself wouldn't be "selling" the shares of the fund.

Thanks again - I'm new to this and appreciate everyone's expertise :sharebeer
I'm not sure it's exactly like that - if it's a true liquidation to merge into the Income fund, that could have significant tax consequences in a taxable account, especially for those who've held the fund a long time. My guess is (as the allocation to the 4 underlying funds will be very similar by that point), Vanguard rebalances the 20XX only as necessary to achieve the identical allocation to the Income fund, then it's merged, to minimize tax consequences. But perhaps somebody can clarify or provide us with the word from the horse's mouth. Next up is the 2015 fund, which is expected to be merged into Income around 2022.
Last edited by 02nz on Mon Jun 29, 2020 5:04 pm, edited 1 time in total.

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One Ping
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Re: Who would buy a Target Fund whose date had passed?

Post by One Ping » Mon Jun 29, 2020 5:02 pm

eosin wrote:
Mon Jun 29, 2020 4:52 pm
If I understand correctly, at some predetermined point past 2045, VTIVX will be folded into/automatically converted into a Target Income Fund which would keep a very conservative AA.

Thanks again - I'm new to this and appreciate everyone's expertise :sharebeer
The pre-determined time is the retirement date (e.g., 2045) + 7 years (i.e., 2052).

Check out the Vanguard Target Date Fund glide path in the wiki Vanguard Target Date Fund Glide Path
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mikeyzito22
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Re: Who would buy a Target Fund whose date had passed?

Post by mikeyzito22 » Mon Jun 29, 2020 5:10 pm

One Ping wrote:
Mon Jun 29, 2020 5:02 pm
eosin wrote:
Mon Jun 29, 2020 4:52 pm
If I understand correctly, at some predetermined point past 2045, VTIVX will be folded into/automatically converted into a Target Income Fund which would keep a very conservative AA.

Thanks again - I'm new to this and appreciate everyone's expertise :sharebeer
The pre-determined time is the retirement date (e.g., 2045) + 7 years (i.e., 2052).

Check out the Vanguard Target Date Fund glide path in the wiki Vanguard Target Date Fund Glide Path
Yep, this is correct. VTINX was recommended on this board for someone 7 years "into retirement." My relatives have some high flying individual stocks, and when they asked about where to keep their pile of CDs and cash, I told them to purchase this to keep up with inlation and have a bit of a conservatve mix of everything. Now if I could only get them to sell the individual stocks!

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Re: Who would buy a Target Fund whose date had passed?

Post by David Jay » Mon Jun 29, 2020 5:18 pm

02nz wrote:
Mon Jun 29, 2020 4:58 pm
My guess is (as the allocation to the 4 underlying funds 5 underlying funds [TIPS are added at about age 60] will be very similar by that point), Vanguard rebalances the 20XX only as necessary to achieve the identical allocation to the Income fund, then it's merged, to minimize tax consequences. But perhaps somebody can clarify or provide us with the word from the horse's mouth. Next up is the 2015 fund, which is expected to be merged into Income around 2022.
Here (from One Ping link) it shows that the glide path is designed to match up exactly to TR Income seven years after the Target "Date" So it is a direct merging of two essentially identical funds:

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Northern Flicker
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Re: Who would buy a Target Fund whose date had passed?

Post by Northern Flicker » Mon Jun 29, 2020 5:19 pm

There will not be any sale of assets when TR 2045 is being merged into TR Income. First, I expect assets to be transferred in kind in the merger. Second, even if they were sold by TR 2045 the TR Income fund would be the buyer and it would settle in house with no broker trade on the open market.

TR funds do trades along the way to rebalance and adjust the glide path. The final glide path adjustment would be to establish the asset allocation of TR Income, which should happen before the merger so that only TR2045 investors bear the cost of those trades instead of all TR Income investors.
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student
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Re: Who would buy a Target Fund whose date had passed?

Post by student » Mon Jun 29, 2020 5:20 pm

ResearchMed wrote:
Mon Jun 29, 2020 3:44 pm
eosin wrote:
Mon Jun 29, 2020 3:34 pm
I have Vanguard Target Date Fund 2045 (VTIVX) in my tax-advantaged accounts. Or more specifically, I have a shares of a VTIVX collective investment trust (CIT) in my tax-advantaged accounts.

After retirement, I will need to sell shares of VTIVX. On the other side of that sale, there would need to be a buyer. At that point, who would want to buy a Vanguard Target Date 2045 fund in the year 2050, 2055, or beyond? :?:

Would Vanguard at some point convert VTIVX (or in this case my VTIVX C.I.T.) into the underlying assets (Total Stock Market Index Fund, Bond Fund, etc.)? How does this work logistically?

Thank you in advance!
My understanding, albeit not specifically with Vanguard, is that those Target Date type funds end up with the final "time", and then just sit there, keeping the holdings steady, other than for market fluctuations or dividends/etc. No one needs to "buy" anything from any seller.
Also, for Mutual Funds, the holdings can be redeemed by the <underwriters? who?> to become the actual holdings. That's why the NAV doesn't have premiums or discounts like the ETFs, which are bought and sold "intact", so the price can fluctuate beyond the underlying holdings.

You could ask Vanguard what their specific policy is, if it isn't already written down for the public (or perhaps in the prospectus?).

ETA: Alex_686 may have a more accurate answer, about merging the funds, but either way, they'd end up static until sold, once the target date is reached. "Static", except for market fluctuations and dividends/etc., of course.
It may vary with the vendor (?).

RM
You are correct. Its website says referring to target date funds, "The funds continue to adjust for approximately seven years after that date until their allocations match that of the Target Retirement Income Fund."

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Re: Who would buy a Target Fund whose date had passed?

Post by Trader Joe » Mon Jun 29, 2020 7:37 pm

eosin wrote:
Mon Jun 29, 2020 3:34 pm
I have Vanguard Target Date Fund 2045 (VTIVX) in my tax-advantaged accounts. Or more specifically, I have a shares of a VTIVX collective investment trust (CIT) in my tax-advantaged accounts.

After retirement, I will need to sell shares of VTIVX. On the other side of that sale, there would need to be a buyer. At that point, who would want to buy a Vanguard Target Date 2045 fund in the year 2050, 2055, or beyond? :?:

Would Vanguard at some point convert VTIVX (or in this case my VTIVX C.I.T.) into the underlying assets (Total Stock Market Index Fund, Bond Fund, etc.)? How does this work logistically?

Thank you in advance!
"Who would buy a Target Fund whose date had passed?"

No, I would never, ever do this.

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scubadiver
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Re: Who would buy a Target Fund whose date had passed?

Post by scubadiver » Mon Jun 29, 2020 9:39 pm

eosin wrote:
Mon Jun 29, 2020 3:34 pm
I have Vanguard Target Date Fund 2045 (VTIVX) in my tax-advantaged accounts. Or more specifically, I have a shares of a VTIVX collective investment trust (CIT) in my tax-advantaged accounts.

After retirement, I will need to sell shares of VTIVX. On the other side of that sale, there would need to be a buyer. At that point, who would want to buy a Vanguard Target Date 2045 fund in the year 2050, 2055, or beyond? :?:

Would Vanguard at some point convert VTIVX (or in this case my VTIVX C.I.T.) into the underlying assets (Total Stock Market Index Fund, Bond Fund, etc.)? How does this work logistically?

Thank you in advance!
I've never considered this, but since you asked the question, they are called "target date" funds not "sell by date" funds, so I suppose you could buy it at any time so long as the financial institution allows it. :D

The questions to ask are what is your investment need and will this fund meet that need.

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Re: Who would buy a Target Fund whose date had passed?

Post by TropikThunder » Mon Jun 29, 2020 10:06 pm

Trader Joe wrote:
Mon Jun 29, 2020 7:37 pm
"Who would buy a Target Fund whose date had passed?"

No, I would never, ever do this.
scubadiver wrote:
Mon Jun 29, 2020 9:39 pm
I've never considered this, but since you asked the question, they are called "target date" funds not "sell by date" funds, so I suppose you could buy it at any time so long as the financial institution allows it. :D

The questions to ask are what is your investment need and will this fund meet that need.
You can buy them up until they merge with the Retirement Income fund, at least at Vanguard.

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Re: Who would buy a Target Fund whose date had passed?

Post by grabiner » Mon Jun 29, 2020 10:12 pm

eosin wrote:
Mon Jun 29, 2020 3:34 pm
After retirement, I will need to sell shares of VTIVX. On the other side of that sale, there would need to be a buyer. At that point, who would want to buy a Vanguard Target Date 2045 fund in the year 2050, 2055, or beyond? :?:
Open-end mutual funds (which is what you hold with Vanguard) are bought from and sold to the fund company. If you buy a mutual fund, the fund company takes your money and buys the underlying holdings, creating new shares of the fund. For a fund-of-funds such as the target-date funds, the fund buys other funds such as Total Stock Market, and Total Stock Market in turn buys the stocks it holds.

Your issue would be relevant for a closed-end mutual fund, which trades on the stock exchange and is not redeemable. If you want to sell a share of a closed-end fund, you have to find a buyer, and it might happen that a share holds $100 of stock but buyers are only willing to pay $90 for the share.

ETFs are in between the two. They are closed-end in that they trade like stocks, but institutions can convert them into the underlying shares, which keeps the price close to net asset value. If investors want to buy 100,000 shares of an ETF and there aren't enough direct sellers, an institution will buy the underlying stocks, convert them to 100,000 shares of the ETF, and then sell the ETF shares.

It is true that few investors buy target-date funds after the date. Vanguard Target Retirement 2015 is intended for investors who retired around 2015; since they are retired, they are more likely to take money out of the fund than to put money in. One effect of this is that the after-retirement target-date funds distribute capital gains in a rising stock market, as they cannot rebalance from stocks to bonds with new money.
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eosin
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Re: Who would buy a Target Fund whose date had passed?

Post by eosin » Thu Jul 02, 2020 4:58 pm

Thanks all! Very very helpful replies.

rascott
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Re: Who would buy a Target Fund whose date had passed?

Post by rascott » Thu Jul 02, 2020 5:07 pm

So eventually you'll end up in a 30/70 AA if you do nothing?

That seems pretty far into the conservative realm. Particularly if you were in that fund today.

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One Ping
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Re: Who would buy a Target Fund whose date had passed?

Post by One Ping » Thu Jul 02, 2020 8:09 pm

rascott wrote:
Thu Jul 02, 2020 5:07 pm
So eventually you'll end up in a 30/70 AA if you do nothing?

That seems pretty far into the conservative realm. Particularly if you were in that fund today.
Well, for the target retirement date 2045 fund case, the SS 'full retirement' age for that 'retirement' year would be age 67. That moves the 30/70 target retirement income allocation out to age to 74. Maybe not too conservative by that point. But if so, pick a target retirement date fund that matches your own personal glide path.

For example, don't want to reach 30/70 until age 90, pick a target date fund that matches the year, more or less, you turn 83.
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