2050 Target Retirement Fund

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
robbienez
Posts: 7
Joined: Fri Aug 25, 2017 7:34 pm

2050 Target Retirement Fund

Post by robbienez » Thu Oct 12, 2017 5:44 am

Hi all -

I posted a couple of months ago and got great feedback. After doing more reading, I'm following up with a couple of additional questions.

Quick recap for this post: I'm 32 y/o and make approximately 70k each year. I plan to max my 401k and Roth contributions annually. Over time, I'd like to begin investing additionally in taxable accounts but that would be at least another year. I have 53k in retirement accounts (40k in Roth 401K and 13k in Vanguard Roth IRA) and 20k in a savings account.

Below are my current retirement fund holdings with percentages for each category regarding their overall proportion in my account.

Roth 401k -- $40K
30% (N/A) NC Large Cap Index Fund (0.04%)
11% (N/A) NC Small/Mid Cap Index Fund (0.05%)
15% (N/A) NC International Index Fund (0.10%)
19% (N/A) NC Fixed Income Index Fund (0.06%)

Roth IRA at Vanguard -- $13K
25% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)

I'm wondering if it would be worthwhile to move my Vanguard investments to the 2050 Target Retirement Fund for a more balanced Roth IRA?

I'd like to eventually have Admiral Shares for bond and international funds in the Roth but that will take time investing 5.5k each year. That's why I'm considering a move to the 2050 TR Fund for now.

Thanks in advance! I've been learning so much from this forum.

harvestbook
Posts: 292
Joined: Sat Mar 18, 2017 7:12 pm

Re: 2050 Target Retirement Fund

Post by harvestbook » Thu Oct 12, 2017 7:01 am

Not a bad plan. I like diversification. Another way to do it is keep $10K in Total Stock to get the low ER and shift $3K to the 2050 fund, then adjust as the funds grow (add the $5.5 contributions to the 2050 fund until it is over $10K and then shift to another admiral fund and repeat). I wouldn't be too worried about bonds at your age, especially in a fund you won't tap for 20-30 years. You've got a great start.
I'm not smart enough to know, and I can't afford to guess.

rkhusky
Posts: 4318
Joined: Thu Aug 18, 2011 8:09 pm

Re: 2050 Target Retirement Fund

Post by rkhusky » Thu Oct 12, 2017 7:22 am

Using TR 2050 is fine. The expense difference between Admiral shares and the TR funds is too small to worry about until you get well into six figures, and maybe not even then. The only reasons that I can see for going with the individual funds in a tax-advantage account is that you are trying to shore up holes in your 401K, you want an AA different than the TR (or LifeStrategy) funds, or you like to fiddle with your portfolio (manually rebalancing and adjusting your AA and such).

dbr
Posts: 23391
Joined: Sun Mar 04, 2007 9:50 am

Re: 2050 Target Retirement Fund

Post by dbr » Thu Oct 12, 2017 9:48 am

There is no special reason for the Vanguard Roth to be "balanced." Also it would not be to my taste to hold mixtures of balanced funds and "pure" funds across accounts as it seems more complex than necessary. On the other hand it would hardly matter much anyway.

Why does it occur to you to want to do this?

User avatar
David Jay
Posts: 3905
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: 2050 Target Retirement Fund

Post by David Jay » Thu Oct 12, 2017 9:55 am

dbr wrote:
Thu Oct 12, 2017 9:48 am
There is no special reason for the Vanguard Roth to be "balanced."
^^^ This.

Your asset allocation should be measured across all of your accounts, it is not necessary (or even useful) to try to balance inside of each account. Some accounts are better used for certain types of investments (i.e. taxable is not well suited to holding taxable bond funds) so trying to balance every account can actually be a disadvantage in some cases.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

robbienez
Posts: 7
Joined: Fri Aug 25, 2017 7:34 pm

Re: 2050 Target Retirement Fund

Post by robbienez » Thu Oct 12, 2017 11:17 am

Thanks for the feedback everyone!

dbr -Can you explain what "not holding mixtures of balanced funds and "pure" funds across accounts" means? Could you provide an example of how do I avoid doing that?

This information is clarifying - I was wondering if I needed to have at least a small degree of diversification in my different accounts, but it doesn't sound like that's the case.

dbr
Posts: 23391
Joined: Sun Mar 04, 2007 9:50 am

Re: 2050 Target Retirement Fund

Post by dbr » Thu Oct 12, 2017 11:24 am

robbienez wrote:
Thu Oct 12, 2017 11:17 am
Thanks for the feedback everyone!

dbr -Can you explain what "not holding mixtures of balanced funds and "pure" funds across accounts" means? Could you provide an example of how do I avoid doing that?

This information is clarifying - I was wondering if I needed to have at least a small degree of diversification in my different accounts, but it doesn't sound like that's the case.
My idea is that a balanced fund like target retirement is very useful and convenient if all your investment is in such a fund. Once you start holding TSM here, international there, a bond fund along with, and so on and then also have a balanced fund then there is no longer any point in holding the all-in-one or balanced fund and you only end up with more complexity regarding what you really have. Of course, complexity is not more problematic than how fast you can whip up a spread sheet to see what you have and how to rebalance it, but it is still probably more convenient and straightforward to avoid the balanced fund. Once you also have some taxable assets balanced funds become more problematic as you try to locate assets tax efficiently.

Rather than having diversification in different funds there are reasons the opposite might be true. You want generally to not put bonds in taxable accounts and you might want your higher returning assets in a Roth where growth goes untaxed, etc. Most of this is about taxation.

schachtw
Posts: 40
Joined: Mon Jul 06, 2015 6:15 pm

Re: 2050 Target Retirement Fund

Post by schachtw » Thu Oct 12, 2017 1:16 pm

My son has his Roth IRA exclusively in the VG 2050 TDF. It's done well for him in the 7/8 years he's been investing in the fund.

I don't believe he has any reason not to continue to invest in the fund every year.

User avatar
David Jay
Posts: 3905
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: 2050 Target Retirement Fund

Post by David Jay » Thu Oct 12, 2017 7:14 pm

schachtw wrote:
Thu Oct 12, 2017 1:16 pm
My son has his Roth IRA exclusively in the VG 2050 TDF. It's done well for him in the 7/8 years he's been investing in the fund.

I don't believe he has any reason not to continue to invest in the fund every year.
A regular contributor here at BH by the name of "neurosphere" has a signature line that says: "If you have to ask if a Target Date fund is right for you, the answer is yes." So it is a great choice for your son. I recommended TR 2055 for my daughter when she opened her Roth.

What "dbr" is saying is slightly different. He is saying that using a TargetRetirement fund exclusively makes a lot of sense (it is fully diversified all by itself) but when you add a TR fund with other funds it becomes harder to understand exactly what you are holding and to manage.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

dacoffee
Posts: 17
Joined: Tue Sep 26, 2017 7:03 pm

Re: 2050 Target Retirement Fund

Post by dacoffee » Thu Oct 12, 2017 7:56 pm

I second with dbr.

My plan is also on similar lines:

1) Maxing out Pre-tax 401(k) in Vanguard Target Retirement Fund 2050
2) Maxing out Roth IRA in Vanguard LifeStrategy Growth Fund

I am going to leave the above funds as is for next several years. Once I make my first $100k, I will post a response in thread as gratitude towards the wonderful advice I have received here, one of them being keeping it simple but diversified (I know you might be thinking I am a weirdo in thinking $100k as a milestone, it sure is for someone like me who just started at 32) :happy

MotoTrojan
Posts: 700
Joined: Wed Feb 01, 2017 8:39 pm

Re: 2050 Target Retirement Fund

Post by MotoTrojan » Thu Oct 12, 2017 9:06 pm

Think of portfolio as one unit and read up on tax efficient fund placement.

Total US and Total Int do great in taxable. Bonds are next in tax-advantaged only (deferred over Roth, if you have both). Then rest of equities in tax-advantaged. If you have substantial taxable assets and need bonds there, you have options, but better to keep bonds out of taxable.

robbienez
Posts: 7
Joined: Fri Aug 25, 2017 7:34 pm

Re: 2050 Target Retirement Fund

Post by robbienez » Sat Oct 14, 2017 8:56 am

Thanks again everyone. Helpful information. I'll stay the course with my accounts for now to avoid having multiple balanced funds. I'll also study up on tax efficient fund placement.

Post Reply