Split between several target date funds?

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Plan4Future
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Split between several target date funds?

Post by Plan4Future » Fri Mar 09, 2018 1:19 pm

Hi. First post here.

I'm 57 years old, 2-5 years from retirement, overall in pretty good financial shape.

I'm looking to simplify everything. Considering partitioning into just the three following funds:

2025 VTTVX 40% (IRA)
2035 VTTHX 40% (IRA)
2045 VTIVX 20% (Roth)

Any caveats or problems you guys can see to this approach?

Thanks,

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FiveK
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Re: Split between several target date funds?

Post by FiveK » Fri Mar 09, 2018 5:10 pm

Plan4Future, welcome to the forum.

What is the strategy for which you see this as the best tactic?

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Alexa9
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Re: Split between several target date funds?

Post by Alexa9 » Fri Mar 09, 2018 5:14 pm

You could use Lifestrategy Funds if you want a set allocation that doesn't change. They're pretty similar to Target Date Funds.

MotoTrojan
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Re: Split between several target date funds?

Post by MotoTrojan » Fri Mar 09, 2018 5:17 pm

Considering these are all tax-advantaged accounts I'm not sure I see the point, but curious to hear your rationale. You should be able to find a Target Retirement or Lifestrategy fund that matches your desired AA closely. Even if you need to change with time, you can do so tax-free.

If you do go with a 3-fund instead, maximize the amount of equities in the Roth, as the taxation is better for high-growth.

invst65
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Re: Split between several target date funds?

Post by invst65 » Fri Mar 09, 2018 5:17 pm

Can't see any problems but it seems a little odd to select the same funds that only vary in the target date in the same account. Those funds probably have the same holdings but with different stock to bond ratios. So it looks like you are trying to fine-tune the ratio yourself but that's what the target date funds are supposed to be doing for you.

If I wanted to split the IRA in two I think I would go for something more diverse in one of them. But that's just me. Like I said, I don't really see any problem with it.

The Roth IRA with a much later target date does make a lot of sense.
Last edited by invst65 on Fri Mar 09, 2018 5:30 pm, edited 3 times in total.

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Sandtrap
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Re: Split between several target date funds?

Post by Sandtrap » Fri Mar 09, 2018 5:17 pm

Plan4Future wrote:
Fri Mar 09, 2018 1:19 pm
Hi. First post here.

I'm 57 years old, 2-5 years from retirement, overall in pretty good financial shape.

I'm looking to simplify everything. Considering partitioning into just the three following funds:

2025 VTTVX 40% (IRA)
2035 VTTHX 40% (IRA)
2045 VTIVX 20% (Roth)

Any caveats or problems you guys can see to this approach?

Thanks,
Vanguard Target Retirement 2025 Inv VTTVX, ER>.14
Vanguard Target Retirement 2035 Inv VTTHX, ER>.14
Vanguard Target Retirement 2045 Inv VTIVX, ER>.15

How would this be efficient?
Isn't this adding complexity to holding an allocation when each is adjusted at different rates?
How is this better than a 3 fund portfolio of low cost index funds with proper placement?
How is this better than holding the same Target Date Fund in all 3 accounts?
Some thoughts.
j

chevca
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Re: Split between several target date funds?

Post by chevca » Fri Mar 09, 2018 5:19 pm

Plan4Future wrote:
Fri Mar 09, 2018 1:19 pm
Hi. First post here.

I'm 57 years old, 2-5 years from retirement, overall in pretty good financial shape.

I'm looking to simplify everything. Considering partitioning into just the three following funds:

2025 VTTVX 40% (IRA)
2035 VTTHX 40% (IRA)
2045 VTIVX 20% (Roth)

Any caveats or problems you guys can see to this approach?

Thanks,
That is not simple. :happy

Pick which one fits your needs best and call it good.

delamer
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Re: Split between several target date funds?

Post by delamer » Fri Mar 09, 2018 5:21 pm

Assuming you are doing this to get your preferred asset allocation — meaning that one fund does not meet your needs — why not just use index funds for bonds, US stocks, and international stocks in your desired proportions?

rkhusky
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Re: Split between several target date funds?

Post by rkhusky » Fri Mar 09, 2018 5:24 pm

You should be able to get any allocation you want with two Target Retirement funds. Perhaps you want more stocks in Roth than in Traditional accounts, which is fine. But you could put the two IRA's into TR 2030. Nothing wrong with what you have, just a bit more complex than necessary.

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goingup
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Re: Split between several target date funds?

Post by goingup » Fri Mar 09, 2018 6:06 pm

Plan4Future-
Your portfolio is a bit unusual. It would be interesting to hear your reasoning for the composition.

But it checks all the boxes:
Low cost
Diversified
Simple (relatively)
Easy to maintain

I don't see any problems with it. :beer

jalbert
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Re: Split between several target date funds?

Post by jalbert » Fri Mar 09, 2018 7:02 pm

Plan4Future wrote:
Fri Mar 09, 2018 1:19 pm
Hi. First post here.

I'm 57 years old, 2-5 years from retirement, overall in pretty good financial shape.

I'm looking to simplify everything. Considering partitioning into just the three following funds:

2025 VTTVX 40% (IRA)
2035 VTTHX 40% (IRA)
2045 VTIVX 20% (Roth)

Any caveats or problems you guys can see to this approach?

Thanks,
That works out to 24% bonds, and is equivalent to an even smaller bond allocation when tax drag on the IRA is factored in. I don't know enough to know if that is reasonable for you, but it would be overly aggressive for many people who are 2-5 years from retirement.

Putting it all in Target Retirement 2025 (35% bonds) would be Vanguard's de facto recommendation based on your age and retirement planning year.

For a more aggressive allocation you could just use TR 2030 (currently 29% bonds).

If stocks drop 50% are you comfortable with a 35-37% drop in portfolio value? That's what you could be looking at with a 24-29% bond allocation.
Risk is not a guarantor of return.

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Kevin M
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Re: Split between several target date funds?

Post by Kevin M » Fri Mar 09, 2018 8:47 pm

Welcome to the forum (as a poster at least)!

I too find this a bit puzzling. The only difference between these funds is the stock/bond allocation, and you can get close enough to your target stock/bond allocation with a single TR fund.

One difference is that the TR 2025 fund will start adding TIPS within the next five years (the TR 2020 fund has about 4% in the short-term TIPS fund), while the other funds won't start adding TIPS for an additional 10+ or 20+ years. But I doubt this factors into your thinking.

I also would consider carefully if your ability, willingness and need to take risk justifies such a high stock allocation.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

noco-hawkeye
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Re: Split between several target date funds?

Post by noco-hawkeye » Fri Mar 09, 2018 9:38 pm

Why do 3 target date funds?

I could see splitting the difference between 2025 and 2035 and holding a bit of both to "tilt" it one way or another, but 3 does not make sense to me. Or just find one, and add a bit of either total stock or total bond to tilt it.

Plan4Future
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Re: Split between several target date funds?

Post by Plan4Future » Sat Mar 10, 2018 10:05 am

Thanks everyone for the thoughtful comments and questions.
Quite an information rich welcome to the forum.

>FiveK: What is the strategy for which you see this as the best tactic?
>MotoTrojan: but curious to hear your rationale.
>goingup: Your portfolio is a bit unusual. It would be interesting to hear your reasoning for the composition.

At a high level, my personal goals for retirement are broken into three areas:
* phase 1: 'ski bum'
* ages 60-70
* lots of relatively low cost outdoor oriented activity and low cost international travel
* small home footprint, perhaps even rent.
* phase 2: 'culture bum'
* ages 70-85
* activities more focused on relatively higher cost capital city travel, concerts, museums etc.
* more home / family focused. bigger, more established home footprint (where do the kids wind up)
* phase 3: 'emeritus'
* ages 85+
* glide path, planning out to 95...
* family focused, help out the grand kids ,etc.

> Sandtrap: How is this better than a 3 fund portfolio of low cost index funds with proper placement?
> delamer:why not just use index funds for bonds, US stocks, and international stocks in your desired proportions?

Financially, over the past few years I've moved in a simpler and simpler direction.
Current allocation is bonds 0.46,commodities 0.03,international 0.16,spy 0.23,vb 0.07,Cash 0.05

Volatility over the past few months and looking honestly at returns over the past year makes me realize I'd do better with the target date fund.
i.e "enemy in the mirror"

>jalbert: I also would consider carefully if your ability, willingness and need to take risk justifies such a high stock allocation.

The reason, perhaps naive, for the strategy is that at 60, I should be 10 years away from the money I need at 70 and likewise at 70 I'll be 15 years away from the money I'll need at 85.

Strengths:
>invst65: The Roth IRA with a much later target date does make a lot of sense.

Issues:
>jalbert:That works out to 24% bonds, and is equivalent to an even smaller bond allocation when tax drag on the IRA is factored in. I don't know enough to know if that is reasonable for you, but it would be overly aggressive for many people who are 2-5 years from retirement.

Alternatives:
> jalbert: For a more aggressive allocation you could just use TR 2030 (currently 29% bonds).
> rkhusky: But you could put the two IRA's into TR 2030
> Alexa9: You could use Lifestrategy Funds
> chevca: Pick which one fits your needs best and call it good.

Current thoughts:

The delta between:
* VTTVX(2025)40%, VTHRX(2035)40%, VTIVX(2045)20%
* vs.
* VTTVX(2025) 80% IRA, VTIVX(2045) 20% Roth
amounts to 3% difference in bonds vs stock

The delta between:
* VTTVX(2025)40%, VTHRX(2035)40%, VTIVX(2045)20%
* vs.
* VTTVX(2025) 100% (ignoring IRA v Roth)
amounts to 8% difference in bonds vs stock

In balance, my current thinking is the "VTTVX(2025) 80% IRA, VTIVX(2045) 20% Roth" seems to balance sober short - mid term vs long term optimism.

MotoTrojan
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Re: Split between several target date funds?

Post by MotoTrojan » Sat Mar 10, 2018 1:23 pm

New plan makes more sense as the higher growth fund is in the Roth. Regardless as I mentioned, you can change your AA at-will in tax-advantages accounts so I think you’re overcomplicating.

Katietsu
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Re: Split between several target date funds?

Post by Katietsu » Sun Mar 11, 2018 12:52 am

You can do what you propose. The oddity I think comes from the fact that you are using a target date fund for a bucket type approach. I think your thought process makes more sense with Life Strategy Funds. A target date fund is meant to be withdrawn over 30 plus years. It also changes allocations pretty drastically in the years just before and after the target. It does not seem like your plan is consistent with either of these features.

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mhadden1
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Re: Split between several target date funds?

Post by mhadden1 » Sun Mar 11, 2018 3:41 am

Plan4Future wrote:
Sat Mar 10, 2018 10:05 am
At a high level, my personal goals for retirement are broken into three areas:
* phase 1: 'ski bum'
* ages 60-70
* lots of relatively low cost outdoor oriented activity and low cost international travel
* small home footprint, perhaps even rent.
* phase 2: 'culture bum'
* ages 70-85
* activities more focused on relatively higher cost capital city travel, concerts, museums etc.
* more home / family focused. bigger, more established home footprint (where do the kids wind up)
* phase 3: 'emeritus'
* ages 85+
* glide path, planning out to 95...
* family focused, help out the grand kids ,etc.
I think your high level plan sounds terrific. For me phase 1 would be 'fishing bum' or 'hiking bum'. I will credit you in discussions.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

rkhusky
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Re: Split between several target date funds?

Post by rkhusky » Sun Mar 11, 2018 6:43 am

Plan4Future wrote:
Sat Mar 10, 2018 10:05 am
In balance, my current thinking is the "VTTVX(2025) 80% IRA, VTIVX(2045) 20% Roth" seems to balance sober short - mid term vs long term optimism.
You also might want 2-3 years worth of savings, CD's, and/or short term bonds for spending, in case of a market crash.

Plan4Future
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Re: Split between several target date funds?

Post by Plan4Future » Mon Mar 12, 2018 11:35 pm

Thanks All

inbox788
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Re: Split between several target date funds?

Post by inbox788 » Tue Mar 13, 2018 12:36 am

Plan4Future wrote:
Fri Mar 09, 2018 1:19 pm
2025 VTTVX 40% (IRA)
2035 VTTHX 40% (IRA)
2045 VTIVX 20% (Roth)

Any caveats or problems you guys can see to this approach?
Seems like unnecessary complication. How is it any different from a 2030 VTTHX in IRA and 2045 VTIVX in Roth? Or simply VTTHX across the board? Note that there are more after tax dollars in Roth that you can spend, so it's a little larger percentage than what you show.

Are you basing your decision on the sum of the glidepaths or simply based on retirement age? I suspect the latter and it's not suitable for what you're trying to achieve. Going with a later target year simply shifts the start of the glidepath, which keeps you in a slightly higher stock percentage for a few years longer. If you want that in the Roth, you can keep the 2045, but simply choose 2030 for the IRA instead of letting the 2025 and 2035 pretty much cancel out their effects. More importantly, do you agree with the gradual shift in AA?

https://institutional.vanguard.com/VGAp ... TargetDate

Some folks have advocated decreasing risk nearing retirement and increasing risk in retirement.
viewtopic.php?t=210476

If you want to use target date funds, try to choose just one (2035?) and let it do the work it's designed to do. If you must, add a single fund to tweak it a tiny bit, but any more and you might as well take control of your AA and aim directly for your goal instead of trying to steer a self steering system. That is, if you're going to use cruise control, don't be constantly intervening or you might as well turn it off.

As far as the 3 phases or retirement, have you budget out which ones will be more financially taxing? Or are expenses expected to remain relatively flat thought the phases? Conventional wisdom seems to think expenses go down in the later years. Will phase 2 exceed your average retirement funds, say by the 4 percent rule? If it's below, and both phase 1 and 3 are lower, then you're done. And even if it's a little above, savings from the lower spending years should be more than sufficient to make of a little excess.

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