What advantages do a personalized portfolio have over a target date fund, in your opinion?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
jonce17
Posts: 37
Joined: Sun Sep 10, 2017 3:57 pm

What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by jonce17 » Sat Apr 14, 2018 5:28 pm

Assuming all else equal (in a tax-deferred retirement account)

I get that a target date is good for someone that doesn't want to invest the time or energy to learn amd manage their investments.

For those that do have greater understanding (YOU GUYS,) what would you say are the main bullet points as to why you don't use a target date fund.

Dandy
Posts: 5189
Joined: Sun Apr 25, 2010 7:42 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Dandy » Sat Apr 14, 2018 5:37 pm

Every all in one or balanced fund usually requires some compromise in your ideal allocation. Maybe it is too aggressive, or has too little international equities, etc. TD funds from vanguard have made some significant changes in overall allocations to equities and what investments the funds contain. So, another factor is even if you are comfortable with the allocation when you buy it -- will it change so much that you won't want it. Now in a tax advantaged account, if you are paying attention, you can always opt out. But, these were essentially sold as a set it and forget it for decades.

Jack FFR1846
Posts: 7182
Joined: Tue Dec 31, 2013 7:05 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Jack FFR1846 » Sat Apr 14, 2018 5:42 pm

Lower ER

That's my life
Bogle: Smart Beta is stupid

livesoft
Posts: 61361
Joined: Thu Mar 01, 2007 8:00 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by livesoft » Sat Apr 14, 2018 5:43 pm

Assuming all in tax-deferred accounts, I think the main difference is ego-stroking. I personally believe that very few people would even know how to calculate performance of their personalized portfolio in order to compare to a target date fund.

A minor difference is that with personalized one can maintain a fixed asset allocation, but the Target Date one changes.
Wiki This signature message sponsored by sscritic: Learn to fish.

student
Posts: 2185
Joined: Fri Apr 03, 2015 6:58 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by student » Sat Apr 14, 2018 5:47 pm

Target date fund is perfect for someone who does not want to involve in investing. In my opinion, it is suitable for most people. However, if you are willing to do-it-yourself, then it gives you more flexibility in finding an asset allocation that suits you.

User avatar
steve roy
Posts: 1538
Joined: Thu May 13, 2010 5:16 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by steve roy » Sat Apr 14, 2018 5:49 pm

One big advantage with a Target Date or Life Stratgy fund: you won't endlessly tinker with investments (like leaping in and out of equities or bonds) so you will likely end up with more money after ten or twenty years.
Last edited by steve roy on Sat Apr 14, 2018 6:22 pm, edited 1 time in total.

retiredjg
Posts: 32918
Joined: Thu Jan 10, 2008 12:56 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by retiredjg » Sat Apr 14, 2018 5:51 pm

Some people just want the control - for example, maybe they want 20% international stock (or none) instead of 40%. Or they don't want their AA to migrate over time. Or whatever.

Sometimes, you can lower the cost of the portfolio by using individual funds. Some plans offer Target funds at .5% and a 500 index at .01% and bond fund at .2% - over time that's a significant difference and probably worth the trouble to use individual funds.

Sometimes people have a low cost target fund available in one account but not the others. In a case like that, it can be easier to just use individual funds in all accounts. Or not. Preferences differ on this.

There are probably dozens of reasons, but a good low cost target fund is hard to beat if it suits your desires and fits easily into the rest of your portfolio.

livesoft
Posts: 61361
Joined: Thu Mar 01, 2007 8:00 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by livesoft » Sat Apr 14, 2018 5:52 pm

student wrote:
Sat Apr 14, 2018 5:47 pm
Target date fund is perfect for someone who does not want to involve in investing. In my opinion, it is suitable for most people. However, if you are willing to do-it-yourself, then it gives you more flexibility in finding an asset allocation that suits you.
But one can also shoot themselves in the foot with more flexibility.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
JoMoney
Posts: 5249
Joined: Tue Jul 23, 2013 5:31 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by JoMoney » Sat Apr 14, 2018 5:56 pm

Target date fund(s) don't match my "risk"/allocation preferences.
Slightly more expensive / no 'admiral class' shares
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by dbr » Sat Apr 14, 2018 6:02 pm

jonce17 wrote:
Sat Apr 14, 2018 5:28 pm
Assuming all else equal (in a tax-deferred retirement account)

I get that a target date is good for someone that doesn't want to invest the time or energy to learn amd manage their investments.

For those that do have greater understanding (YOU GUYS,) what would you say are the main bullet points as to why you don't use a target date fund.
1. All else is not equal because we have significant taxable investments.

2. I don't want a glide path and the endpoint funds that no longer glide don't have the asset allocation I want.

3. I don't want funds that the fund company may periodically mess around with, with or without warning.

4. TD funds are slightly more expensive, but that is minor.

5. I am not completely convinced everything they invest in is a good idea, such as international bond, but that is an arguable point.

6. There is no compelling reason to prefer a TD fund for me.

Also, a response to the learn and manage perspective. I think it is fine to use a TD fund for simplicity and convenience but the idea this relieves a person of gaining the understanding needed to be a good investor is pernicious. Sometimes the best thing that can happen is that a person is forced to learn something to do it. One could argue that a three fund portfolio is good for beginners and a target date fund for more advanced investors who understand and accept the nuances.

User avatar
LadyGeek
Site Admin
Posts: 46063
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by LadyGeek » Sat Apr 14, 2018 6:09 pm

jonce17 - You had a duplicate post, which I've removed. All of the replies are merged into here.

(Many thanks to the member reporting the posts.)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

ThriftyPhD
Posts: 653
Joined: Mon Jul 31, 2017 10:43 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by ThriftyPhD » Sat Apr 14, 2018 6:18 pm

I think target date or other fund of funds are the best option for most. You set it once, forget about what it's invested in and just keep shoving money into the fund without tinkering.

However, not everyone has access to a good target date. Particularly in a 401k, you may not have a target date fund, or the one that's available is too expensive or not what you want. Perhaps the only good option is a single S&P 500 index fund. That means all of your OTHER accounts would need to be placed into the funds that balance out that S&P 500. Even if your other accounts have a good target date, you might need bonds, small cap, international, etc to balance out the 500 index fund.

User avatar
nisiprius
Advisory Board
Posts: 36025
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by nisiprius » Sat Apr 14, 2018 6:20 pm

In my case, the obvious one. Right or wrong, I have personal preferences, that I hold with sufficiently high conviction that I prefer to set my own allocations. I just can't quite bring myself to accept a target date fund or a LifeStrategy fund, when it's so easy to cook my own from scratch. I just plain want a lot more TIPS than are in the target date funds, less in international stocks, no international bonds, and a lower stock allocation than the target date funds would put me in. They just aren't quite close enough. And by the time you try to fool around by adding "outriggers," use an all-in-one fund but also add a TIPS fund, it's actually more complicated than just using separate funds.
Last edited by nisiprius on Sat Apr 14, 2018 8:24 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

pbearn
Posts: 69
Joined: Sat Oct 10, 2015 8:39 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by pbearn » Sat Apr 14, 2018 6:34 pm

Putting international stocks in a taxable account is one reason.

Sandi_k
Posts: 704
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Sandi_k » Sat Apr 14, 2018 6:41 pm

I've avoided them because I note that the prospectuses do not tell you what the rebalancing triggers are. And if they choose to change the asset allocation - either to more stock, more bonds, or more cash - they are not required to update you.

Furthermore, there is no real agreement on TD funds and their proportions. For example, Fidelity's 2020 fund has lots more cash and fewer stock investments than Vanguard. If I have to select that level of detail and oversight, I should be able to pick the proportions myself via TSM Index funds, and International/Bond Index funds.

This article summarizes many of my discomforts:
http://www.aaii.com/journal/article/tar ... mplexities

User avatar
Tyler Aspect
Posts: 1080
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Tyler Aspect » Sat Apr 14, 2018 7:06 pm

Most target date funds are too aggressive for young investors, and too conservative for older investors. They have a great marketing message for one stop shopping, but the implementation details are written to facilitate the ease of selling. Ultimately these target date funds are planner hostile and complicated at the component level.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

jmk
Posts: 334
Joined: Tue Nov 01, 2011 7:48 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by jmk » Sat Apr 14, 2018 7:50 pm

The biggest advantage of separate funds for me is tax efficiency. I'm in the 15% bracket so shoving my entire bond and CD portion into my tax-deferred I get more return, and my stock in taxable is at 0% capital gains. The same AA in target funds would generate more taxes. I do use Life Strategy funds for convenience for some of my non-retirement monies, though.

You also have to agree with a decreasing glide path of the Target fund rather than a decreasing than rising path preferred by some like Glau.


.

mikeyzito22
Posts: 34
Joined: Sat Dec 02, 2017 5:42 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by mikeyzito22 » Sat Apr 14, 2018 8:04 pm

I'm almost 40 and using TG 2065 because I want to hold 90/10 for the foreseeable future. Is that bad? Therefore I don't actually glide until 2040 and they are in taxed advantaged. That's a long way off, and since I have a pension and an inheritance at some point, what is wrong with using the TG until major changes happen?

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by dbr » Sat Apr 14, 2018 8:22 pm

mikeyzito22 wrote:
Sat Apr 14, 2018 8:04 pm
I'm almost 40 and using TG 2065 because I want to hold 90/10 for the foreseeable future. Is that bad? Therefore I don't actually glide until 2040 and they are in taxed advantaged. That's a long way off, and since I have a pension and an inheritance at some point, what is wrong with using the TG until major changes happen?
Nothing is wrong with it. Why would you think so?

MrPotatoHead
Posts: 429
Joined: Sat Oct 14, 2017 10:41 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by MrPotatoHead » Sat Apr 14, 2018 8:31 pm

Simply put they do not take into account your entire asset base nor your need to take risk.

For instance my children have their 401k plans at one place and their Roth IRAs and brokerage accounts elsewhere. So the target date funds are nonsensical for them. In addition for the purpose that fixed income is suppose to serve, they would be far better off in the 401K plan in a stable value fund than a long term bond fund that most target funds have in them, in this rising rate environment.

And target date funds do nor take into account your spending needs in retirement. For instance some people may be able to meet their expense needs with a 1.6% withdraw rate in their 50s, in which case the typical target fund would have them over allocated to fixed income.

confusedinvestor
Posts: 404
Joined: Thu Mar 15, 2012 11:04 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by confusedinvestor » Mon Apr 16, 2018 12:32 am

If that is you, you should stick to TDR, and,
you may want to let go few benefits of of personalized portfolio: lower fees compounded over years, tax efficiency/ asset location, TLH, design your own portfolio per your need, ability, willingness to take risks, your life goals, change AA b/c of life events etc.

TDR fund will not sell out of equities and go to cash during 2000/2002 and 2008 - meaning - it will "manage" your emotions beside typical reblance, assuming you will not sell your TDR during such times.
jonce17 wrote:
Sat Apr 14, 2018 5:28 pm

I get that a target date is good for someone that doesn't want to invest the time or energy to learn amd manage their investments.

indexonlyplease
Posts: 1073
Joined: Thu Apr 30, 2015 12:30 pm
Location: Pembroke Pines, FL

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by indexonlyplease » Mon Apr 16, 2018 7:47 am

I think Target Dated Funds like Vanguard are perfect for the new investor and most older investors that don't know much about investing (me).

When my son started working part time he opened the Vanguard Target Dated Fund in his Roth IRA. Now he puts in money and watch it grow. One day when working full time I expect he will want to learn. I teach him a little along the way.

I bought into the 3 fund portfolio 3 years ago. I even made a mistake and put 20% of my whole porfollio into international. Not 20% of stock portion. So, l made a mistake but lucky internationals have done well. So, someone can even make mistakes with a simple portfolio.


The problem is there is much to learn and the simple Target Dated Fund works for those who do not want to learn or those who play around to much with their portfolio. It takes disipline not to read some good idea and want to change your portfolio.

sschoe2
Posts: 275
Joined: Fri Feb 24, 2017 4:42 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by sschoe2 » Mon Apr 16, 2018 8:18 am

Vanguard's target date funds are a bit more heavy in total international than I prefer. They have 40% of stocks in total international I prefer 20% so I adjust it with my Roth IRA having 100% VTI. I have my 401k with Wellsfargo and the Vanguard target date funds are the best option available there.

deltaneutral83
Posts: 778
Joined: Tue Mar 07, 2017 4:25 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by deltaneutral83 » Mon Apr 16, 2018 8:22 am

I don't want 36-38% of my equities in Intl. I don't want bonds when I'm 23. I want more than 10% bonds when I'm 40 (I think the TDFs are 10% bonds until 42ish?). A 3F with annual re balance is 10 minutes a year more maintenance than a TDF if you wanted it to be. Expense ratios are lower in a 3F, at some point you're highly likely going to have a taxable account and not want to keep bonds there.

invst65
Posts: 585
Joined: Thu Nov 27, 2014 11:04 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by invst65 » Mon Apr 16, 2018 8:42 am

This is an interesting question because I once asked a Fidelity adviser who was trying to sell me on portfolio management the same question. I asked what would be the difference between the service he was offering and just buying one of their target date funds and he said that was a really good question that nobody had ever asked before.

He must have asked his fellow salespersons how to answer the question because the next time he called he was ready with some gobbledygook answer about "personalized" service and a dedicated team of professional managers (for 1-2% as best I recall). So basically what he was telling me was that if you want the best fund managers you have to pay for it because we don't assign those to our target date funds. Apparently they let the rookies run those funds and they aren't really that dedicated or professional. He said it in a more nuanced way, of course, but that's what I was hearing.

So I said, okay thanks for the info and transferred my account to Vanguard which had much lower fees at the time.

I still have some accounts with them BTW, but they don't call me any more.

Da5id
Posts: 2035
Joined: Fri Feb 26, 2016 8:20 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Da5id » Mon Apr 16, 2018 8:52 am

I think target funds are great. I used to use the LifeStrategy funds. I went with a personalized 3 fund for the following reasons:

1) expense ratio. I have a fair bit invested. The expense difference is noticeable. My ER is about .055% all told. The LifeStrategy funds are about .013%

2) asset allocation. I have 50% stocks/50% bonds. That doesn't match any of the LifeStrategy funds (60/40 or 40/60 would be my choices. I could buy 2 LifeStrategy funds and get 50%, but then would have to balance between them. Mind you they'd diverge so slowly I might not have to rebalance for many years...

3) fund selection. I'm not really sold on international bonds yet. I like the other 3 in LifeStrategy though, and am OK with the proportions.

4) I'm 33% international stocks rather than 40%. I'd be OK with 40% though

5) personalized lets me have different assets in different tax free/tax deferred/taxable accounts for tax efficiency. I have more bonds in IRA/401k. More stocks in taxable/Roth.

6) Doesn't apply to your tax deferred account, but with item 5, lets me do TLH more usefully. Balanced funds not generally great for TLH.

Those are good enough reasons for me. But that isn't to say target date/balanced isn't a good idea, it is for many and I think should be the default choice unless you have good enough reasons to not do it. It makes you resistant to tinkering. It dampens the appearance of losses in different asset classes prevent behaviorally questionable choices (international stock is lagging recently, so I'll dump it for example).

User avatar
goingup
Posts: 3122
Joined: Tue Jan 26, 2010 1:02 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by goingup » Mon Apr 16, 2018 8:55 am

Frankly I think it's hubris when people describe a Target fund as a fund for novices and those that don't want to learn. We all like to think we're above average money managers and can cobble together a portfolio with better returns. It's likely untrue.

It does happen that once a portfolio is large there are usually 4-6 accounts to coordinate, and at least one is taxable. It gets complicated to have a clean allocation unless each account contains a Target fund and sometimes Target fund options in 401Ks, 403Bs are too pricey.

But if we had the bulk of our portfolio in a 401K with reasonably priced Target Funds I'd use them in an instant. They solve so many problems for an investor, the biggest of which is behavioral.

User avatar
Oak&Elm
Posts: 276
Joined: Wed Mar 18, 2015 7:50 pm
Location: St Paul, MN

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Oak&Elm » Mon Apr 16, 2018 9:00 am

I prefer my personalized portfolio because I can set it to my AA, however my 403b at work offers TD funds with an er of .09% so I do like that, everything else is in the standard 3 fund mix. Since you are just buying the same funds in different quantities why not just purchase them individually? Unless of course you can't meet the Admiral share threshold.

Da5id
Posts: 2035
Joined: Fri Feb 26, 2016 8:20 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Da5id » Mon Apr 16, 2018 9:34 am

Oak&Elm wrote:
Mon Apr 16, 2018 9:00 am
Since you are just buying the same funds in different quantities why not just purchase them individually? Unless of course you can't meet the Admiral share threshold.
While I gave my reasons above why I personally don't do it, there are good reasons to purchase target date/balanced funds.

1) helps prevent behavioral errors. Even bogleheads have behavioral errors :) Examples of behavioral errors to which many investors failing
to match the market:
* recency bias -- dumping international when it is doing badly for example
* fear -- failure to rebalance into falling assets. When stocks fall hard, it is hard to buy them.
* greed -- when stocks are doing great, hard to sell them to get back to your asset allocation, which presumably you picked for a reason

2) it is simple. It is no-maintenance.

3) It hides losses. Instead of seeing your stock fund down 30%, you see your balanced fund down 15% (or whatever). Not seeing individual funds declining seriously can help prevent the behavioral errors in item 1.

vested1
Posts: 1500
Joined: Wed Jan 04, 2012 4:20 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by vested1 » Mon Apr 16, 2018 9:36 am

livesoft wrote:
Sat Apr 14, 2018 5:52 pm
student wrote:
Sat Apr 14, 2018 5:47 pm
Target date fund is perfect for someone who does not want to involve in investing. In my opinion, it is suitable for most people. However, if you are willing to do-it-yourself, then it gives you more flexibility in finding an asset allocation that suits you.
But one can also shoot themselves in the foot with more flexibility.
Or one can aim squarely at their foot and hit the target. I guess it depends on how you define flexibility.

VG 2015 retirement has over 40% of stocks and over 24% of bonds in international. It also has 27% in TIPS. Even if I accepted those allocations to be appropriate, only 41.73% of the fund in stocks doesn't fit my personal risk profile.

Why should a retiree buy a fund that is both too conservative (stocks to bonds) and too risky (U.S. to international)? Why should I pay over twice the combined ER's in order to avoid infrequent rebalancing?

On the flip side, VG 2065 retirement is almost 90% stocks, with 40% in international. Over 30% of bonds are in international as well. Without doing the math I would assume the tilt to international in VG target funds remains too high, at least IMHO.

It isn't ego that compels me to avoid target funds, but rather a better understanding of our goals than a cookie cutter approach can provide.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by dbr » Mon Apr 16, 2018 9:39 am

One could probably summarize most of the differences as being personal meaning convenience and behavioral. As such these things are really an individual preference and not a general recommendation one way or the other.

I would comment regarding "beginners" that a TD fund or using a TD fund as part of a portfolio probably needs more understanding of investments and what one is doing with one's investments than investing explicitly in individual funds for the different asset classes.

vested1
Posts: 1500
Joined: Wed Jan 04, 2012 4:20 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by vested1 » Mon Apr 16, 2018 9:51 am

Da5id wrote:
Mon Apr 16, 2018 9:34 am
Oak&Elm wrote:
Mon Apr 16, 2018 9:00 am
Since you are just buying the same funds in different quantities why not just purchase them individually? Unless of course you can't meet the Admiral share threshold.
While I gave my reasons above why I personally don't do it, there are good reasons to purchase target date/balanced funds.

1) helps prevent behavioral errors. Even bogleheads have behavioral errors :) Examples of behavioral errors to which many investors failing
to match the market:
* recency bias -- dumping international when it is doing badly for example
* fear -- failure to rebalance into falling assets. When stocks fall hard, it is hard to buy them.
* greed -- when stocks are doing great, hard to sell them to get back to your asset allocation, which presumably you picked for a reason

2) it is simple. It is no-maintenance.

3) It hides losses. Instead of seeing your stock fund down 30%, you see your balanced fund down 15% (or whatever). Not seeing individual funds declining seriously can help prevent the behavioral errors in item 1.
With apologies:

4) It is the best choice in a 401k filled with worse choices.

That is why my wife was 100% in VG 2020 retirement before she retired 3 years ago. It was the closest we could come to our desired AA. 4 fund portfolio now.

Da5id
Posts: 2035
Joined: Fri Feb 26, 2016 8:20 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Da5id » Mon Apr 16, 2018 9:59 am

vested1 wrote:
Mon Apr 16, 2018 9:51 am
4) It is the best choice in a 401k filled with worse choices.

That is why my wife was 100% in VG 2020 retirement before she retired 3 years ago. It was the closest we could come to our desired AA. 4 fund portfolio now.
Sure. That doesn't apply to me, as I have Fidelity institutional index funds in my 401k :)

k3vb0t
Posts: 51
Joined: Mon Jun 02, 2014 4:42 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by k3vb0t » Mon Apr 16, 2018 10:00 am

I'm switching my non-401k assets (best option in the 401k is Vanguard's TD2040 Trust II with ER of 0.08%) to mimic the Target Date fund for expense ratio savings.

I had been using Target Date funds for simplicity, but by switching our assets to the underlying Admiral share equivalents (3 fund portfolio, ditching Int'l bonds because we wouldn't have enough for Admiral shares there, all of it into VBTLX) I can shave $158/year in expenses or 0.085%.

This goes in line with the philosophy of expenses and taxes being the only true 'levers' I can use to increase returns.

Soup Nazi
Posts: 27
Joined: Sun Dec 17, 2017 12:15 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Soup Nazi » Mon Apr 16, 2018 10:02 am

I have about 17% of my securities in an Inherited IRA which requires distributions every year. Obviously I want my slowest growing investments in there, so 100% of my bonds (10% of overall securities) are in the Inherited IRA. No bonds whatsoever in my brokerage, Traditional IRA, Roth IRA, HSA or 401(k). Once my Inherited IRA is maxed out with bonds, I'll probably do a Target Date Fund in my 401(k) since there is no Total Stock Market Index Fund or Total International Stock Index to choose in there.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by dbr » Mon Apr 16, 2018 10:07 am

k3vb0t wrote:
Mon Apr 16, 2018 10:00 am
I'm switching my non-401k assets (best option in the 401k is Vanguard's TD2040 Trust II with ER of 0.08%) to mimic the Target Date fund for expense ratio savings.

I had been using Target Date funds for simplicity, but by switching our assets to the underlying Admiral share equivalents (3 fund portfolio, ditching Int'l bonds because we wouldn't have enough for Admiral shares there, all of it into VBTLX) I can shave $158/year in expenses or 0.085%.

This goes in line with the philosophy of expenses and taxes being the only true 'levers' I can use to increase returns.
No, expected return is strongly dependent on how much risk one might take. More specifically it depends on how one is allocated across higher returning assets such as stocks compared to lower returning assets such as bonds. Where are you getting your idea? That does not mean expenses and taxes are not important.

Silk McCue
Posts: 959
Joined: Thu Feb 25, 2016 7:11 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Silk McCue » Mon Apr 16, 2018 10:09 am

The decision to utilize Target Date Funds, LifeStrategy Funds, individual funds or ETFs' has absolutely nothing to do with being a novice or an expert. It is a matter of personal choice and there are many reasons that you could choose one or the other.

I came upon and implemented the Boglehead philosophy a little over two years ago. I utilize Target Date Funds that suit my need in our IRA/457, I utilize a Lifestrategy Fund with higher equity exposure in our Roths's, and Total Stock market in our taxable. I understand that for many these combined funds don't work due to not matching their personal asset allocation, glide path/no glide path, international equity % or the very presence of international bonds. Some like the lower ER of individual holdings. For me the annual ER difference on $1M is not significant and I find it to be modest price to pay for the benefit that I perceive for my own personal situation. Regardless of the reason, selecting one approach over the other is neither inferior or superior when taking into consideration individual needs and plans.

I believe that the difference between the two approaches is same church different pew. Let's just all give thanks that we can be very successful over the long haul by following the Boglehead philosophy.

Cheers

k3vb0t
Posts: 51
Joined: Mon Jun 02, 2014 4:42 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by k3vb0t » Mon Apr 16, 2018 10:14 am

dbr wrote:
Mon Apr 16, 2018 10:07 am
k3vb0t wrote:
Mon Apr 16, 2018 10:00 am
I'm switching my non-401k assets (best option in the 401k is Vanguard's TD2040 Trust II with ER of 0.08%) to mimic the Target Date fund for expense ratio savings.

I had been using Target Date funds for simplicity, but by switching our assets to the underlying Admiral share equivalents (3 fund portfolio, ditching Int'l bonds because we wouldn't have enough for Admiral shares there, all of it into VBTLX) I can shave $158/year in expenses or 0.085%.

This goes in line with the philosophy of expenses and taxes being the only true 'levers' I can use to increase returns.
No, expected return is strongly dependent on how much risk one might take. More specifically it depends on how one is allocated across higher returning assets such as stocks compared to lower returning assets such as bonds. Where are you getting your idea? That does not mean expenses and taxes are not important.
Sorry, I meant using index funds (not trying to beat the market) and also trying to mimic the TD allocation. Obviously AA factors is a big part.

livesoft
Posts: 61361
Joined: Thu Mar 01, 2007 8:00 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by livesoft » Mon Apr 16, 2018 10:15 am

vested1 wrote:
Mon Apr 16, 2018 9:36 am
VG 2015 retirement has over 40% of stocks and over 24% of bonds in international. It also has 27% in TIPS. Even if I accepted those allocations to be appropriate, only 41.73% of the fund in stocks doesn't fit my personal risk profile.

Why should a retiree buy a fund that is both too conservative (stocks to bonds) and too risky (U.S. to international)? Why should I pay over twice the combined ER's in order to avoid infrequent rebalancing?
C'mon, one doesn't have to buy a 2015 nor a 2050 fund nor go by any date. Your choice of personal risk profile could be something that you just made up and has no basis in theory anyways. That is, a TD fund could be better for one's portfolio than some allocation one would choose for themselves.

The question was asked a specific way: "Assuming all else equal (in a tax-deferred retirement account)" If asked another way, there would be less reasons to use a Target Date fund.

I will add that this thread has quite a lot of "peace of mind" reasons such as "I don't want so much international." Or "I don't want international bonds."
Wiki This signature message sponsored by sscritic: Learn to fish.

inbox788
Posts: 5230
Joined: Thu Mar 15, 2012 5:24 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by inbox788 » Mon Apr 16, 2018 12:26 pm

I've always done it for more control including tax optimization, but I'm wondering if there isn't some advantage in a target date fund taxwise vs rebalancing/glide in a taxable account.

alex_686
Posts: 3602
Joined: Mon Feb 09, 2015 2:39 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by alex_686 » Mon Apr 16, 2018 12:30 pm

As your wealth increases, does your risk tolerance increases or decreases? Target Date funds assumes it remains constant, which is probably the wrong answer.

FYI, I am a mild fan of target date funds. A bit to generic, a bit too conservative, but a very simple solution for those you are looking for a DIY solution.

Silk McCue
Posts: 959
Joined: Thu Feb 25, 2016 7:11 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Silk McCue » Mon Apr 16, 2018 12:55 pm

alex_686 wrote:
Mon Apr 16, 2018 12:30 pm
As your wealth increases, does your risk tolerance increases or decreases? Target Date funds assumes it remains constant, which is probably the wrong answer.
That's a good point about risk tolerance changing is good but I disagree on the point about the Target Date fund (it is what is tells you it is, it assumes nothing - folks choose it because its glidepath is what they want it to do). If the funds are in a tIRA or Roth you aren't married to the fund due to taxation considerations and can change out to a different allocation whenever the time is right for you.

As we approach retirement in 2.5 years I have IRA funds in a Target Date fund with an asset allocation that matches our current need and plans and which we can still live with if the market should take a turn at a bad time. Once we begin retirement we will assess changing the asset allocation based upon the current market situation, a COLA'd pension and both taking Social Security many years later at 70. The change in the asset allocation is just as likely to be more weighted to equities than it is currently or will be when we retire.

The TD Funds and Lifestrategy funds we hold today places no limits on our future choices. The change is just a few mouse clicks and keystrokes away.

Cheers
Last edited by Silk McCue on Mon Apr 16, 2018 2:12 pm, edited 1 time in total.

pkcrafter
Posts: 12821
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by pkcrafter » Mon Apr 16, 2018 1:15 pm

What advantages do a personalized portfolio have over a target date fund, in your opinion?
Personalized Portfolio...
ADVANTAGE - Allows hands on so you can customize and tweak
DISADVANTAGE - Allows hands on so you can customize and teak.

:happy

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

indexonlyplease
Posts: 1073
Joined: Thu Apr 30, 2015 12:30 pm
Location: Pembroke Pines, FL

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by indexonlyplease » Wed Apr 18, 2018 6:25 am

pkcrafter wrote:
Mon Apr 16, 2018 1:15 pm
What advantages do a personalized portfolio have over a target date fund, in your opinion?
Personalized Portfolio...
ADVANTAGE - Allows hands on so you can customize and tweak
DISADVANTAGE - Allows hands on so you can customize and teak.

:happy

Paul
+1 simple and easy. Like investing Best stated.

bondsr4me
Posts: 860
Joined: Fri Oct 18, 2013 7:08 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by bondsr4me » Wed Apr 18, 2018 6:46 am

I don't use target-date funds because I firmly believe that "one size does NOT fit all".

I believe a portfolio should match the "individual's" risk tolerance and financial objectives and not the "herd mentality".

But to each his/her own approach.
I am quite willing and capable of making my own decisions about what is good and right for me.

Some prefer the "lazy" way of doing investing which is certainly OK.
I'm not disparaging that approach in any manner.
I just happen to enjoy the financial aspect of investing and after 50 years of being involved in finance, corporate and public, feel very
capable of doing my own work.

To the OP, do whatever YOU feel is right for you and will help you sleep well at night when the turmoil hits the fan.

Have a great week!

Don

SocalLiving
Posts: 37
Joined: Mon Jun 26, 2017 9:56 am
Location: California

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by SocalLiving » Wed Apr 18, 2018 7:56 am

dbr wrote:
Sat Apr 14, 2018 6:02 pm
Also, a response to the learn and manage perspective. I think it is fine to use a TD fund for simplicity and convenience but the idea this relieves a person of gaining the understanding needed to be a good investor is pernicious. Sometimes the best thing that can happen is that a person is forced to learn something to do it. One could argue that a three fund portfolio is good for beginners and a target date fund for more advanced investors who understand and accept the nuances.
This describes me perfectly. I switched from Life Strategy Target Fund to 3 fund portfolio. I am a "beginner" and this has given me a much better understanding of what I'm investing in and why. Makes it a lot easier for me to just save and contribute without any anxiety about the market gyrations. However if circumstances change, I might switch back to a Life Strategy type fund if my husband thinks it will be better for him.

Also, the 3-fund portfolio has made it much easier for me to see all my investment and savings accounts as one portfolio that work together efficiently. For me, this was not as intuitive when a big chunk of our tax advantaged account was Life Strategy.

I think it is very important to find a strategy that you feel comfortable with.

Da5id
Posts: 2035
Joined: Fri Feb 26, 2016 8:20 am

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by Da5id » Wed Apr 18, 2018 8:27 am

SocalLiving wrote:
Wed Apr 18, 2018 7:56 am
dbr wrote:
Sat Apr 14, 2018 6:02 pm
Also, a response to the learn and manage perspective. I think it is fine to use a TD fund for simplicity and convenience but the idea this relieves a person of gaining the understanding needed to be a good investor is pernicious. Sometimes the best thing that can happen is that a person is forced to learn something to do it. One could argue that a three fund portfolio is good for beginners and a target date fund for more advanced investors who understand and accept the nuances.
This describes me perfectly. I switched from Life Strategy Target Fund to 3 fund portfolio. I am a "beginner" and this has given me a much better understanding of what I'm investing in and why. Makes it a lot easier for me to just save and contribute without any anxiety about the market gyrations. However if circumstances change, I might switch back to a Life Strategy type fund if my husband thinks it will be better for him.

Also, the 3-fund portfolio has made it much easier for me to see all my investment and savings accounts as one portfolio that work together efficiently. For me, this was not as intuitive when a big chunk of our tax advantaged account was Life Strategy.

I think it is very important to find a strategy that you feel comfortable with.
I think a significant majority of people in the country would be better off with a low cost TD fund in their tax free/tax deferred retirement accounts based on what they invest in currently and how they do it. I think it is a good default, a good starting point, and for many people a good permanent investment. Consider that many aren't particularly interested in investing. Of those who are, many have as sources of information their "guy" at Edward Jones, or the talking heads on CNBC, or many internet pages. Getting and sticking to a simple TD fund would be a win for them. Bogleheads can't assume that the level of engagement and knowledge of those here is anything like widespread in society. And even here there are some pretty questionable notions that persist... Some people simply aren't interested in investing. Some are too interested, resulting in churning/market timing/chasing last year's winners.

User avatar
triceratop
Moderator
Posts: 5258
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by triceratop » Wed Apr 18, 2018 9:23 am

1) all else is not equal, only 8% of my portfolio is in tax-advantaged and none of my portfolio is currently in tax-deferred. I wish to own more tax-efficient vehicles for international stocks than what Vanguard might use in its TDF. Also my risk tolerance might change in the future in a way not aligned with a TDF and changing my allocation will carry tax consequences.

2) I wish to own global market cap international stocks, not whatever fixed (time-varying, as the funds keep changing in response to manager decisions not market decisions) percentage of international stocks the TDF uses.

3) I want to own and re-balance with Treasuries, not corporate bonds which have a substantial component of equity-like risk. I definitely don't want to own corporate bonds in taxable, when I can take that risk with more tax-efficient equities. That is, owning total bond market seems like a poor decision both in its own right in tax-deferred and also because of (1).

I'm ignoring tilts here because it's not clear to me anyone is convinced by them and I think a strong case can be made (for me) for avoiding TDF without consideration of tilts.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
nedsaid
Posts: 9692
Joined: Fri Nov 23, 2012 12:33 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by nedsaid » Wed Apr 18, 2018 11:21 am

invst65 wrote:
Mon Apr 16, 2018 8:42 am
This is an interesting question because I once asked a Fidelity adviser who was trying to sell me on portfolio management the same question. I asked what would be the difference between the service he was offering and just buying one of their target date funds and he said that was a really good question that nobody had ever asked before.

He must have asked his fellow salespersons how to answer the question because the next time he called he was ready with some gobbledygook answer about "personalized" service and a dedicated team of professional managers (for 1-2% as best I recall). So basically what he was telling me was that if you want the best fund managers you have to pay for it because we don't assign those to our target date funds. Apparently they let the rookies run those funds and they aren't really that dedicated or professional. He said it in a more nuanced way, of course, but that's what I was hearing.

So I said, okay thanks for the info and transferred my account to Vanguard which had much lower fees at the time.

I still have some accounts with them BTW, but they don't call me any more.
Though such funds like the Target Date Retirement Funds and the Target Risk (conservative, moderate, aggressive) are pretty good portfolios, most of our egos demand some degree of personalization. We all want to feel brilliant and we all want to feel special, getting special attention. We don't like the idea of cookie cutter advice but is the price of an advisory portfolio service worth the 0.30% or 0.75% or 1.00% or 1.20% or 1.35% a year? Would a portfolio constructed by an advisory service or by ourselves, for free for that matter, perform any better than a prepackaged Target Date or a Target Risk fund? My guess is probably not.

I am in the "bake your own" camp. An IRA account that I have at my favorite mutual fund company is modeled after its Target Risk Moderate fund. I have more International and more Mid/Small-Cap than what the pre-baked product offers, and also hold almost no cash there. I will have to do an analysis and see if my version of the Moderate Risk fund performs any better than theirs.

I also own the Fidelity Freedom 2025 fund, contributions were made there in lieu of contributions to a frozen pension plan. It is made up of active funds and yet it has performed pretty darned well, last I checked it has edged out the Index fund version slightly in performance. When I did an analysis of my entire retirement portfolio, the Fidelity Freedom 2025 Fund outperformed the rest of my portfolio. Amazing. For less than 70 basis points, I get a professionally run portfolio that has done well. I have asked myself the question, why not have all my retirement money there?
A fool and his money are good for business.

inbox788
Posts: 5230
Joined: Thu Mar 15, 2012 5:24 pm

Re: What advantages do a personalized portfolio have over a target date fund, in your opinion?

Post by inbox788 » Wed Apr 18, 2018 7:52 pm

bondsr4me wrote:
Wed Apr 18, 2018 6:46 am
I don't use target-date funds because I firmly believe that "one size does NOT fit all".

I believe a portfolio should match the "individual's" risk tolerance and financial objectives and not the "herd mentality".

But to each his/her own approach.
I am quite willing and capable of making my own decisions about what is good and right for me.

Some prefer the "lazy" way of doing investing which is certainly OK.
I'm not disparaging that approach in any manner.
I just happen to enjoy the financial aspect of investing and after 50 years of being involved in finance, corporate and public, feel very
capable of doing my own work.

To the OP, do whatever YOU feel is right for you and will help you sleep well at night when the turmoil hits the fan.

Have a great week!

Don
I don't use target date funds either, but I consider myself part of the herd. IMO, most passive AA portfolios are fairly similar and overlap quite a bit. Differences of 10 or 20% are not unusual, but if you compare any 2 portfolios, it's unlike to differ by much more.

https://www.whitecoatinvestor.com/150-p ... han-yours/

You can also individualize your target date to change the glidepath start/end dates or pick between different brokers to make some minor changes to the AA, but for the most part, they're all very similar.

Now if you're taking a big chunk of your retirement and picking half a dozen individual stocks, that's a whole other story, and I wish you luck.

Post Reply