Would prefer target date funds, but three custodians make it messy: advice?

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peseta
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Would prefer target date funds, but three custodians make it messy: advice?

Post by peseta » Sun Aug 26, 2018 8:33 pm

I've been slowly persuaded by the thoughts of Bill Bernstein and others that target dates funds are a good counter-check against an investor's tendency to sell low. I'd love to have a set-it-and-forget approach, in part because I fear (slightly) that I might get sheepish in the next severe bear market. (I gritted my teeth and stayed the course during 2007-2009, but I had much less in my portfolio then.)

My issue that that I have a retirement plan (TSP), my wife has another (Mutual of America 403(b) -- yuck, she's tried to get her employer to change to no avail), and we have Roths and (minimal) taxable at Vanguard. The target funds that each offers have significantly different glidepaths. I could just select funds with comparable present allocations, but I will need to keep an eye on the funds and change that up when they diverge (as well as keeping an eye to make sure the gildepaths/allocations don't change).

This all seems to require me to keep an eye on the lifecycle funds, which kind of defeats the purpose of having them. I wish that the same fund was available from each custodian.

Anybody had a similar dilemma, and if so, what did you decide to do? I'm currently doing a modified 3-fund portfolio, because the TSP requires 4 funds having no total stock market index. I try to look at it as little as possible, with varying success.

Thanks!

peseta

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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by rkhusky » Sun Aug 26, 2018 8:42 pm

peseta wrote:
Sun Aug 26, 2018 8:33 pm
This all seems to require me to keep an eye on the lifecycle funds, which kind of defeats the purpose of having them. I wish that the same fund was available from each custodian.
Or just accept that your glide path is the average of the three providers. Or if the average doesn't quite work for you, you should only have to make adjustments every 5 years or so. The glide paths only change a little year to year.

If Mutual of America's target date fund is substantially worse than some of its other funds, such as an S&P 500 fund, then some sort of hybrid may be in order, where you choose the S&P 500 fund and earlier dates for TSP and/or Vanguard. TSP is very conservative compared to others, if you just go by date.

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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by peseta » Sun Aug 26, 2018 9:05 pm

rkhusky wrote:
Sun Aug 26, 2018 8:42 pm
If Mutual of America's target date fund is substantially worse than some of its other funds, such as an S&P 500 fund, then some sort of hybrid may be in order, where you choose the S&P 500 fund and earlier dates for TSP and/or Vanguard. TSP is very conservative compared to others, if you just go by date.
Thanks for that, an interesting idea. The MoA fund is really the outlier, a high expense ratio and a glidepath that looks like a waterfall (even their 2030 is 72% stock at present!). I've already been doing a variation of this already, with all my wife's 403(b) in S&P 500 (lowest expense ratio) and "adjusting" that with more conservative allocations in the TSP and Vanguard.

TSP is indeed very conservative. Also, the ten-year bands are too broad -- my preferred allocation would be halfway between the L2040 and L2050. But the ER can't be beat!

peseta

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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by AlohaJoe » Sun Aug 26, 2018 9:11 pm

peseta wrote:
Sun Aug 26, 2018 8:33 pm
The target funds that each offers have significantly different glidepaths. I could just select funds with comparable present allocations, but I will need to keep an eye on the funds and change that up when they diverge (as well as keeping an eye to make sure the gildepaths/allocations don't change).
I don't understand what's the problem? Why does it matter if your personal glidepath doesn't perfectly match the glidepath of any given fund? It isn't like there is One True Glidepath that you need to match. I'd just pick a target date fund in each and then check back in 20 years when you're retiring. There's absolutely no need to monitor them and change things when they diverge from one another.

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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by grabiner » Sun Aug 26, 2018 10:09 pm

With three different providers, it may be better to select the best funds from each provider, consistent with your overall allocation. The TSP G fund is better than any bond fund you can get at retail, so you might hold all your bonds there. And the Mutual of America 403(b) might have better US than foreign stock options, or vice versa; you could hold the other one in your Vanguard account.
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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by vineviz » Sun Aug 26, 2018 10:35 pm

peseta wrote:
Sun Aug 26, 2018 9:05 pm
rkhusky wrote:
Sun Aug 26, 2018 8:42 pm
If Mutual of America's target date fund is substantially worse than some of its other funds, such as an S&P 500 fund, then some sort of hybrid may be in order, where you choose the S&P 500 fund and earlier dates for TSP and/or Vanguard. TSP is very conservative compared to others, if you just go by date.
Thanks for that, an interesting idea. The MoA fund is really the outlier, a high expense ratio and a glidepath that looks like a waterfall (even their 2030 is 72% stock at present!). I've already been doing a variation of this already, with all my wife's 403(b) in S&P 500 (lowest expense ratio) and "adjusting" that with more conservative allocations in the TSP and Vanguard.

TSP is indeed very conservative. Also, the ten-year bands are too broad -- my preferred allocation would be halfway between the L2040 and L2050. But the ER can't be beat!

peseta
I think holding an inexpensive stock fund in the 403(b) and target date funds in the other accounts is the wise move.

I also suspect that you may be obsessing over what are relatively unimportant allocation differences. Small differences (5% more equity here, 10% more bonds there) are not going to have a significant impact on your lifetime savings, so don't sweat them. Just pick a fund that's "close enough" and focus the rest of your energy on saving as much money as you can while enjoying your time with your wife and friends.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by Stinky » Sun Aug 26, 2018 10:46 pm

vineviz wrote:
Sun Aug 26, 2018 10:35 pm
peseta wrote:
Sun Aug 26, 2018 9:05 pm
rkhusky wrote:
Sun Aug 26, 2018 8:42 pm

peseta
I also suspect that you may be obsessing over what are relatively unimportant allocation differences. Small differences (5% more equity here, 10% more bonds there) are not going to have a significant impact on your lifetime savings, so don't sweat them. Just pick a fund that's "close enough" and focus the rest of your energy on saving as much money as you can while enjoying your time with your wife and friends.
+1

Excellent general advice. Don't sweat the small differences. You're headed down the right track.
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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by rkhusky » Mon Aug 27, 2018 6:39 am

peseta wrote:
Sun Aug 26, 2018 9:05 pm
TSP is indeed very conservative. Also, the ten-year bands are too broad -- my preferred allocation would be halfway between the L2040 and L2050. But the ER can't be beat!
You can always choose 50% in each.

If you want a set it and forget it solution, then it appears that you can accomplish that (perhaps checking every 5+ years or so, or if you hear that the market has increased/decreased by 20+%).

If you really want to closely match your preferred allocations and glide path and can't stop from checking the balances every couple weeks, then you might as well go with the individual fund approach suggested above. Note that you would need at least one account with both US and Int'l and one account with stocks and bonds, if you want to rebalance.

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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by peseta » Wed Sep 05, 2018 12:40 pm

To close the loop on this, I decided to simplify my modified three-fund portfolio approach (which had really been a 6-fund approach because I was buying funds to address the lack of emerging market and foreign small caps in the TSP I fund). A "true" three-fund will still not work because much of our savings is in TSP. I ended up putting 100% of our Roth money into Vanguard TSM, and 100% of my wife's 403(b) remains in her S&P fund (her employer offers no TSM equivalent). My TSP is in G, S, and I as needed to allocate balances properly.

With this, I can continue on my already-set linear glidepath to 50/50 retirement, dropping stock percentage 1% every year. For now, I can rebalance all in the TSP (but might eventually need to buy some VEXMX in the Roth). I will do this every January, at the same time I fund my Roths. No more looking besides this, no showing the balances in Mint, etc.

Doing this really didn't change my overall asset allocation much at all (important to me), but I was able to greatly simplify the future rebalancing process. I had a spreadsheet to guide this that had looked crazy, but since the I fund index will change early next year, no need to worry about this aspect anymore.

Ideally, I would still like to do a target fund, but I begged off for a few reasons. First, the appropriate lifecycle index fund in my wife's 403(b) is an extra 24 basis points over the already-costly S&P fund. Second, doing target funds in TSP and Vanguard (but keeping all-stock in 403(b)) would still require some rebalancing. Finally, I will get a general sense of my portfolio's performance every year when I fund the Roths, so the idea that I can completely avoid looking at the numbers is a bit of a fantasy. Once a year, though, is doable.

The key now is to stay the course. Nobody knows the "correct" AA or glidepath, as someone helpfully noted above. But continually tweaking my approach would actually be a form of market timing. Time to spend time on other things!

Thanks to everyone for their help.

peseta

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Re: Would prefer target date funds, but three custodians make it messy: advice?

Post by peseta » Tue Feb 12, 2019 12:10 pm

I wanted to post an update to this. As some know, the TSP redid their lifecycle funds effective last month:

viewtopic.php?t=265151

This change, combined with changing the I fund to include emerging markets, pushed me over the edge to go all target funds. The new TSP 2040 has a glidepath very similar to the Vanguard 2040. The one kicker is that for about 9 years, the TSP fund will essentially have a "frozen" stock/bond split, so that the allocation can "catch up" to the new glidepath. In other words, the L2040 will not immediately change to a more aggressive asset allocation; rather, it will allow time to do the work instead.

For me, this is a feature instead of a bug because my current asset allocation is a bit more conservative (i.e., bond-tilted) than the Vanguard 2040 is (and TSP would be but for the "catching-up"). Because of the way the TSP is handling this, however, I can go lifecycle in all three of our pots (my TSP, wife's 403(b), and our Roths) without making a substantial change to our current asset allocation, which I don't want to do.

The only downsides are that my wife's 403(b)'s lifecycle fund is 21 basis points more than her S&P fund, and Vanguard's 2040 is 10 basis points more than TSM. But I think these costs are worth it for the simplicity.

Thanks to everyone for their advice!

peseta

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