Best way to convert from target date to 3 fund?

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finallysaving
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Best way to convert from target date to 3 fund?

Post by finallysaving » Wed Mar 25, 2020 7:47 am

I started out buying the vanguard 2045 fund as I was learning, but now I’d like to move to a 3 or 4 fund portfolio so I can maximize tax advantage, potentially sell of a little bond as needed, etc. Anything that I should be careful of in doing this in the current market? Or just start trading to vtsax etc?

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David Jay
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Re: Best way to convert from target date to 3 fund?

Post by David Jay » Wed Mar 25, 2020 8:35 am

Is this held in a taxable account? How long ago did you start buying TR2045 (do you have positive gains)? Do you have access to a tax-advantaged account?

You need to know these things before you start randomly selling.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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finallysaving
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Re: Best way to convert from target date to 3 fund?

Post by finallysaving » Wed Mar 25, 2020 2:35 pm

All vtivx is in roth or trad ira

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CABob
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Re: Best way to convert from target date to 3 fund?

Post by CABob » Wed Mar 25, 2020 2:44 pm

Since this is in a tax advantaged account there would be no tax impact to make exchanges. If this is in a Vanguard account you should just start making exchanges. So I think you should just proceed with doing it.
Bob

rkhusky
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Re: Best way to convert from target date to 3 fund?

Post by rkhusky » Wed Mar 25, 2020 5:33 pm

Do you actually plan on investing in a taxable account? If not, there is no tax advantage to using a 3-fund portfolio. The only real benefit is if you don't like the asset allocation of the target date fund.

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grabiner
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Re: Best way to convert from target date to 3 fund?

Post by grabiner » Wed Mar 25, 2020 10:24 pm

rkhusky wrote:
Wed Mar 25, 2020 5:33 pm
Do you actually plan on investing in a taxable account? If not, there is no tax advantage to using a 3-fund portfolio. The only real benefit is if you don't like the asset allocation of the target date fund.
And a slight expense savings because of the lower costs of Admiral shares. TR 2045 has 0.15% expenses; the three individual funds would average to 0.06%. That is a difference of $90 annually in a $100K portfolio.

The other advantage applies if you have a non-Vanguard 401(k); you might prefer to hold some asset classes there because of better options. For example, if you have the US Government's TSP, the TSP G fund is better than anything you can get at retail, so you might want to hold all your bonds in the G fund and hold stock funds in the IRA.
Wiki David Grabiner

CoastalWinds
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Re: Best way to convert from target date to 3 fund?

Post by CoastalWinds » Wed Mar 25, 2020 10:36 pm

The target date funds are actually comprised of 4 funds, the 4th category being international bonds. There isn’t a strong consensus here that these are needed or worthwhile, so you could consider rolling that portion into TBM.

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