Rollover to Vanguard Target Funds?

[Deer Whisperer]

I have searched the threads and have a general idea but I wanted to toss out my thoughts for your comments.

I am late 40s and retired with a government pension. I have roughly 90K in a Hartford (now Mass Mutual) bond fund that I do not have an immediate need for. I am looking for a stable growth for this fund to prepare for a rainy day in the future such as a major illness. I am generally risk adverse but know I need to get out of the pure bond fund. I have been looking at the Vanguard Target retirement fund. I want to park the funds and check on it periodically.

What are your thoughts? The "target" funds balance based on your age such as 40-50 or retired. MY situation is a little unique that I am retired but don't feel I should be so conservative and select the "retired" portfolio.

Thanks in advance.

 

[audreyh1]

A lot of folks select the target fund based on the AA they would like to start with instead of their age. Why not pick an age where you think you are most likely to need the funds (OK - sure, it's a wild guess) and use that as your target date?

 

[Animorph]

Sounds like a good fit to Wellesley. Only 40% equity and a pretty steady grower.

 

[Alan]

Sounds like a good fit to Wellesley. Only 40% equity and a pretty steady grower.

Wellesley is a sizable portion of our investments, also Wellington. My IRA is in VG Target 2010 (the year we retired) and DW's IRA is in Fidelity Freedom 2010.

 

[Midpack]

Vanguard Target Funds and Wellesley are both very good quality, low expense choices, you won't go wrong with either. Choosing the target fund that corresponds with whatever date you have in mind is the no-fuss method and it isn't likely to be far off your risk tolerance.

If you haven't done it already, here's an easy way to get a sense of your risk tolerance https://personal.vanguard.com/us/FundsInvQuestionnaire.

As one of the posts above notes, that might be a better way to choose which Target fund is best suited to your needs vs choosing based on year alone which would be average risk tolerance for that age. You may be more or less risk tolerant than average. Best of luck...

 

[Alan]

As the post above notes, that might be a better way to choose which Target fund is best suited to your needs vs choosing based on year alone which would be average risk tolerance for that age. You may be more or less risk tolerant than average. Best of luck...

Exactly. Our overall AA is not the same as that of the 2010 target funds. I adjust to our desired AA using Wellesley and Wellington. So, I'm not completely armchair investor, but close to it.

 

[Deer Whisperer]

Thanks for the comments so far. I spoke to Vanguard today and I have the Rollover paperwork in hand. Right now I am set for the Target Fund 2015 with roughly a 50/50 mix. I know the beta of the portfolio might not change much but I am thinking of splitting up my transfer into equal portions of Wellington, Wellesley and Target 2015.

Midpack - Thanks for the link I have done that before but it has been a long time since I have been locked in to Hartford.

Thoughts of buying equal portions of all three funds and letting them ride.

 

[mathjak107]

for someone with limited knowledge about investing and who does not want to learn i think target date funds are..... (drum roll)

the worst way to go about it out of all the ways possible.

why? because any fund that has a disregard for what is happening in the world and strictly buys assets based on my age is nothing i want to own.

think of the target date funds now that are maturing and are approaching an investors retirement.

know what most of those assets will be in ? bonds, potentially risky bonds ,thats where . at a time you maybe should lighten up on bonds they are loading you up without any concern for where we are in the interest rate cycle.

with interest rates having no where to go but up after there 36 year bull run each 1% rise in intermediate term bond rates (not short term rates )could mean about a 5-8% loss in the fund for a retiree..


these funds are holding what i would consider to be the riskiest asset of all at this stage .unlike those of us who can switch gears and move out of bonds when the crap hits the fan the target date funds by design have no where else to go. it can be a blood bath . none of us have ever been through a long term bear bond market but with historical norms in the 5-5% range that is a possibility.


the 2nd reason i dislike them pertains to the younger investors. being generally purchased through dollar cost averaging these kinds of funds are not the best for doing that. they work much better with a lump sum then averaging in over time.


what happens is as time goes on , and as you get more and more money to invest you are buying shares at higher and higher prices as time goes on.

your money is purchasing less and less shares as prices rise. now throw in the fact the fund is cutting back equity allocations as time goes on and you can end up way more conservative then the fund was designed to be and not giving you a big enough bang for your buck.

i am not saying avoid them as they are nice simple creatures and they are still better then doing nothing . but i am saying they would be my last pick.

my first pick would be a portfolio of index funds if available that met my risk level and just rebalance once a year.

or i would prefer a good balanced fund with a fund manager who had leeway to lighten up on the longer term bonds if need be.

 

[bUU]

The flaw I see in your logic is that knowing what's going on in the world generally does not provide you the ability to know what will happen later, and when making a decision about where to put money what happens next is what is important, not what just happened.

 

[foxfirev5]

I can't get my arms around the glide pattern of the target funds. I'll stick to Wellington , Wellesley and Index funds in which I control the rebalance.

 

[samclem]

i am not saying avoid them as they are nice simple creatures and they are still better then doing nothing . but i am saying they would be my last pick.

That's an excellent reason for you to invest in something else. But these target funds will produce results better than 90% of investors will produce if left to their own devices. For someone who really doesn't want to bother with even annual rebalancing or optimizing for tax efficiency (and that is most people), these funds are great.

These funds would be even more beneficial for use by those who seek to pick the next hot sector based on what they recently heard on MSNBC, but these folks are the least likely to buy them.

 

[Alan]

That's an excellent reason for you to invest in something else. But these target funds will produce results better than 90% of investors will produce if left to their own devices. For someone who really doesn't want to bother with even annual rebalancing or optimizing for tax efficiency (and that is most people), these funds are great.

These funds would be even more beneficial for use by those who seek to pick the next hot sector based on what they recently heard on MSNBC, but these folks are the least likely to buy them.

+1

DW has zero interest in managing her own portfolio which is why I have greatly simplified our finances so that I no longer "roll my own" with a selection of funds that I re-balance annually. I still do a little re-balancing using Wellington and Wellesley, and do some ROTH conversions each year, but should I die tomorrow, I have a sheet of simple instructions on what to do with the finances, stored with our wills.

 

[mathjak107]

That's an excellent reason for you to invest in something else. But these target funds will produce results better than 90% of investors will produce if left to their own devices. For someone who really doesn't want to bother with even annual rebalancing or optimizing for tax efficiency (and that is most people), these funds are great.

These funds would be even more beneficial for use by those who seek to pick the next hot sector based on what they recently heard on MSNBC, but these folks are the least likely to buy them.

well like i said for those with no clue it is a fine way of doing it. it just would be my last choice.since most of those doing it into retirement have no clue.

the problem is really the bond issue .

like peter lynch once said , stocks will always rise and fall with higher highs and higher lows. all you need is time.

but interest rates may never go to their highs or lows again unlike stocks. peter said he would never try betting on interest rates just because there is not a very good chance time will work like it does for stocks when you reach the extremes.

for us to see these rates again we would really have to be in sad shape.

we may be in sad shape down the road but rates may never let you rebound. even reinvesting interest you can be so far behind the curve. especially if we go back to the 5-6% historical average and you lumped sum in now as a retiree..

the issue is not so bad in the early years but it is the later years like those retirees who have had these target funds convert to the income stage now