"Strategy fund" expenses - double dipping?

[Rich_in_Tampa]

The so-called life strategy funds seem logical to me but I can't help but wonder if they don't ding you twice for expenses.

For example, the Vanguard 2025 fund has an expense ratio of .2%. It consists solely of other Vanguard funds which each have their own expense ratios, such as .27% for the Vanguard European Fund. So you seem to be paying .2% + .27%, or .47% expense ratio - rather high for a Vanguard index type fund.

For just a little effort on your own to buy and adjust comparable index funds annually, you cut your expenses in half. Plus you can fine tune your distributions as you see fit, fund by fund.

So what am I missing? Is the "set it and forget it" aspect worth doubling your expenses?

[cute fuzzy bunny]

I dont think that you pay the fees on the underlying funds, just on the one strategy fund you buy.

Then they also do the rebalancing for you.

[cute fuzzy bunny]

"According to an agreement between the Target Retirement Funds and Vanguard, the
Funds’ expenses will be offset by a reimbursement from Vanguard for (1) the Funds’
contributions to the costs of operating the underlying Vanguard funds in which the Target
Retirement Funds invest, and (2) certain savings in administrative and marketing costs that
Vanguard expects to derive from the Funds’ operation.
The Funds’ trustees believe that the reimbursements should be sufficient to offset most,
if not all, of the expenses incurred by the Funds. As a result, each Fund is expected to
operate at a very low or zero expense ratio. Since their inception in 2003, the Funds, in fact,
have incurred no direct net expenses.

Although the Target Retirement Funds are not expected to incur any net expenses
directly, the Funds’ shareholders indirectly bear the expenses of the underlying Vanguard
funds. The expense ratios for the Investor Shares of each of the underlying funds during"

[Rich_in_Tampa]

Originally Posted by Cute n' Fuzzy Bunny

"According to an agreement between the Target Retirement Funds and Vanguard, the Funds’ expenses will be offset by a reimbursement from Vanguard for (1) the Funds’ contributions to the costs of operating the underlying Vanguard funds in which the Target Retirement Funds invest, and (2) certain savings in administrative and marketing costs that Vanguard expects to derive from the Funds’ operation.The Funds’ trustees believe that the reimbursements should be sufficient to offset most, if not all, of the expenses incurred by the Funds. As a result, each Fund is expected tooperate at a very low or zero expense ratio. Since their inception in 2003, the Funds, in fact, have incurred no direct net expenses. Although the Target Retirement Funds are not expected to incur any net expenses directly, the Funds’ shareholders indirectly bear the expenses of the underlying Vanguard funds...

Hmmm ... they list an expense ratio of .2% for the target fund, as noted in my original post - I can only assume this represents the weighted expenses of the underlying funds they invest in, then.

[cute fuzzy bunny]

Thats how I read it. Looks like they charge nothing directly for the overarching fund and dont plan to, although its not completely out of the question, and what they do charge is a weighted expense average, perhaps with some downward adjustment since the target retirements 'purchase' of the underlying funds in bulk may constitute some sort of 'institutional' share holding that will not vary greatly from one year to the next.

Of course, i've seen people do in-depth analysis of actual fund expenses including trading costs and whatnot, and the results were really eye opening. I'm not sure I've seen that done for vanguards funds, particularly these funds of funds of indexes of buckets of stocks...