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Target Funds?
Old 10-01-2012, 08:40 PM   #1
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Target Funds?

So, to avoid having to think too much about where I'm investing retirement funds, my 401K contributions have been going to the Vanguard Target Fund 2045. Even though I'd actually like to retire closer to 2038. I guess I didn't want to be too conservative. I'm 33.

Should I:

1. Stay with the current target fund

2. Move to the target fund that more closely resembles the year I think I can retire.

3. Get out of target funds and devise some other appropriate mix of funds.
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Old 10-01-2012, 08:45 PM   #2
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My wife & I have some funds in Vanguard's Target Retirement funds. We each have Roth IRA's in Target 2015, and she has some rollover 401k money in the 2015 fund as well. I'm 54 3/4, and she's 52. I'm retiring next year, and she's retiring in 3 yrs. I sometimes wonder if we're being too conservative, too. Personally, I think you're probably doing ok. At 33, you can, and should be a bit risky.
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Old 10-01-2012, 10:45 PM   #3
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Pick a target fund that has the stock:bond ratio that you want. Do NOT use a year to select your TR fund.
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Old 10-01-2012, 10:46 PM   #4
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You can pick any year you want, so to speak. They will mainly differ in the amount of bonds they hold. I'm retired and nominally 100% equities, so if I was going to buy a target date fund I'd like 2090 or something like that.

Vanguard creates their target date funds from a simple mix of three Vanguard funds. You can duplicate that if you have those funds in your 401k, or create your own mix, or suppliment the standard mix. The target date fund is a good start and very simple. Move to the separate funds if you want to do something different and don't mind at least doing a yearly rebalance of all your funds.
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Old 10-02-2012, 12:11 AM   #5
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I'd recommend you leave the money right where it is until you figure out what your asset allocation ought to be. Once you've done the reading and thinking on that issue, you'll know if, by chance, the VGD Target 2045 is right for you (if it's got the appropriate asset allocation). If you'd rather not go to the trouble of doing the reading and cogitating, then you should probably just leave the money in Tgt 2045. You'll probably wind up way ahead of most individual investors if you do.
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Old 10-02-2012, 03:56 AM   #6
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i have never been a fan of target funds for two reasons.

one reason is they arent the best vehicle for dollar cost averaging into over long periods of time.

since stocks rise over time and since they are cutting back allocations just at the same time your money is buying less and less shares the results are usually a lot more conservative mix then you think you are getting.

reason number 2 is my big one. its not going to end well for all these folks in these target funds that are close to or in retirement.

loading folks up with bonds at the low because of just age regardless of whats happening out there is a recipe for disaster.

just watch what happens when longer term rates start to rise and these folks watch 8-10% of their savings evaporate because these funds are so heavily weighted in bonds .

most folks have never seen a bear market for bonds since the last 30 years have seen them always rise. there will be alot of panic in that arena is my opinion.


while the human capital part of the equation is true i have never been big on age based investing.

after all what good is loading up a 25 year old with equities and then they dont have the pucker factor to stay put in down turns and bail each time losing money.

on the other hand even a 65 year old has long term money that wont be used to eat for 30 years. there is nothing wrong with some conservative equity investments as long as you leave at least a 15 year window for time to heal all.


first criteria on my list of how to allocate is not age its pucker factor. you would think 2008-2009 would have taught wall street age based allocations are not the best way to do things.
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Old 10-02-2012, 06:47 AM   #7
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Originally Posted by mathjak107 View Post

most folks have never seen a bear market for bonds since the last 30 years have seen them always rise. there will be alot of panic in that arena is my opinion.

after all what good is loading up a 25 year old with equities and then they dont have the pucker factor to stay put in down turns and bail each time losing money.

first criteria on my list of how to allocate is not age its pucker factor. you would think 2008-2009 would have taught wall street age based allocations are not the best way to do things.
So in a 401k plan where you have limited choices, where should a 33 year old put their money today? By and large, most people don't have the pucker factor when things go bad.
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Old 10-02-2012, 07:43 AM   #8
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just watch what happens when longer term rates start to rise and these folks watch 8-10% of their savings evaporate because these funds are so heavily weighted in bonds .
Yes, they may initially lose 8-10% of their savings, but they will recover in about 5 years as higher interest rates offset the capital loses. Unlike stocks where the losses may be permanent. If you are not heavily weighted in bonds going into retirement, you're either in Cash or Stocks. And these are not good alternatives. Staying the course is part of a good retirement plan as well as diversification.
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Old 10-02-2012, 07:44 AM   #9
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it would take alot more info and analysis of the persons goals and risk level as well as whats avail to them to answer that question.
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Old 10-02-2012, 07:47 AM   #10
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Yes, they may initially lose 8-10% of their savings, but they will recover in about 5 years as higher interest rates offset the capital loses. Unlike stocks where the losses may be permanent. If you are not heavily weighted in bonds going into retirement, you're either in Cash or Stocks. And these are not good alternatives. Staying the course is part of a good retirement plan as well as diversification.
not a blanket statement that can be made on anything but treasuries . any time credit rating and credit risk is a part of the equation all bets are off as far as a funds duration..

many target funds own a hodge podge of different levels of ratings . all bets are off as far as the duration of the bond part .

the lower down on the rating scale the less interest rate sensitive and the more market sensitive things become.

case in point is 2008-2009 where treasuries soared vs corporates were down. both looked at the same interest rate levels but there was a very different outcome .
duration only works when there is only interest rate risk and no other parameters.
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Old 10-02-2012, 08:04 AM   #11
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So, to avoid having to think too much about where I'm investing retirement funds, my 401K contributions have been going to the Vanguard Target Fund 2045. Even though I'd actually like to retire closer to 2038. I guess I didn't want to be too conservative. I'm 33.

Should I:

1. Stay with the current target fund

2. Move to the target fund that more closely resembles the year I think I can retire.

3. Get out of target funds and devise some other appropriate mix of funds.
Not much difference between 2045 and 2035 in terms of target fund allocations. If you want a low maintenance investment portfolio this is a good option.
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Old 10-02-2012, 08:47 AM   #12
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Pick a target fund that has the stock:bond ratio that you want. Do NOT use a year to select your TR fund.
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Not much difference between 2045 and 2035 in terms of target fund allocations. If you want a low maintenance investment portfolio this is a good option.
This is what we have done for the last few years with our IRA's.
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