Targeted retirement funds - I don't get it.

[HBH]

In helping my retiring sister with her retirement financial plans, many posters recommended the use of a single targeted retirement fund, such as the Vanguard Target Retirement Fund 2005.

I understand the value of a targeted retirement fund for someone in their 30's, 40's, or even 50's. The fund starts out aggressive, and as they age, the fund automatically gets more conservative.

But, for someone AT retirment, I don't understand why such a fund would be better than any other conservative allocation fund, such as Vanguard Wellington (ignoring the difference that this targeted fund uses indexes while Wellington is active).

The Vanguard Target Retirement Fund 2005 fund won't be changing it's allocation much anymore, so wouldn't it behave just like a conservative allocation fund?

Thanks for everyone's help!

HBH

 

[Spanky]

It's really up to you. Wellington or Dodge and Cox balanced have performance similar to that of S&P500 with half the volatility. I think their mix is 60/40 (stock/fixed income) as opposed to the target funds that change the allocation based on time. It's appropriate for someone who wants to have less exposure to stocks as he/she ages.

 

[Brat]

Where can I see the total return over a period I designate on tartet retirement funds? If the 2005 target fund only returned 4-5% I wouldn't be interested, but if it returned 8% I would.

 

[cute fuzzy bunny]

Wellington at 60-65% equities wouldnt really be considered a 'conservative' fund, but Wellesley at 35/65 does.

Your point is well made...for someone very close to retirement, wellesley, target retirement income, or lifestrategy income are all decent choices with low costs. Or split some money between 2 or three of them, as they work a little differently internally.

But lets look at another approach. Perhaps for someone retiring in 2005 would like a little more upside, feels good about equities and wouldnt mind a little more volatility. They could pick 2015 and let it dial down for them.

We're in 2045 for part of our portfolio although we're 44. I want a little more equity exposure even when we're in our 60's and up.

 

[Brat]

Right now my profile is:
Domestic Stocks 34.70% 
Foreign Stocks 21.78%
Bonds 24.03%
Short-term cash and bonds 17.16% 

In
DODGE & COX BALANCE     
FIDELITY CANADA     
MATTHEWS ASIAN GROWTH & INCOME FUND     
MATTHEWS INDIA FUND     
OAKMARK EQUITY & INCOME
OAKMARK GLOBAL FUND
TIPS and Money Market

The net result is pretty steady-edie, but sometimes I wonder if it would be better to let another manager drive as I age.

 

[Spanky]

Brat,

If you are happy with the result of your holdings, why switch? I have a lot more funds than you do because I like to more control over allocation. It remains to be seen if having a slice-and-dice approach is better than a simple one of holding one or two balanced or freedom funds.

 

[Gone4Good]

The Vanguard 2005 fund is probably not much better than other conservative equity income funds.  I think it has two primary purposes;  1) As a final repository for those who invest in the longer-dated life cycle funds  2) a marketing gimmick.  The Wellesley fund does not shout "Hey current retirees, this fund is tailor made for YOU!" the way that "Target Retirement 2005" does.

I think the "in-retirement" life cycle funds at other shops (Fidelity for example) do offer incremental one-stop diversification.  The Fidelity fund has small allocations to international equities and high-yield bonds.  Even Vanguard 2005 has a pretty healthy slug of inflation protected treasuries, which could prove to be a very important addition given the heavy fixed income allocation.

 

[unclemick]

Hmmm - age 62 - at twelve years into ER

early SS plus non cola pension - 38% of income projected in 2006.

Norwegian widow divs - now down to 8%

The rest from Vanguard Target Retirement 2015 trad IRA

Put a small amount in Roth Vanguard Lifestrategy mod - in case I don't croak in 22.6 years.

More than one way to skin a cat.

As long as you apply common sense - work the solution for that person that fits their comort zone.

heh heh heh - boy am going to get hosed on taxes (single) compared to prior years.