Vanguard Adding More Target Retirement Funds

[Lusitan]

Vanguard to launch five new Target Retirement Funds
Existing funds' asset allocations to be modified

Vanguard has filed a registration statement with the U.S. Securities and Exchange Commission (SEC) to add five new funds to its Target Retirement Fund series. In addition, equity allocations for the six existing Target Retirement Funds will be modified.

The new funds will feature target retirement dates at ten-year intervals—2010, 2020, 2030, 2040, and 2050—complementing the dates of the existing funds.

....

Changes to existing Target Retirement Funds' asset allocations

In addition to introducing the new funds, Vanguard will change the asset allocations of the existing Target Retirement Funds as follows:

* The funds' equity allocation paths will be modified to provide a somewhat greater exposure to equities over a longer period of time. The result will be an increase of roughly 10 to 20 percentage points per fund, depending on the target retirement date.

* Vanguard Emerging Markets Stock Index Fund will be added to each of the funds (representing roughly 1% to 2.5% of assets), further diversifying their exposure to international markets.

* Vanguard European Stock Index Fund and Pacific Stock Index Fund will be added to Target Retirement 2005 Fund and Target Retirement Income Fund. The funds will have international exposures of roughly 10% and 6%, respectively.

"While the changes in the portfolio construction will result in modestly higher risk profiles for the funds, we believe that shareholders will benefit from broader equity diversification and higher return potential," Mr. Brennan said.

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Personally I think this is a good move - the new funds allow a more targeted Target Retirement choice, and the increased stock/international diversification means I won't have to do as much tweaking around the edges for an asset allocation that I'm comfortable with ...

 

[cute fuzzy bunny]

I frickin hate it when they do this.

I bought those funds to get the asset mixes I wanted, and the transition periods I wanted. Changing them completely destroys that planning.

 

[Brat]

While I had avoided those funds because they lacked those market segments.

What I want from a target retirement fund is a diversified portfolio where the fund manager allocates investments based on opportunity and risk.  Auto pilot needs to adjust it's course as the seas ahead change.

 

[TromboneAl]

I'm waiting for the August 1, 2006 9:34 AM target retirement fund.

 

[cute fuzzy bunny]

Fair enough. I guess thems the pitfalls of crafting an asset allocation that includes autopilot funds. Sometimes the autpilot picks a different route and destination.

As discussed in another thread, I bought target retirement 2045 to get a higher asset allocation to equities today, and have that allocation hit a decent but not too heavy bond allocation by the time my wife retires and then when we reach social security age.

So much for that plan

I'm still thinking that a bill of goods sold should remain the same bill of goods. If they want something else, come up with another fund family like lifestrategy, target retirement and aggressive retirement. Guess that'd dilute the "pure and simple" appeal to the non-investor.

 

[Brat]

Actively managed funds also change cours, what you have now may be different than the fund you purchased.

 

[free4now]

It does seem stupid for them to change the risk profile of these funds.  After all, the whole idea of these funds is to manage risk... people who just want equities can buy an index fund.   Increasing the risk profile is tantamount to saying "we didn't know what we were doing before so you missed out on some gains in the past because we were too conservative".

Changing the risk profile significantly midstream surely nullifies the "set it and forget it" principle, which is what draws many people to these funds.  Now people will have to scrutinize the prospectuses every year to see what the management plan is this time.

 

[cute fuzzy bunny]

Nords and I swapped a few notes last week about complacency. Things are getting good and they've been good for a while and people are starting to lax up a bit.

Apparently vanguards customers want to buy more exciting stuff, hence the changes, and existing customers be damned.

 

[justin]

So sell 2045 and buy 2035 or something

I like the moves. It puts Vanguard's risk/return characteristics more in line with what other fund companies' target retirement-type funds have given the same time horizon.

I also like the added emerging markets allocation.

My cynical side says they are chasing past performance a bit, though. Adding more international to 2005? Adding em. mkts? Increasing stock allocation after a multi-year bull market? Hmmm...

 

[cute fuzzy bunny]

You paying the short term capital gains tax for me? At a quick glance, it'd be roughly $14,299 if I sold tomorrow.

I think i'll suck it up.

 

[justin]

No. Not unless you send me those Wellington Admiral shares.

I figured you had them in your tax deferred accounts.

 

[yakers]

While I had avoided those funds because they lacked those market segments.

What I want from a target retirement fund is a diversified portfolio where the fund manager allocates investments based on opportunity and risk. Auto pilot needs to adjust it's course as the seas ahead change.

One VG fund I like, have my Roth IRA in it, is VAAPX, the VG Asset Allocation Fund. Maybe not as diversified as you may be looking for but a good track record and lower volitility than a TSM index.

 

[Outtahere]

Oh sure, just when I'm ready to open a Vanguard account they go and change things. (sigh)

 

[Nords]

Oh sure, just when I'm ready to open a Vanguard account they go and change things. (sigh)

I think I've fixed that problem. I'll never open a Vanguard account.

 

[setab]

Nords,

Any particular reason?

setab

 

[Nords]

Any particular reason?

It's old news and nothing juicy anymore, but I was scared off by the Dee Dee Havens complaint. The comments about shredding IRA beneficiary agreements was particularly alarming.

When I realized that Vanguard wasn't handling the customer demand very well I found no reason to move there. I can only imagine trying to correct a Roth IRA conversion snafu with Vanguard, but Fidelity has made it painless. (They even retroactively removed a Roth contribution when I got a few bucks ahead of myself.) It's easier to get the freebies if you consolidate accounts at one place, too, so we chose Fidelity.

Since the Havens complaint was settled (I'm presuming it was settled, but I don't know for sure) I haven't heard anything about Vanguard's pursuit of the J.D. Powers Customer Satisfaction or Baldridge awards, so I'm guessing that they still care as much about their customers today as they did two years ago.

Fidelity's great for a DIY investor-- low rates, robust website, they leave me alone-- but it's not for everyone. The whole Ned/Abby Johnson succession spat is a distracting three-ring circus, as is their slavering pursuit of 401(k) fees. They absolutely refuse to be custodians for a minor's IRA, too, which might drive us over to T. Rowe Price for a few years. But the kid'll be back as soon as we can consolidate her account with ours under one happy household.

 

[Ed_The_Gypsy]

Nords,

Thanks for the Havens Complaint link! This is Vanguard? I had heard that their customer service was being mistreated and was low in morale, but this is new data. I have been recommending Vanguard especially for their automatic RMD calculations. The survivorship thing chills me.

So Fidelity is more reliable in this capacity? I may have to change horses here soon, Slim. I, too, am totally do-it-yourself, but I can't do it after I cross the bar, as the old hymn says.

 

[cute fuzzy bunny]

I hear the service is better with the voyager and flagship accounts, but I havent really had anything go wrong, just basic questions. That nothings gone wrong in about 7 years with a 401k rollover to an IRA, regular and joint accounts, Roths and so forth is pretty ok. Their web site has some weirdities every now and then but nothing fatal.

The real test of a company though is how long between major #$^%# ups and how well they handle them when they happen. My insurance company is testing these grounds by screwing up everything I've gotten from them over the last six months and meandering through fixes.

 

[justin]

I read through most of the Dee Dee Haven complaint. Doesn't seem too bad. Ms. Haven obviously has a vendetta against Vanguard for things other than those she listed in the complaint. Their treatment of her sexual harrassment claim for one. Ms. Haven probably put the worst-possible spin on all of the "facts" she presented.

What does the complaint tell us? Vanguard made errors in processing important transactions. Most errors were eventually fixed. Occasionally errors were blamed on clients when, in fact, Vanguard was at fault. Vanguard provides better, more reliable and personalized service to its High Net Worth clients (Voyager and Flagship) with assets under management of $250,000 or greater. Some high net worth clients were internally identified as targets for marketing of Vanguard products. Vanguard marketed towards these targets.

Assuming all facts as stated in the Haven complaint are true, it doesn't seem that much different from what I expect happens at most other companies (fidelity included). They are acting like a business.

 

[setab]

I appreciate all the candid responses. It helps me make a more informed decision.

setab

 

[Lusitan]

Yeah, I have to say that all of the customer service interaction I've had with Vanguard has been just as good, or better, than any other financial institution. I'm sure screw-ups happen everywhere (whether we find out about them or not) and Vanguard isn't perfect, but it's the best of the financial companies that I've dealt with.

As for the asset allocations changing ... yeah, I see the point about those who bought in the Target Retirement funds with the idea of a specific asset allocation plan not being happy with a shift in that plan. It's good for those who are getting in now, or those who like the asset allocation shift, but maybe they should have left the funds as-is and just added a new option ...

Anyway, I'll have to take a fresh look at all of the asset allocation plans for the revamped existing Target funds and the new Target funds to see how I'll proceed.

 

[saluki9]

Even before I reached the Voyager level at Vanguard I was always very happy with their service. Everybody I've talked to has gone above and beyond what I have expected.

One time we had a problem here in the office with our 401(k) (with Vanguard) and the support guy was talking to actually went through a 30 page statements and reconciled our figures (AND ACTUALLY CALLED BACK!!!!) We were very impressed.

Concerning the Target Retirement Funds. I think Vanguard basically gave in because the WSJ and other members of the financial media kept harping on how conservative their allocations were.

 

[cute fuzzy bunny]

One other point mentioned was 'marketing' to customers. Nobody has ever called me from vanguard or mailed me anything to try to sell me anything...even though my 'consolidated view' shows considerable assets that are not in vanguard.

I rolled my 401k to them when it was below the voyager level, and owned a five figure amount of funds with them 5+ years ago. No problems. At voyager level I got questions answered on the phone fast and emails responded to within a few hours. At flagship level I have a named guy I can email or call directly, and he has a backup person. The one question I asked him via email was answered thoroughly in about an hour.

but like I said, until something bad happens and you get to see how well its handled, you dont really know...

This allocation change still bugs me though. While as noted many funds change allocations, its not typical for a large cap value fund to start buying small cap growth...yeah...I know fund style drift happens all the time. and inexperienced investors probably wont know the difference.

I remember they did something like this a couple of years ago, I think it was changing the short term corporate bond fund to be able to buy other kinds of bonds besides short term corporates...now...what are the odds that if I wanted to own bonds that arent short term corporates that I'd have bought a short term corp bond fund? :

 

[free4now]

That Dee Dee Havens complaint was interesting reading. But I have to agree that it isn't particularly shocking... it sounds just like a negative spin on the running of a normal corporation. Management doesn't devote resources to things that don't make money, so it's sad but not surprising that they didn't do better at keeping track of the beneficiary info.

I just signed up for a Vanguard account and I filled in the beneficiary info electronically over the web, so it should get stored away in the same database as the rest of my account info that they need to make money.