Why not target retirement fund?

laurence · 07-01-2008, 07:13 PM

So my company switched 401k providers, and one of the fund choices is Vanguard's target retirement plans. I've heard some tepid endorsement of these plans here, and frankly I'm tempted to just move everything over into TR 2035 and let it ride. Other than stock picking testosterone reasons, can someone give me a reason I wouldn't want to do that? My feeling is that since the international and small cap choices I have in my plan are more expensive (expense ratio) than I'd like, this is the way to go. Am I missing anything?

unclemick · 07-01-2008, 07:27 PM

Quote:

Originally Posted by laurencewill

So my company switched 401k providers, and one of the fund choices is Vanguard's target retirement plans. I've heard some tepid endorsement of these plans here, and frankly I'm tempted to just move everything over into TR 2035 and let it ride. Other than stock picking testosterone reasons, can someone give me a reason I wouldn't want to do that? My feeling is that since the international and small cap choices I have in my plan are more expensive (expense ratio) than I'd like, this is the way to go. Am I missing anything?

No.

Well yes - think of all the hormone driven future mistakes you are going to miss out on.

1966 -2006 of thrills, chills, BRIEF flashes of victory, reading BOOKS!, buying past performance in active funds, rebalancing/slice and dice and a host of er other educational fee's - I summed up my past forty years of performance by putting 100% of my real money aka retirement money in Target Retirement 2015.

Now since I have a monkey on my back - er drug, no I mean hormone problem - I have a few individual stocks

. I also try to watch football in season.

If you do Target Series - you are gonna be bored and probably way better off financially.

Dawg54 · 07-01-2008, 07:48 PM

Your missing nothing in my opinion. I think they are a great 401k choice. They were very popular with my old company.

JB · 07-01-2008, 07:50 PM

The only concern with these is that if you are planning to retire very young the asset allocation may be too conservative as you approach retirement.

Rich_in_Tampa · 07-01-2008, 08:10 PM

Laurence, I think the target funds are just fine at your phase of life. There are issues as you approach retirement that are problematic (like constructing withdrawals) but that's along way off.

Scott Burns ('Spend til the End') points out some issues with the whole concept of creeping toward bonds as you age, but for your purpose it seems pretty petty to me. So, it's a reasonable set-it-and-forget-it in your situation.

clifp · 07-01-2008, 08:18 PM

I think it is horrible idea.

Think of all the fascinating debates about asset allocation, individual stock picking, index vs managed mutual funds you'd be missing out on.

Target retirement funds are so boring...

samclem · 07-01-2008, 08:21 PM

I think the Vanguard target funds are fine. Here are the only quibble points:
-- If you want a small/value tilt, or any other allocation that differs slightly from the Vanguard allocations, you might want to own an additional fund or two in order to accomplish that.
-- Total portfolio tax optimization. If all your $$ is in retirement accounts, then this isn't an issue. OTOH, if you've got some in regular accounts and others in tax advantaged accounts, the traditional approach has been to look across your portfolio and concentrate the items that produce "regular" income (e.g. bonds, stocks paying high dividends) in your tax-advantaged accounts, and hold funds likely to generate higher rates of cap gains (growth stocks, etc) in your non-tax advantaged accounts. If everything is held together in a target Retirement fund, you can't do this. However, this may become less of an issue if cap gains tax rates get closer to regular income tax rates.

Again, these are small points.

DblDoc · 07-01-2008, 09:13 PM

Nothing wrong with it at all. If you really want more international and/or small value exposure consider doing so in a taxable account. Your choices will then include lower cost options and you can potentially take advantage of the foreign tax credit as well as tax loss harvesting depending on your tax situation.

DD

laurence · 07-01-2008, 10:20 PM

Our current strategy involves only retirement accounts (401k, SEP IRA for DW, Roth & Standard IRA for me) with excess cash going to the principle on the house. We are going to have the house paid off in 9.5 years when I will be 43 and the plan is for me to retire at 55, 21.5 years from now. I was going to use the Target Retirement 2035 for now. I won't have to touch my 401k right away because my small, non-cola pension should cover the first few years of retirement with help from after tax accounts I will have put together from 43 to 55.

If I wanted to tilt international/small value, and my 401(k) represented about 60% of the total portfolio, how might you allocate the remaining 40%?

RockOn · 07-01-2008, 10:30 PM

It seems like a good idea if you are so inclined. Now what about if you are already retired? Is there a target fund for that?

Notmuchlonger · 07-01-2008, 10:34 PM

Quote:

Originally Posted by RockOn

It seems like a good idea if you are so inclined. Now what about if you are already retired? Is there a target fund for that?

From what I gather they keep moving you to a more conservative aa based on your age. Id rather just do the work myself and save a bit of expense ratio. But to each their own..

bbbamI · 07-01-2008, 10:38 PM

Quote:

Originally Posted by RockOn

It seems like a good idea if you are so inclined. Now what about if you are already retired? Is there a target fund for that?

Yes...check out unclemick.

DblDoc · 07-01-2008, 10:46 PM

Quote:

Originally Posted by RockOn

It seems like a good idea if you are so inclined. Now what about if you are already retired? Is there a target fund for that?

Yup. Vanguards Target Retirement 2005 fund. https://personal.vanguard.com/us/fun...FundIntExt=INT

About 40% stocks to 60% bonds and rebalanced to that by the fine folks at Vanguard. Just don't put it into a taxable account.

DD

DblDoc · 07-01-2008, 11:00 PM

Quote:

Originally Posted by laurencewill

Our current strategy involves only retirement accounts (401k, SEP IRA for DW, Roth & Standard IRA for me) with excess cash going to the principle on the house. We are going to have the house paid off in 9.5 years when I will be 43 and the plan is for me to retire at 55, 21.5 years from now. I was going to use the Target Retirement 2035 for now. I won't have to touch my 401k right away because my small, non-cola pension should cover the first few years of retirement with help from after tax accounts I will have put together from 43 to 55.

If I wanted to tilt international/small value, and my 401(k) represented about 60% of the total portfolio, how might you allocate the remaining 40%?

Well if you can find room for a good bond fund in your tax protected space then flesh out the 40% taxable with Total Stock Market, International and Small Cap Value to the proportion needed to meet your overall AA. For instance say you wanted 10% more international exposure then your target fund provides. You would put that in the taxable and the balance, 30%, would then be TSM. You need to balance out the stock:bond portion if at all possible in your tax deferred space though which is why I mentioned a reasonably priced option either in your 401k or IRA(s)

DD

samclem · 07-01-2008, 11:06 PM

Quote:

Originally Posted by laurencewill

If I wanted to tilt international/small value, and my 401(k) represented about 60% of the total portfolio, how might you allocate the remaining 40%?

Vanguard Tax Managed Small Cap (VTMSX) is a good place to start. The costs are low (ER of .13%), and they attempt to minimize your tax impact, which might be important to you. The average market cap isn't particularly small (1.3Billion, which matches the S&P Small Cap 600 index in size). So, if you want smaller companies, you'll have to look somewhere else. I own some of this.

Also:
Vanguard Value Index Fund (VIVAX) if you want value stocks in companies that that are on the big side, with a low ER (.2%)

Vanguard Mid Cap Value Index (VMVIX) same as above, slightly smaller companies.

And, if you want to get some more foreign exposure while tilting to value, consider Vanguard Intl Value (VTRIX). It has a .43% ER, which isn't bad for an international fund.

There may be better picks out there. As you can tell, these are some rather dull picks. I go with the simple, low-cost approach.

DangerMouse · 07-01-2008, 11:27 PM

DH and I both have our 401ks in Target Funds with Fidelity. His is 2030 and mine is 2035 even though I am semi-retiring next week and he is likely to pull the plug next year. We figure by pushing out the target fund retirement date we will not be too conservative.

CitricAcid · 07-02-2008, 09:03 AM

I really like the ideas of these because they simplify a lot of the process for the laymen (not that we aren't laymen), but for me I have an absolutely stupid reason to not want to use one, as has been stated above. I like to completely control my AA, by picking the types of bonds, stocks, value, index, growth, actively managed, international, domestic, etc., etc. that I prefer. I also like to set my own path in that sense, but I seriously see nothing wrong with these, except if you're retiring early enough, choose a retirement fund that is targetted for about 5 years after you actually plan on retiring so you make sure to attempt to maintain agressive growth.

**ziggy29** · 07-02-2008, 09:05 AM

I think much of the "resistance" you hear to these is that many of us are more hands-on with our portfolios and like to be in control. Many of us prefer to control and fine-tune our own asset allocations.

For other people who want to "set it and forget it" -- people who have no desire or inclination to manage their portfolios -- I think they are a great tool. I just don't think most of us in this board are in that camp.

maddythebeagle · 07-02-2008, 09:34 AM

The index funds in my work plan are cheaper than the TR and I prefer more small cap since my taxable investments are more larger cap...market segments that I cant get, I add to my roth...

laurence · 07-02-2008, 10:12 AM

Thanks for all the input. I get all the testosterone fix I need making house repairs, and I just can't put together a good portfolio with the choices in my 401k without having a high expense ratio (international funds are all well north of 1% expense, for example) or going actively managed (small cap has no index choices). So I'm going to do the Target Retirement for the 401k and move the IRA funds into some Vanguard value/international/small funds like the ones mentioned above. Thanks everyone.

07-01-2008, 07:13 PM	#1
laurence Moderator Emeritus Join Date: Feb 2005 Location: San Diego Posts: 4,788	Why not target retirement fund? So my company switched 401k providers, and one of the fund choices is Vanguard's target retirement plans. I've heard some tepid endorsement of these plans here, and frankly I'm tempted to just move everything over into TR 2035 and let it ride. Other than stock picking testosterone reasons, can someone give me a reason I wouldn't want to do that? My feeling is that since the international and small cap choices I have in my plan are more expensive (expense ratio) than I'd like, this is the way to go. Am I missing anything?

07-01-2008, 07:48 PM	#3
Dawg54 Thinks s/he gets paid by the post Join Date: Feb 2005 Location: Mississippi Posts: 3,225	Your missing nothing in my opinion. I think they are a great 401k choice. They were very popular with my old company. __________________ The born loser.

07-01-2008, 08:10 PM	#5
Rich_in_Tampa Moderator Emeritus Join Date: Feb 2006 Location: Tampa Posts: 5,877	Laurence, I think the target funds are just fine at your phase of life. There are issues as you approach retirement that are problematic (like constructing withdrawals) but that's along way off. Scott Burns ('Spend til the End') points out some issues with the whole concept of creeping toward bonds as you age, but for your purpose it seems pretty petty to me. So, it's a reasonable set-it-and-forget-it in your situation. __________________ Rich Tampa, FL (10% retired) As if you didn't know..If the above message happens to contain medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any medical purpose whatsoever. Consult your own doctor for all medical advice.

07-01-2008, 08:21 PM	#7
samclem Thinks s/he gets paid by the post Join Date: May 2004 Posts: 3,006	I think the Vanguard target funds are fine. Here are the only quibble points: -- If you want a small/value tilt, or any other allocation that differs slightly from the Vanguard allocations, you might want to own an additional fund or two in order to accomplish that. -- Total portfolio tax optimization. If all your $$ is in retirement accounts, then this isn't an issue. OTOH, if you've got some in regular accounts and others in tax advantaged accounts, the traditional approach has been to look across your portfolio and concentrate the items that produce "regular" income (e.g. bonds, stocks paying high dividends) in your tax-advantaged accounts, and hold funds likely to generate higher rates of cap gains (growth stocks, etc) in your non-tax advantaged accounts. If everything is held together in a target Retirement fund, you can't do this. However, this may become less of an issue if cap gains tax rates get closer to regular income tax rates. Again, these are small points. __________________ "Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein

07-01-2008, 11:27 PM	#16
DangerMouse Full time employment: Posting here. Join Date: Jan 2007 Location: So. Cal. Posts: 628	DH and I both have our 401ks in Target Funds with Fidelity. His is 2030 and mine is 2035 even though I am semi-retiring next week and he is likely to pull the plug next year. We figure by pushing out the target fund retirement date we will not be too conservative. __________________ I be a girl, he's a boy. Semi-FIRED July 08. Mid 40s, no kidlets.

07-01-2008, 07:50 PM	#4
JB Full time employment: Posting here. Join Date: Apr 2005 Posts: 524	The only concern with these is that if you are planning to retire very young the asset allocation may be too conservative as you approach retirement.

07-01-2008, 08:18 PM	#6
clifp Thinks s/he gets paid by the post Join Date: Oct 2006 Posts: 2,164	I think it is horrible idea. Think of all the fascinating debates about asset allocation, individual stock picking, index vs managed mutual funds you'd be missing out on. Target retirement funds are so boring...

07-01-2008, 09:13 PM	#8
DblDoc Recycles dryer sheets Join Date: Aug 2007 Posts: 464	Nothing wrong with it at all. If you really want more international and/or small value exposure consider doing so in a taxable account. Your choices will then include lower cost options and you can potentially take advantage of the foreign tax credit as well as tax loss harvesting depending on your tax situation. DD

07-01-2008, 10:20 PM	#9
laurence Moderator Emeritus Join Date: Feb 2005 Location: San Diego Posts: 4,788	Our current strategy involves only retirement accounts (401k, SEP IRA for DW, Roth & Standard IRA for me) with excess cash going to the principle on the house. We are going to have the house paid off in 9.5 years when I will be 43 and the plan is for me to retire at 55, 21.5 years from now. I was going to use the Target Retirement 2035 for now. I won't have to touch my 401k right away because my small, non-cola pension should cover the first few years of retirement with help from after tax accounts I will have put together from 43 to 55. If I wanted to tilt international/small value, and my 401(k) represented about 60% of the total portfolio, how might you allocate the remaining 40%?

07-01-2008, 10:30 PM	#10
RockOn Full time employment: Posting here. Join Date: Jan 2008 Posts: 798	It seems like a good idea if you are so inclined. Now what about if you are already retired? Is there a target fund for that?

07-02-2008, 09:03 AM	#17
CitricAcid Full time employment: Posting here. Join Date: May 2008 Posts: 546	I really like the ideas of these because they simplify a lot of the process for the laymen (not that we aren't laymen), but for me I have an absolutely stupid reason to not want to use one, as has been stated above. I like to completely control my AA, by picking the types of bonds, stocks, value, index, growth, actively managed, international, domestic, etc., etc. that I prefer. I also like to set my own path in that sense, but I seriously see nothing wrong with these, except if you're retiring early enough, choose a retirement fund that is targetted for about 5 years after you actually plan on retiring so you make sure to attempt to maintain agressive growth.

07-02-2008, 09:05 AM	#18
ziggy29 Moderator Join Date: Oct 2005 Location: Texas Hill Country Posts: 2,391	I think much of the "resistance" you hear to these is that many of us are more hands-on with our portfolios and like to be in control. Many of us prefer to control and fine-tune our own asset allocations. For other people who want to "set it and forget it" -- people who have no desire or inclination to manage their portfolios -- I think they are a great tool. I just don't think most of us in this board are in that camp. __________________ FIRE Clock: Retired. Since it feels like I'll never be now. waiting for the government to privatize the gains and socialize my losses in my 401K...

07-02-2008, 09:34 AM	#19
maddythebeagle Thinks s/he gets paid by the post Join Date: Jun 2005 Posts: 2,440	The index funds in my work plan are cheaper than the TR and I prefer more small cap since my taxable investments are more larger cap...market segments that I cant get, I add to my roth... __________________ - Hurry! to the cliffs of insanity!

07-02-2008, 10:12 AM	#20
laurence Moderator Emeritus Join Date: Feb 2005 Location: San Diego Posts: 4,788	Thanks for all the input. I get all the testosterone fix I need making house repairs, and I just can't put together a good portfolio with the choices in my 401k without having a high expense ratio (international funds are all well north of 1% expense, for example) or going actively managed (small cap has no index choices). So I'm going to do the Target Retirement for the 401k and move the IRA funds into some Vanguard value/international/small funds like the ones mentioned above. Thanks everyone.

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