Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Target Date Funds or Lifestyle Funds
Old 12-03-2015, 12:39 PM   #1
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 345
Target Date Funds or Lifestyle Funds

Most investment places offer funds that have a target retirement date.

As an example- a 2040 Target fund contains:

63% Equity Index Fund
21% International Equity Index Fund
11% Bond Index Fund
5% Emerging Market Index Fund

2040 fund claims an Expense ratio of 0.2%

Not bad. But when I look at the funds that it contains-

Equity Index Fund .36%
International Equity Index Fund .83%
Bond Index Fund .62%
Emerging Market Index Fund .64%

I assume that the .2% is on top of everything else?

Simple question- Does this create a 0.2% charge for looking at one number instead of 4 numbers?
__________________

__________________
Clone is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-03-2015, 01:06 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
No

From annual report, page 4
https://personal.vanguard.com/us/fun...FundIntExt=INT

Quote:
The fund expense figures shown—drawn from the prospectus dated January 27, 2015—represent an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the ”acquired” funds) in which the Target Retirement Funds invest. The Target Retirement Funds do not charge any expenses or fees of their own.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 12-03-2015, 01:14 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Simple answer: It depends on the fund. One has to read the prospectus to figure this out.

Certainly for Vanguard and Fidelity funds, the reported expense ratio for the fund of funds already includes the underlying fund expenses, so that is all that one pays. Other fund families may be different. Read the prospectus.

The expense ratios for the index funds reported by the original poster are rather on the high side, aren't they? So the OP is not writing about a Vanguard fund anyways.
__________________
LOL! is offline   Reply With Quote
Old 12-03-2015, 01:21 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
LOL!, you are correct... I didn't read the OP carefully enough and thought the OP was referring to the Vanguard 2040 Target Retirement Fund but from the composition it clearly is not the Vanguard fund... in which case the OP needs to look at the prospectus or annual report.

From my reading of the Vanguard fund prospectus it was not clear but it was clearer in the annual report. Or the OP could always call the fund administrator and ask.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 12-03-2015, 02:07 PM   #5
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 345
What I listed in the original post is not Vanguard. It is a TIAA-CREF fund. There is a similar Fidelity fund, and a similar Vanguard fund. I am sure other companies have similar funds as well.

OK, lets look at the Vanguard 2040 Fund: Expense Ratio 0.18%

54% Vanguard Total Stock Market Index Fun Investor Shares Exp Ratio 0.17%
35% Vanguard Total International Stock Index Fund Investor Shares Exp Ratio 0.22%
7.6% Vanguard Total Bond Market II Index Fund Investor Shares (could not find this fund)

Is the 0.18% exp ratio on top of the expense ratios in the mix?

These 'dated' funds are often held up as an alternative to a simple 3 fund allocation. I am trying to figure out if there is a premium associated with buying the '2040' type fund vs buying 3 separate funds.

I was looking through assorted offerings, and decided to dig deeper into these targeted funds. One of the themes of value investing is to understand expense ratios. What I am seeing is that bundling funds with a higher expense ratio under a new name, and then claiming to have a lower expense ratio for the bundle, can be misleading.
__________________
Clone is offline   Reply With Quote
Old 12-03-2015, 02:18 PM   #6
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 345
So I dig deeper on the Fidelity side.

Fidelity 2040 fund- FFFFX exp ratio 0.75% (this is on the public side or the website)
within my megacorp 401k- exp ratio 0.09%

when you look at the underlying composition, there are about 25 funds listed. Some with expense ratios that are quite high.


__________________
Clone is offline   Reply With Quote
Old 12-03-2015, 03:34 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
Quote:
Originally Posted by Clone View Post
....Is the 0.18% exp ratio on top of the expense ratios in the mix?....
No it is not on top of the expense ratios of the underlying funds. See post #2.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 12-03-2015, 03:55 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Quote:
Originally Posted by Clone View Post
OK, lets look at the Vanguard 2040 Fund: Expense Ratio 0.18%
[]
Is the 0.18% exp ratio on top of the expense ratios in the mix?
What does the PROSPECTUS say? Don't believe what ANYBODY tells you on an anonymous forum. And check what EVERYBODY tells you on a non-anonymous forum or to your face such as in a sales rep's office.
__________________
LOL! is offline   Reply With Quote
Old 12-08-2015, 04:05 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
Quote:
Originally Posted by Clone View Post
So I dig deeper on the Fidelity side.

Fidelity 2040 fund- FFFFX exp ratio 0.75% (this is on the public side or the website)
within my megacorp 401k- exp ratio 0.09%

when you look at the underlying composition, there are about 25 funds listed. Some with expense ratios that are quite high.


fidelity runs two series of target funds , one uses active mgmt the other index funds so they have 2- 2040 funds

fbifx has an er of .16 . ffffx has an er of .75

needless to say which has been the better performer .
__________________
mathjak107 is offline   Reply With Quote
Old 12-08-2015, 06:11 AM   #10
Recycles dryer sheets
 
Join Date: Sep 2011
Location: MSP
Posts: 270
Quote:
Originally Posted by Clone View Post
OK, lets look at the Vanguard 2040 Fund: Expense Ratio 0.18%

54% Vanguard Total Stock Market Index Fun Investor Shares Exp Ratio 0.17%
35% Vanguard Total International Stock Index Fund Investor Shares Exp Ratio 0.22%
7.6% Vanguard Total Bond Market II Index Fund Investor Shares (could not find this fund)

Is the 0.18% exp ratio on top of the expense ratios in the mix?

These 'dated' funds are often held up as an alternative to a simple 3 fund allocation. I am trying to figure out if there is a premium associated with buying the '2040' type fund vs buying 3 separate funds.

While Vanguard's 0.18% is simply the weighted average of the expense ratios of the underlying funds with no additional premium being levied for purchasing them in the form of a "fund of funds", there is one thing to think about. You lose the small advantage of saving even more by purchasing "Admiral" shares of those same underlying funds. (The target date funds are comprised of the slightly more expensive "Investor" shares.) Not sure if this comes into play with any of the other fund families' offerings.
__________________

__________________
UpAnchor is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Target date funds Bandit FIRE and Money 3 09-21-2009 06:56 PM
NY Times article about Target-Date Funds Tiger FIRE and Money 32 07-18-2008 07:58 AM
Just opened a Roth IRA :) Opinion on two target date funds in an IRA? Effect FIRE and Money 3 05-12-2008 09:05 AM
Target date retirement funds summer2007 FIRE and Money 18 12-31-2007 07:25 AM
Are there any 'date certain' (Target) bond funds? ERD50 FIRE and Money 1 02-26-2007 11:50 AM

 

 
All times are GMT -6. The time now is 02:36 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.