Target Date Funds or Lifestyle Funds

[Clone]

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?

 

[pb4uski]

No

From annual report, page 4
https://personal.vanguard.com/us/funds/snapshot?FundId=0696&FundIntExt=INT

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.

 

[LOL!]

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.

 

[pb4uski]

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.

 

[Clone]

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]

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.

 

[pb4uski]

....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.

 

[LOL!]

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.

 

[mathjak107]

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 .

 

[UpAnchor]

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.