life strategy and target retirement funds

[perinova]

Good afternoon.
I am reviewing for my son some highly diversified one stop-shop funds from Vanguard. They have, as noted in the title, life strategy and target retirement funds.
I had noticed in the past that the distributions are only once a year and I sort of remember that the return I was having with those funds were lower than investing directly in the underlying index funds. Those pay off quarterly and monthly. So Vanguard is keeping the distributions for the whole year? Isn't that a drawback?
Should I steer him away from those funds? I want to make it easy for him so a one stop shop is what I am looking for.
Thank You.

 

[Markola]

We have our 403bs in VG Target Date funds. I’m a fan of no muss, no fuss global diversification and self-balancing at very low cost and they get gradually more conservative with age. I take it your son is not as knowledgeable as you about investments. If so, he’s the kind of investor these are designed for, because there is a lot of mistake-prevention insurance built in to protect against poor investor decisions, which are the biggest drags on performance of all. Is he nearing retirement? If not, who cares whether they distribute once/year and reinvest he dividends or quarterly?

 

[LOL!]

These funds are perfect for someone who wants a single fund and either has no taxable investments or is in a low tax bracket with taxable investments.

Funds that have no distributions but keep the money behind the scenes invested in the fund holdings are great. I would not be concerned at all about a frequency of distributions as long as it was 0 to 4 times a year. More than 4 times a year would be a red flag to me. I don't know where you got the idea that Vanguard "keeps" the distributions. The fund shares keep the value of the distributions which means the shareholders keep the value of the distributions and not Vanguard.

The returns of these funds is not lower than having the separate funds since the managers do a better job of maintaining asset allocation and don't make behavioral mistakes that individual investors tend to make.

Bottom line: These are fantastic funds. My children use them and so do I in at least 2 accounts.

 

[perinova]

thanks for the feedback.
my son is just starting out (23yo). I was concerned about losing an average of 1/2 year of growth with a single distribution in December; but I guess it is probably not making much of a difference.

 

[Callitaday2022]

Funds are ok for young folks, but fees are a little higher. Close to retirement people need separate funds so you can take from desired areas. I'd hate to be cashing in target funds now...better to spend cash or bond funds that haven't plummeted so much.

 

[perinova]

Funds are ok for young folks, but fees are a little higher. Close to retirement people need separate funds so you can take from desired areas. I'd hate to be cashing in target funds now...better to spend cash or bond funds that haven't plummeted so much.

I see that there is a 0.15% fee. Is it in addition to the underlying funds fee?

 

[Markola]

No, that’s the entire expense ratio. Vanguard doesn’t play a bunch of games with hidden fees. You’re smart to start your son with Vanguard, as there are a lot of good decisions and values baked into that company, which is uniquely a co-op owned by us fund shareholders rather than one of the Wall Street wolves in sheep’s clothing.