Anyone here using any of the "Target" Funds for the bulk of Mutual Fund retirement investments? Just how diversified, asset wise, are they? I like the idea of simplicity, but not sure how well they cover the style box...110
>>>Anyone here using any of the "Target" Funds for the bulk of Mutual Fund retirement investments?<<<I do not.You pay for simplicity.Doug
>>>>I do not.You pay for simplicity.Doug<<<Yes, I tend to agree, TOO much simpilcity might not be a good thing. I was just recently thinking about consolodating some funds into it (Vanguard) but do not particularly see a whole lot of diversification of SC LC LV For. etc.... JB Quinn got me thinking about looking into it after hearing her talk about them during an interview...110
Greetings 110,Anyone here using any of the "Target" Funds for the bulk of Mutual Fund retirement investments? I don't and I would be surprised if many that read this board do use them as they are intended for those that don't want to spend a lot of time covering things.Just how diversified, asset wise, are they?Let's open the can of worms here....On the "yes they are diversified camp" is the fact that they tend to be a fund of funds that covers EVERYTHING within a given asset allocation range. So for example the 2025 Target fund from Vanguard has 45% in the Total Stock Market, 42% Total Bond Market and the rest in a couple of international index funds, so what is it missing other than emerging markets and foreign bond allocations? This is where John Bogle would probably be from what I read of his books.On the "no, they are overweighted in some areas camp" is the fact that by using the market weighting this skews towards large-cap and growth stocks since they will have larger market caps. In this camp you would have to use your own combination to get an appropriate coverage in those small-cap and value areas as these would be a smaller part of the market. This would be the Larry Swedroe, DFA, etc. camp that believe in small-cap and value stocks having a higher risk premium that will be rewarded.The question is which camp do you see yourself in?I like the idea of simplicity, but not sure how well they cover the style box...Define cover. Do you mean like 11% in each of the 9 squares in the Morningstar style box or whatever the market's distribution among the 9 squares is? Which do you want? These are rather different things given that ~70% of the US market is in that top row of boxes on one level.Regards,JB
Actually, you don't pay for simplicity in the case of Vanguard, Fidelity, and the other shareholder friendly brokerages houses. You just pay a flat average of the sub-funds.The Target funds are very good for someone who doesn't want to learn all this stuff on their own. And while that's not a lot of us on here, it IS a lot of people. I'd much rather see someone in a target fund than in a random mess of funds they don't know much about, or have an overall plan for their funds - which happens a lot of the time.And I see nothing wrong with taking a Target fund and adding on a bit of your own to make it more what you want. Some REITs or some small index (or non-index fund), since the Target funds tend to be on the conservative side for whatever time frame.But no means am I saying that simplicity is the best thing, but it can be a very good idea for those who simply would not take the time to work out an asset allocation strategy.
Anyone here using any of the "Target" Funds for the bulk of Mutual Fund retirement investments? Just how diversified, asset wise, are they? I like the idea of simplicity, but not sure how well they cover the style box...-------------------I got my daughter into the Vanguard Target Retirement 2035 Fund (VTTHX) about a year or so ago and she loves it. She wanted to have a "Feed-it-and-forget-it" type of portfolio that didn't require much effort on her part. She was willing to forgo the potential for higher returns for this type of investing. She had a reasonable return last year and her costs were very low.As far as diversification goes, her fund of funds contains the "Total Stock Market", "Total Bond Market", "European Stock Index" and the "Pacific Stock Index". Her current Stock/Bond split is approximately 75%/25%. The "Total Stock Market" Index Fund reflects the total market so it's domestic equity holdings are pretty well diversified. The same goes for "The Total Bond Market" Index Fund. The only drawback that I see is a lack of exposure to "Emerging Markets". I think the TR Funds should have gone with the "Total International" Stock Index instead of spliting it up and dropping EM. Just my personal thoughts.http://tinyurl.com/74j2rThere are varying degrees of simplicity when searching for the right portfolio for an investor. You can go with the "Total Stock Market" Index Fund for the very simplest portfolio or advance a diversification step up to the basic "Balanced Fund" consisting of only two Index Funds and then up through the "Life-Cycle" type of funds holding a variety of underlying funds for yet further diversification. If you don't mind straying from the pure Index Fund to the managed mutual funds, there are a few good ones that adhere to the simplestic approach. The "Wellington" and "Wellesly" Funds from Vanguard come to mind. And on it goes.We each have to select the investing style that fits with our personal situations. Diversification isn't the only criteria that should be of concern, although it is one of the most important - costs and taxes are major considerations as well. Keeping your portfolio as simple as possible helps to ensure against overlap and unnecessary costs.Anyway, my point is that Target Retirement Funds are a excellent choice for investors who like a "Hands-off" approach when it comes to investing.Regards,Bill
As always JB, your thoughts are insight full...I am imagining your are right about not many folks here use them exclusivly, more of the "basic" learning approach. (And wise, and far enough for many)Covering the style box I had more in mind of the Markets take on same. I don't stive for 11% of each. Sometimes I think I overthink diversification, and might be looking perhaps for a perfect mix, which of course is changing all the time. Seems like the age old wisdom of Define your plans whys and hows and STICK to it is still the most valid path.110
Greetings 110,Seems like the age old wisdom of Define your plans whys and hows and STICK to it is still the most valid path.Rather similar to the idea of having a good plan and then stick with it as the enemy of a good plan is the dream of the perfect plan.Regards,JB
They were a part of the thread;http://boards.fool.com/Message.asp?mid=23592452 part of my post was;Vanguard Target Retirement AccountsThese accounts are OK but they tend to be very conservative (in my opinion) because they do not take into account your situation. For example are you; married, have kids(or might), own a home or rent, making $100K or $30K or year, live in an unusually high or low tax state, work for a company with a pension plan, etc. Obviously these would alter your investing plans but the fund managers can't take these into account. If you have enough to avoid low account fees then your next step might be to go to three low cost index funds, A Total Domestic market, A Total international market, and A Total Bond Fund and manage the asset allocation yourself.Greg
hi 110these funds are perfect for the index plus a few strategy.Put most of your money in the Target or Life Strategy fund closest to your risk tolerance and horizonthen, take the remaining portion- say 20% of what you have to invest - and make the adjustment. Maybe some in REIT funds, some in Emerging Markets. Or, some in one or two Obvious Greats - as the Fool used to call them: dividend payers with moats, jillions of customers, secure supply lines, and products on your shelves. You want to insulate against real mistakes, first. Then go for better returns. Or, you may want to hedge. We are holding about 22% of our investments in BRK, as a defensive move, since if derivatives or financial trickery makes the rest really crash, I think this will hold its value. Otherwise, just about everything is in Vanguard Wellington [taxable] and Vg Wellesley [tax deferred] or Target Retirement [current employers 401k].Deac
<<<These accounts are OK but they tend to be very conservative (in my opinion) because they do not take into account your situation.>>>That is often a problem with generalized investment strategies. On another board I noticed someone insisting that a poster with 10 years to retirement and a 75/25 equity/bond ratio must start selling equities and get to 60/40 or even 50/50 by the time he retired. Good advice for some but a gross generalization. He had no idea what the poster's personal situation was. Maybe his portfolio was double what he needed in retirement and he could easily afford the volatility of 75/25. Maybe he had no spouse or children to provide for. There are many variables which affect what is correct for a specific individual. Target funds are perfect for some but wrong for many.
I did the Fidelity Freedom funds for the last year for 90% of my 401k. I went to a retirement workshop and the guy from fidelity gave us a simple worksheet to determine appropriate asset allocation and such. With the other 10% of my investment I did what the worksheet suggested out of my limited choices (only about 10 funds total to choose from). My little side 10% did a whole lot better than the freedom fund.Now I decided to ditch the freedom fund. Half hour a year I spend on rebalancing is worth the extra few % points it gains me. However, that's just me.TVK
I do a slice & dice asset allocation. Basically, I buy whatever option in my 401k fits into the allocation best. Then use ROTH contributions to rebalance around the 401k.Last year, the Vanguard target retirement funds were added to our 401k (it already had a couple institutional class Vanguard funds). I've put a large chunk in the most aggressive one, because it makes things easier to rebalance around.-Joe
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