No. of Recommendations: 2
my second message - I went back and read Spinning earlier message then clicked on his link. I understand now the Vanguard LifeStrategy fund, which is very simple – just one fund according to the risk. I also looked at the Target Retirement 2010 – which is more diversified – am not sure which is the best approach.

Let me start with the intent behind the different funds.

"Lifestyle" funds

Are designed for people who know how aggressive they want to be.

* Income is essentially the "I need predictable income. It doesn't matter if the income is much smaller as a result, I can't afford to lose money.".

* Growth is the "While I would like to avoid some of the wildest swings of the market, my primary goal is making the most money over the long term."

* Conservative Growth is in the middle (but closer to income).

* Moderate Growth is in the middle (but closer to growth).

You get the benefits of having Vanguard automatically determine the proper mix of international/domestic, stocks/bonds, etc. And you also get the benefit that Vanguard does all of the re-balancing.

"Target Retirement" funds

Target retirement funds are for people who want their funds to automatically get more conservative (i.e. more focused on income) as they get older.

So a target funds for 25+ years is super aggressive (even more aggressive than "Growth".

20 years is essentially the same as Growth.

10 years is close to "Moderate Growth"

0 years is close to "Conservative Growth"

Somewhere around -7 years (i.e. 7 years after the date on the fund) the fund will be very similar to Income and in fact Vanguard says it will likely merge the fund into Income.

There is (of course) no law that you have to buy a fund for the year you actually plan to retire. I'm considering buying into the 2040 fund, not because I plan on retiring in 2040, but because I'm likely to starting needing that particular batch of money in 2040.

The important point being, however, that Target Retirement funds are designed so that they start off as mostly stocks, but as you get closer and closer to the "target" date it gets more and more conservative.

So what do I recommend?

We've now transitioned from facts to opinions. And, frankly, we don't have a lot to go on as far as understanding your needs so my ability to actually make a recommendation is limited.

I picked 2015 for you in my original post because it wasn't too far from your original allocation: it is currently 50% stocks and 50% bonds. It's currently about half way between Moderate Growth and Conservative Growth. But it will get more conservative over time.

In retrospect, the moderate growth fund may actually be a better idea if you plan on using this money for income for a long time. Lifespans are getting longer and bond yields are getting lower: there's a lot of "risk" that you will outlive an income fund because the returns can be so low. My opinion is that even retirees should be majority stocks until you know that you need the money in the foreseeable future.

So my rules of thumb might be:

* If you expect to need all of this money (i.e. you will spend all of it: principal and income) in the next five years, buy Income.

* If you expect to deplete this fund in the next ten years, buy the 2015 fund. It will give you decent returns in the short term, but will get progressively more conservative as time goes by so you are protected from a big downturn.

* If you expect this fund to be "evergreen", providing income to you continuously, but something you never expect to spend the principal from, I'd lean towards the Moderate Growth.

Those are just rules of thumb, and there's lots of shades of grey in between them.

Back to facts for the summary

* Lifestyle funds stay at a constant rate of risk/reward.
* Target-date funds become progressively more conservative over time.
* Fees are bad. They are necessary, even Vanguard has fund expenses. But the lower the fees the better.
* Cash is bad. At least in the context of a long-term retirement fund. 12% cash is just stupid: money markets are paying essentially 0%.
* I didn't say this in my previous posts, but don't worry about the losses in 2015. Not only is it water over the bridge, but the markets just didn't pan out well over the last 12 months. Even conservative funds lost money. The problem isn't that your account was down, the problem is the high fees and the excessive cash.

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