7 reasons I DO use a target retirement fund

[docnews]

I moved all of my retirement savings into a Vanguard Target Fund, but the whitecoatinvestor has a great article where he lists "7 Reasons I Don't Use Target Retirement Funds" https://www.whitecoatinvestor.com/7-reasons-i-dont-use-target-retirement-funds/ I wrote a long comment, trying to decipher if Vanguard's Target fund is for me. And though the whitecoatinvestor had a very kind response I think it would be a good discussion starter here on the new forum.

Here was my attempt to go through all the perceived problems with a Vanguard Target fund:

[docnews]

"P1 with Accounts: Since I'm a beginner (aka intern, just like when you started this investing adventure) this is not been a problem for me yet and from reading your blog I've noted that 401ks often offer Target funds but NOT other index options.

P2 with Dates: I don't see the issue here. I just need to decide the year in which I want my retirement to tip towards conservative (50% equity / 50% fixed income at the year in the name). With your plan, you have to decide the same thing but you have to manage the glide.

P3 with Glide: You seem to indicate you will try to "time" your glide. Isn't that why indexing and rebalancing concepts were created to avoid timing the market? Won't you be tempted to wait starting your glide if your retirement comes at the same time as a bubble? If you plan a glide and stick it to it you should be fine but it sounds like you haven't set it in stone just yet.

P4 with Allocation: Though I understand the concept of diversification, I don't fully comprehend this concept of tilting. To me, it feels like tinkering, bordering on guessing the market. Surely when I invest in the Total Stock Market I am investing in the small cap as well. I understand that the Total Stock Market could be deemed "tilted" towards large cap but isn't that just the reality of the full market that has more stable returns? Basically you stated you would be okay financially if these riskier allocations relatively flopped but your gambling for a few extra percentage points on your ROI. Is that a fair statement? Call me conservative but I want to get "rich" slow and steady.

[docnews]

P5 with Managers: This problem makes sense to me. Managed indexing does seem like an oxymoron, but I don't think the managers will get many investors if they do more than balance and follow the plan proposed. Your critique of adding international bonds falls a little flat when your own investment plan has ballooned to include new allocations as you become more well read. If a Target Fund ever announced a major change that profited the company providing the fund, I would jump ship so quick they wouldn't get a cent.

P6 with Tax Efficiency: Since this is not a problem for you, I doubt it will be a problem for me. You posted that even you (with your wise savings) were not able to maximize your tax havens and had no taxable investment accounts. I'm still trying to wrap my mind around the $50k 401k but I will look for this possibility during my job searches on its own merits. [Update: As an independent contractor I'll have $53k/yr in solo401k plus then backdoor Roth IRA and HSA]

[docnews]

P7 with Costs: This is the one where you really could change my mind. But then I saw your "usually" hiding behind parentheses so I did some research. Vanguard Target fund expense ratios are 0.18%. You have a lot to be proud of by setting up a plan with 0.16%. Are you sure you haven't made 2 base points worth of errors? How about your delay in rebalancing in comparison to the funds continual rebalancing? Or a slight delay in investment do to complications or adjustments necessary with 5 accounts? Granted you are probably really on top of these things but the average doc is likely to make some costly error/delay along their 'investing career' (including me). Plus you said this takes 2 hours per year (not to mention this website management's countless hours of self-education) to make investment decisions. If you spent that time working as ED doc (as stressful as it is) you will probably negate most of the reward of your own "targeting".

[docnews]

P7 with Costs: This is the one where you really could change my mind. But then I saw your "usually" hiding behind parentheses so I did some research. Vanguard Target fund expense ratios are 0.18%. You have a lot to be proud of by setting up a plan with 0.16%.

[docnews]

Are you sure you haven't made 2 base points worth of errors? How about your delay in rebalancing in comparison to the funds continual rebalancing? Or a slight delay in investment do to complications or adjustments necessary with 5 accounts?

[docnews]

Granted you are probably really on top of these things but the average doc is likely to make some costly error/delay along their 'investing career' (including me). Plus you said this takes 2 hours per year (not to mention this website management's countless hours of self-education) to make investment decisions. If you spent that time working as an ED doc (as stressful as it is) you will probably negate most of the reward of your own "targeting".

[docnews]

Granted you are probably really on top of these things but the average doc is likely to make some costly error/delay along their 'investing career' (including me).

[docnews]

Trouble posting this so sorry for the multiple posts. In summation the target funds help me take ME out of the equation in 2 more ways: in rebalancing automatically and in gliding automatically. Anyone else prefer Vanguard Target Funds?

[Kennyt7]

Not diversified enough

[docnews]

Kenneth Tobin wrote:

Not diversified enough

Click to expand...

In what way? No real estate I guess but stock/bond diversity is pretty darn solid.

#1 selling point:

"Each of the Target Retirement Funds invests in Vanguard's broadest index funds, giving you access to thousands of U.S. and international stocks and bonds, including exposure to the major market sectors and segments."

[Slav4ikMD]

I have some target funds, but some others as well.  In general I am all for it, makes life easy.  As long as I can stay at around 0.2 expense ratio or under, I am very happy.

[scbunker]

I tried to reply to this post, but it's not working. I think I'm having the same issue currently being discussed in the improvements thread.

Attached is a screenshot of my reply.

[The White Coat Investor]

Target funds are fine and they're great starter funds in a tax-protected account. My main issue with them is I am investing for retirement in 8 different accounts, and it doesn't make sense or they aren't available in most of those. I see little reason to mix and match a target fund with other funds. It's either use the target fund or roll your own. In my case, I have to roll my own. So I do. The other issues are minor for me. You know, like no admiral funds, no REITs, no microcaps etc etc.

[SaintClive]

In theory I think there are two good purposes for the target retirement funds:

 

1) If you're just getting started on your Roth IRA and can put at least 1k but not 3k which is needed for most index funds from Vanguard; this was the position I was in when I first opened a Roth IRA with income I made as a college student.

 

2) If you're in retirement, late in life, and you can consolidate your retirement into a small number of accounts that have target retirement funds.  If there is concern about leaving behind a complicated portfolio for wife/family, it can make things a lot easier for your beneficiaries to understand.