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This is a great post. I'm relatively new to investing, since for the last few years I've just been putting all my retirement savings into the TSP and not actively managing anything. Now I've got a Roth IRA through Vanguard, and I've had to actually pick stocks. I'm planning on going with a 3 stock portfolio (1/3 total stock market, 1/3 total international stock market, 1/3 total bond market), and I've been wondering if I should have gone with a target retirement fund. I think based on everything here I'll stick with my plan, but this really helped me understand the pros and cons of the target funds. Exactly what I was hoping from on these forums!
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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.
I know we're not specifically speaking about Vanguard, but I'd like to throw out that one often overlooked aspect of Vanguard's Total US Stock fund (VTI, VTSMX, VTSAX) is that it's about 4% REITS. So, even less in a multi-fund comprised Vamguard target date fund, but still worth considering.Comment
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"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.
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 be putting $53k in a solo401k and this doesn't including backdoor Roth IRA and HSA]
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".
Basically I'm intrigued by cheap Target funds because it takes the #1 danger (ME) out the equation in two more ways (indexing already removing my guessing the market):
1) Rebalancing
2) Gliding"
Do you agree with me or does WCI have some good points? Do you use Vanguard Target Funds?Comment
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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 be putting $53k in a solo401k and this doesn't including backdoor Roth IRA and HSA]
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".
Basically I'm intrigued by cheap Target funds because it takes the #1 danger (ME) out the equation in two more ways (indexing already removing my guessing the market):
1) Rebalancing
2) Gliding"
Do you agree with me or does WCI have some good points? Do you use Vanguard Target Funds?Comment
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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 be putting $53k in a solo401k and this doesn't including backdoor Roth IRA and HSA]
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".Comment
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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".Comment
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P7 cont'd: 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".
Basically I'm intrigued by cheap Target funds because it takes the #1 danger (ME) out the equation in two more ways (indexing already removing my guessing the market):
1) Rebalancing
2) Gliding"
Do you use Target Funds?Comment
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P7 cont'd: 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".
Comment
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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".
Basically I'm intrigued by cheap Target funds because it takes the #1 danger (ME) out the equation in two more ways (indexing already removing my guessing the market):
1) Rebalancing
2) Gliding"
Do you use target funds?Comment
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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".
Basically I'm intrigued by cheap Target funds because it takes the #1 danger (ME) out the equation in two more ways (indexing already removing my guessing the market):
1) Rebalancing
2) Gliding"
Do you use Vanguard Target Funds?Comment
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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".
Comment
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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".Comment
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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.Comment
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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".Comment
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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.Comment
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