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Target date fund vs individual index fund allocation

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  • Target date fund vs individual index fund allocation

    I am trying to invest around 100K for retirement/ children's college tuition, and then annually around 60K.  I am 37 and hoping to work 25-30 more years. I have a 403/457 employer match retirement fund through TIAA which would be converted to Vanguard 2045 target date fund later this year(due to the institutional policy).

    I am considering another Vanguard 2045 target date fund for my taxable account which has a low expense ratio. I am not seeing much difference in the expense ratio compared to other Vanguard index funds. The asset allocation will be 90% stocks and 10% bonds at the present time. But, my concern is that I  already have a fund through Vanguard(mostly tax deferred from my employer) and if I should try some other index funds with different allocation. But, I am not aware of any other where the expense ratio would be that low.

    I want to have some suggestions and advice:

    1. Is it advisable to have both funds through Vanguard? If not, what would some other alternatives? (I checked Fidelity and TIAA, and they have higher expense ratio for target date funds compared to Vanguard)

    2. If I buy individual stocks and bonds, it seems like it is recommended to have slightly more bonds(30-40% according to my age) than what is assigned to the target date fund. Should I avoid target date fund due to this allocation?

  • #2
    Da Sound Machine -- DSM DSM DSM

     

    Target dates are easy set and forget funds if you don't mind the set distributions, shifting over time, and fees.

    It's hard to replicate lower fees than large institutional discounts like yours (or TSP in our case).     If you're good with it.  then stick with it -- really depends on your comfort level of the mixes.   If you want higher mixes for longer, choose a later retirement date 2055+.

    Mindful, this is different than 529 since you mentioned college fund in your statement too.  None of this stuff is for the kiddos brain fund.

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    • #3
      You don't want a TDF in taxable due to the tax drag of non-municipal bonds, for one.

      Investing for education and for retirement are different things with different time horizons. Money you won't need for 30 years is different than money you'll need in 5 or 10. Consider using a 529 for educational savings.

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      • #4
        Thank you.

        I have a 529. I can save more there, but not sure how much I would need in 11 years when my daughter is college-ready.  I want to use this taxable account as a flexible source for that.

        TDF has only 10% bonds (much lower than other recommended allocation of around 30%). I know the bonds are not good for taxable accounts, but I am not sure if I should stick to 100% equities.

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        • #5


          TDF has only 10% bonds (much lower than other recommended allocation of around 30%). I know the bonds are not good for taxable accounts, but I am not sure if I should stick to 100% equities
          Click to expand...


          What are you holding in your tax-sheltered accounts (403B etc)?

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          • #6
            It was TIAA 2045, but will be Vanguard 2045 target date fund later this year. It has 90/10 stocks/bonds.

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            • #7
              @Crixus: Thank you. I thought around my retirement age stocks and bonds would be 50/50. Isn't that a balanced allocation at retirement?

               

              Do you have any advise about other alternatives?

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              • #8




                @crixus: Thank you. I thought around my retirement age stocks and bonds would be 50/50. Isn’t that a balanced allocation at retirement?

                 

                Do you have any advise about other alternatives?
                Click to expand...


                That all depends on the rate/economic environment of the times. That would be a poor one currently unless the principal was so large it didnt matter. 75/25 was the lowest equity allocation recommended by the trinity study and I think thats a good start.

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                • #9
                  Sorry to hijack the thread, but what's a good breakdown in vanguard funds for 30 year old ?

                  I'd like something low maintenance covering the major asset classes.

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                  • #10
                    @Zaphod : 50/50 allocation I mentioned is at the time of retirement. It starts at 90/10.

                     

                     

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