Target Retirement Fund 2060

[megaman1]

Hi,

I recently bought into a Target Retirement Fund 2060, and I'm glad to have made this first step into retirement. Well, besides the opening of the Roth IRA at Vanguard. Do you guys have any advice for me since I'm an aspiring doctor? I'm just assuming that the Target Retirement Fund will provide the average population who will earn an average income a method of saving for retirement, but as aspiring or current doctors, are there any additional steps we should take right now or later such as converting the Target Retirement Funds into ETFs or anything of that matter? So, what are the advantages of having a Target Retirement Fund as a premed, and what will I need to do once I'm in medical school, become a resident, or an attending? I know I'm looking way too far into the future, but I just wanted to get a general idea and picture of what to expect.

Thank you!

[retinadoc]

Just wanted to recommend that you start reading. Bogle, Ferri, Swedroe, Dahle!, etc. You'll be way ahead in a few months/years. You won't have enough money anytime soon to have any big wins/losses, so the focus should be on getting as good as a medical and financial education as possible.

[DMFA]

Sit down (or at least talk online) with a planner to describe exactly what you want from your money (more of it, right? lol) to help you come up with strategies both for a portfolio and when/how much to put into it (a lot, early and often).  Several read and post on this forum and would probably be very good resources for you; they're professionals who deal with people in your exact situation pretty often.

Not simply to repost and not put forth any ideas of my own, but: https://www.whitecoatinvestor.com/150-portfolios-better-than-yours/ has very good examples.

The Target Retirement funds are not outright bad, but you can generally get similar diversification and returns with lower expense ratios with the index tracker funds (like Vanguard's S&P 500 or TSMI; VFIAX and VTSAX have outstanding ratings once you've got $10k to put into them).  They're designed to be more equity funds in the beginning for more volatility/growth potential and more bonds/short-term funds at the end for greater stability.  That's theoretically what your expense ratio is going toward: their shuffling the deck to try to maximize gains at the beginning and minimize losses at the end.  The argument for going with simply an indexed mutual fund or ETF vs a managed target date fund is that the indexes have (generally) been very reliable over the years...even with 2008 happening, they rebounded with fury over the next few years.

I use USAA, their S&P 500 tracker USSPX is OK (Morningstar 4*, expense ratio 0.29%) compared to their target 2060 (too new to rate but equals Lipper average, ER 1.35%).  My wife's 403b uses Fidelity, their S&P 500 tracker FXSIX is good (Morningstar 5*, ER 0.05%) compared to their target 2050 (Morningstar 3*, ER 0.67%). However, with prices down I think I might jump ship to VFIAX or VTSAX...

Sit down with a pro, choose the level of risk you want (this far out, I'd say quite a bit), find a fund or mix of funds with good returns and appropriate diversification (e.g. a high Morningstar rating for its category, like Vanguard's), figure out how much and when to put in, and go with it.

[millin penicillin]

I am blown away by how many health professionals I meet that don't have a solid grasp on these issues. I did not get into it until 2 years after residency! When I meet like-minded people, we marvel how no one teaches this stuff. So consider yourself WAY ahead of the game. Even if you end up not going into medicine, these principles can be applied across the board.

 

I recommend reading James Dahle's (the WCI!) book. Yes, you can comb all the blog posts here for free, but it's easier to have a neatly organized book that you read from front to back. It's easy reading too, and if I recall, there are chapters about planning as a medical student. This book should really be a mandatory gift to all medical students.

https://www.amazon.com/White-Coat-Investor-Personal-Investing/dp/0991433106/ref=sr_1_1?ie=UTF8&qid=1467179406&sr=8-1&keywords=white+coat+investor

 

Then I recommend reading The Bogleheads Guide to Investing. Yes, you can comb the Bogleheads Wiki page, but again, it's easier to take in an organized book. As a financial n00b 2 years ago, this was the easiest and funnest to read. You will learn that the Boglehead philosophy is reasonable, and the ultimate foundation to change your financial life.

https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283/ref=sr_1_1?ie=UTF8&qid=1467179527&sr=8-1&keywords=bogleheads+guide+to+investing

 

Alternatively (or in addition), you can start with neurologist and renowned financial author Dr. William Bernstein's free PDF which is sort of like an overview with reading assignments. Consider it a whole syllabus that is available to you for free (or 99 cents if you want it on Kindle). Provocatively titled, "If You Can: How Millennials Can Get Rich Slowly"

https://www.bogleheads.org/forum/viewtopic.php?t=136528

[jfoxcpacfp]

Cannot say how strongly I disagree with owning a TDF at your tender young status of student. Maybe for a few months only until you are more financially literate, but there is no reason you should own bonds in the prime of your investing career.

A Target Date Fund is not a plan

[megaman1]

@retinadoc: Thank you! I've been reading Ferri and Dahle (blog posts) at the moment and will venture to the other authors very soon. And thank you for the reminder!

@DMFA: I will keep your advice in mind. Thank you for the link as well. My current portfolio looks like the 3 fund portfolio to an extent, but I believe the expense ratio is higher for my target retirement fund 2060. I would definitely love to manage and tweak my portfolio to my exact liking. It's just that I'm very limited on capital at the moment as a student, and can only afford to invest with $1000-$1500 at most.

@millin penicillin: Thank you. I have just purchased the books and will start reading!

@jfoxcpacfp: I wholeheartedly agree with you. At my age, I believe I can and should take on more risks than individuals who are nearing retirement. It's just that I'm very limited on capital for investing at the moment. I can only afford $1000-$1500, and I read that it's best to start investing early, so I chose the most aggressive investment product closest to my wants, which happened to be the Target Retirement Fund 2060 with 90% stocks. If I could purchase a fund that was 95% or 100% stocks, I would. All in all, should I just sell my Target Retirement Fund 2060 right now and invest in something else with my $1000? I'm ready to accept and implement any advice I am given. Thank you very much for your time!

[jfoxcpacfp]

megaman1 wrote:

 

@jfoxcpacfp: I wholeheartedly agree with you. At my age, I believe I can and should take on more risks than individuals who are nearing retirement. It’s just that I’m very limited on capital for investing at the moment. I can only afford $1000-$1500, and I read that it’s best to start investing early, so I chose the most aggressive investment product closest to my wants, which happened to be the Target Retirement Fund 2060 with 90% stocks. If I could purchase a fund that was 95% or 100% stocks, I would. All in all, should I just sell my Target Retirement Fund 2060 right now and invest in something else with my $1000? I’m ready to accept and implement any advice I am given. Thank you very much for your time!

Click to expand...

No, there is no reason to take any quick action on an investment strategy. As I stipulated, learn and apply what you learn. In the short term (< 5 years), you are simply gambling with any investment. Stick with what you have until you are more educated. My recommendations are for a long-term strategy, which is the only rational method for investing. Add the 2013 version of Simple Wealth, Inevitable Wealth to your reading list.

[The White Coat Investor]

The best investment you can make is in yourself. For example, if your goal is to be a doc, spend a little bit on an MCAT prep class and applying to more med schools rather than funding a Roth IRA. I see too many people still screwing around at 25 or 26 working as scribes or clerks in ERs when they should be pounding through undergrad and getting into med school. If you still have extra earnings above and beyond what you need to do that, then sure, get started with a Roth and a reasonable asset allocation. Any TR fund is a reasonable allocation. But don't spend a lot of time on allocation. Johanna gets fired up about bonds, but I've owned bonds since I first got started and most authors recommend you own some your entire career. Read Why Bother With Bonds for more details on the reasoning and then you can make an educated decision about it: https://www.whitecoatinvestor.com/why-bother-with-bonds-a-review/

Owning 10-25% bonds at this stage of the game isn't going to cause you to retire later or anything. If nothing else, you'll be more likely to stick with your plan by having some in there.

[AlexxT]

I agree with most of the advice above.

A few points of emphasis:   When you're just starting out investing, a target date fund is fine.  It's even a reasonable way to go long term.  I don't like bonds either in someone more than a few years from retirement, but the target date funds don't have bonds if you're very far from retirement.  To minimize the bond allocation, just use a later retirement date.  If you're very young, the fund won't have bonds for you.

The target funds also have slightly higher expenses than some of the index funds, but you probably won't have enough money for the minimums in multiple funds yet.

I agree that investing this young might not even be the best choice.  Everyone here seems to push investing in a Roth as a student and resident.  I think you would be better off skipping the Roth and taking a nice vacation with the money.   It's called "consumption smoothing".   I think you'll get a better return on your money using it now.  I'm not suggesting living paycheck to paycheck until you're 60, but traveling in your 20's is a great use of your money.

 

 

[The White Coat Investor]

AlexxT wrote:

I agree with most of the advice above.

A few points of emphasis:   When you’re just starting out investing, a target date fund is fine.  It’s even a reasonable way to go long term.  I don’t like bonds either in someone more than a few years from retirement, but the target date funds don’t have bonds if you’re very far from retirement.  To minimize the bond allocation, just use a later retirement date.  If you’re very young, the fund won’t have bonds for you.

The target funds also have slightly higher expenses than some of the index funds, but you probably won’t have enough money for the minimums in multiple funds yet.

I agree that investing this young might not even be the best choice.  Everyone here seems to push investing in a Roth as a student and resident.  I think you would be better off skipping the Roth and taking a nice vacation with the money.   It’s called “consumption smoothing”.   I think you’ll get a better return on your money using it now.  I’m not suggesting living paycheck to paycheck until you’re 60, but traveling in your 20’s is a great use of your money.

 

 

Click to expand...

Technically they do. The most aggressive they get is 90/10, at least the last time I looked.

I agree with not trying to invest every dime as a student/resident. The real key to being a financially successful physician is your first year out of residency and not growing into that income. You can probably save more in your first year out than in 4 years of med school and 4 years of residency. But habits do matter.

[AlexxT]

The White Coat Investor wrote:

Technically they do. The most aggressive they get is 90/10, at least the last time I looked.

Click to expand...

You are absolutely correct.  It looks like I "misremembered" .   Vanguard 2060 is 10% bonds, has a $1000 minimum, and an ER of 0.16%. It's comprised of 4 funds.  Fidelity Freedom 2055 has 5.27% in bonds, with a 0.77% ER and a $2500 minimum.  It contains 26 different funds!!.

Personally, I would just go with the Total Market Index Fund, at least to start, but I  know that's not diversified enough for most.

 

The White Coat Investor wrote:

The real key to being a financially successful physician is your first year out of residency and not growing into that income.

Click to expand...

I would like to see a post on that.  It makes me sad to see all these residents trying to pay off their loans as residents.   They should get more sleep and have some fun.

When I was an intern, someone advised me to start putting money into an IRA  ( there were no Roths then, and no 401k for residents ).  I didn't take that advice, because I wanted to spend that money on vacations and entertainment.  I have no regrets at all.  Had I invested that  money, even in a Roth, it would have been trivial to me now.  I'm glad I spent it the way I did.

[The White Coat Investor]

AlexxT wrote:

The White Coat Investor wrote:

Technically they do. The most aggressive they get is 90/10, at least the last time I looked. 

Click to expand…

You are absolutely correct.  It looks like I “misremembered” .   Vanguard 2060 is 10% bonds, has a $1000 minimum, and an ER of 0.16%. It’s comprised of 4 funds.  Fidelity Freedom 2055 has 5.27% in bonds, with a 0.77% ER and a $2500 minimum.  It contains 26 different funds!!.

Personally, I would just go with the Total Market Index Fund, at least to start, but I  know that’s not diversified enough for most.

 

The White Coat Investor wrote:

The real key to being a financially successful physician is your first year out of residency and not growing into that income. 

Click to expand…

I would like to see a post on that.  It makes me sad to see all these residents trying to pay off their loans as residents.   They should get more sleep and have some fun.

When I was an intern, someone advised me to start putting money into an IRA  ( there were no Roths then, and no 401k for residents ).  I didn’t take that advice, because I wanted to spend that money on vacations and entertainment.  I have no regrets at all.  Had I invested that  money, even in a Roth, it would have been trivial to me now.  I’m glad I spent it the way I did.

Click to expand...

Might be a good post. The problem is the vast majority are spending too much. I would only be correcting the behavior of a few supersavers and they probably won't listen anyway.

[docnews]

See my past post for a detailed argument FOR a Vanguard target date fund.

https://www.whitecoatinvestor.com/forums/topic/7-reasons-i-do-use-a-target-retirement-fund/

The more you have to do to invest the less you are likely to do it. Good investing now is better than perfect investing later.

And I continue to read and there is no one who has refuted my points to change my mind.

Basically I see people hating on these funds because either they are a financial planner and want your business or they are someone continuously tinkering with their finances for hours on end to save a buck and I respectively put WCI in this group (but he has the extra benefit of well deserved profits from this site). I believe in continual financial education but primarily to set you on the path to do nothing but save and stick to a simple plan.

[chrisg202]

I have a similar question and I  would appreciate an advice:

In my fellowship, we have 401K with Fidelity and I've a Roth with Vanguard... Just looking at the numbers, my Fidelity account has lost money compared to Vanguard over 12 month.
I've Vanguard Target retirement 2050 and Fidelity Target retirement 2045
Any other better options at Fidelity other than the Target retirement funds??

Thanks

[retinadoc]

chrisg202 wrote:

I have a similar question and I  would appreciate an advice:

In my fellowship, we have 401K with Fidelity and I’ve a Roth with Vanguard… Just looking at the numbers, my Fidelity account has lost money compared to Vanguard over 12 month.
I’ve Vanguard Target retirement 2050 and Fidelity Target retirement 2045
Any other better options at Fidelity other than the Target retirement funds??

Thanks

Click to expand...

Target funds at 2045/2050 will be mostly in equities, which have essentially had zero to negative nominal growth (depending on the amount of international equities) over the last year. I think you should plan and implement your asset allocation and then stay the course.