Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I recently set up a new Trad IRA using Vanguard's VTTHX target fund. A one and done strategy. I was wondering if anyone here has any experience using these kind of funds and what you thought of them. Thanks! Starchild
@Starchild - It certainly appears a good many Americans are using target date funds. But you probably won’t find very many here who have used the funds to any degree. The apparent contradiction is largely explained by the fact that those who actively read / post on a mutual fund investing board probably are the type of investors who prefer to manage their investments directly. In addition, they possess a higher degree of investment knowledge and a higher investment comfort level than the average American.
That 50% participation rate cited in the Forbes article is due in some measure to many plan sponsors using target date funds as the default option in their plans. I’d say that for many who have very busy lives working and raising families these funds are certainly superior to not investing at all or letting their investments sit in a money market fund. That, I think, is the primary rationale behind their existence (along with an additional way for fund companies to garner assets).
Eager to hear to what extent MFO participants use / have used these vehicles. More likely, I think, MFO members may know family members, neighbors, etc. who use them). On a few rare occasions I’ve put money into one or more of Price’s target date funds for shorter periods because the particular holdings were useful at that time and the ER looked attractive. That’s not what they were designed for, of course.
@Ted’s link to Bogle is interesting. I’d certainly agree that bonds no longer offer the degree of protection (against equity sell-offs) they did a couple decades ago when many of these these funds were devised - because of still historically low rates. The recent late 2018 market carnage tended to bear that out. For one, I’m not prepared to write bonds off entirely, thinking there are a lot of hybrid or diversified offerings in bondland which are still worth holding for diversification purposes. (Possibly fodder for another thread?)
Re: @Starchild’s holding: A glance shows VTTHX (Vanguard Target 2035) invested exclusively in Vanguard’s index funds, with roughly 75% in equities (domestic & international) and 25% in fixed income. It has a remarkably low 0.14% ER. No doubt, the glide slope will soften its (somewhat high) risk profile over the years.
This is very helpful Hank. Thank you! I admire the simplicity of the fund, (which seems puzzling why Bogle would be apposed to) and that I can add my $6000 a year into it and be done with it. And yes, the low fee is attractive to me. My only reservation would be the amount of Int'l I would be purchasing, but I guess the diversification couldn'y hurt. Like you said, there could be worse choices out there.
I don’t have an answer as to whether this fund is the optimum choice for you. But I think if you could close your eyes for 15-25 years and not look at it, you’d be quite pleased with the compounded return. Trouble is, most of here like to look often. That leads to the inevitable comparisons to other types of investments. And from time to time one type or another will outperform (over shorter 5-10 year periods).
That .14% ER allows Vanguard to keep more of your contribution compounding for you rather than paying fund expenses. It’s refreshing to hear from someone still contributing to a plan. Take the advice / musings of us “oldsters” with a grain of salt. At 70+ capital preservation starts to become a paramount concern.
Bogle, in 2013, did not like these funds because they were based on historical returns of bonds (2013 yields were very low) and because (he claimed) they invested in bond funds tracking the US aggregate bond index, which was Treasury-heavy.
Since 2013, bond yields are up (somewhat) and Bogle himself now projects lower stock returns than their historical average. Each of those changes argues for returning to a more normal stock/bond allocation. That is, a complaint that might have been valid for the special circumstances coming out of the Great Recession holds less sway now and generally. In addition, some fund families have adjusted their funds to be more stock-heavy.
In 2013 the US aggregate bond index did have a lot of Treasuries (Bogle said 2/3 in the article). Today, VTBIX (the domestic bond component of VTTHX) has just 41% in Treasuries, AGG has 39%. In addition, several fund families spread bond investments beyond a single US bond fund.
For example, about half of T. Rowe Price's TRRJX 's bond allocation is in New Income (PRCIX), only 1/5 of which is in Treasuries. Like several other 2035 funds, TRRJX supplements this with a long term Treasury fund (1/6 of its bond allocation). It rounds out the remaining 1/3 bond allocation with TNIBX (int'l bonds), RPIEX (nontraditional), PREMX (EM bonds), PRFRX (floating rate), and PRHYX (high yield).
The figures that hank quoted need to be put into context. These days, especially with opt-out retirement plans (employees are automatically enrolled unless they opt out), a large number of participants simply wind up in the plans without making investment choices.
The default for most of these plans used to be a MMF (or stable value fund), but is now a target date fund matched to the participant's age. Thus one sees a high percentage of assets and participants in target date funds. It's not by choice, it's by absence of choice.
The hard part in selecting a target date plan is to pick the right family (each family offers a different glide path) and to position yourself at the right spot (year) along that path. Some families are more aggressive than others. Some glide paths are more oriented toward getting you to retirement and then just generating income, while others are more intent on maintaining a measure of growth even through retirement.
Personally, I like T. Rowe Price's Retirement target date funds, because they're more aggressive and oriented toward growth through retirement. But that's just me. YMMV. In fact, Price has two different series. This one, and a more sedate one more focused on simply generating income in retirement.
Here's a M* analysis page on the Price Retirement series (I don't think you need a M* account to read it): https://news.morningstar.com/pdfs/stusa04omn.pdf
And T. Rowe Price's page describing both its Retirement funds and its more conservative Target funds: https://www.troweprice.com/personal-investing/mutual-funds/target-date-funds.html
P.S. Regarding Bogle and simplicity: "Everything should be made as simple as possible but not simpler."
Manning & Napier
T Rowe Price (from msf's post above - thanks!)
@Starchild, I don't know anything about Vanguard target funds, but at T. Rowe Price they have 2 different offerings for their funds, Target date funds and Retirement funds. The difference being target date changes over time as you get closer to retirement. Their "retirement" funds hold the ratio you purchase and don't change over the years. Kind of nice to have the choice I think.
The difference between Vanguard's LifeStrategy Funds and its better known static allocation funds like Wellesley and Wellington is that the former are, like Vanguard's target date funds, funds of index funds. The older funds are actively managed funds of individual securities.
The T. Rowe Price suites (Retirement and Target) both are collections of target date funds. The difference between the two suites is the glide path they follow.
The Price equivalent to Wellington (VWELX) would be RPBAX. The Price equivalent to Vanguard's LifeStategy funds would be its Personal Strategy funds.
One thought is that one line became saturated with investments to the point where it was putting too much stress (bloat) on the underlying funds it invests in. So, a new line using different underlying funds would help with that. Seems like I did read some “rumblings” re a possible saturation point many years ago in one of their Retirement funds reports.
Additionally, they may contract out with some big corporations to meet their employees’ retirement needs (401K and other). Thus, different corporations might buy into different versions of what appear to be very similar investment products.