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I received 2/nd Qt. 401-k statement & noted their target date returns for one year & ytd had fallen below their benchmark. 3, 5, & 10 year returns were above benchmark. Was this slip age due to V.G.'s reallocation from 30% to 40% in international equities, plus increase from 20% to 30% in fixed international income exposure during 2/2015 ? Thanks for any replies. Derf
I don't have an answer but that is quite a big change in allocation. Perhaps a call to Vanguard would be best?
With a target date fund, that kind of change will be harder to track versus a target allocation fund of which I favor. It's a personal choice which style fits your needs the best. I had decided that I wanted control over allocation versus the set it and forget it funds. Most people favor target date.
I looked quickly through Vanguard's fund pages, all of which conveniently show bar graphs comparing each fund's performance with their benchmarks, as of Q2 2016 (June 30).
I didn't see a single target date fund where the fund's performance has exceeded the benchmark for any period. All of them are lagging the benchmarks over all periods. In Vanguard's defense, the lag is very small and could possibly be entirely attributable to the expense ratio -- in other words, it is about as close to the benchmark as an actual investor can reasonably expect to get.*
The fund pages also further explain that that benchmark is derived "by applying the fund’s target asset allocation to the results of the following benchmarks", meaning that Vanguard must be adjusting their benchmark whenever the fund allocation is changed. So that wouldn't explain any differences. Perhaps your 401k statement is using another benchmark?
* Note: Vanguard's target date funds only invest in the "Investor" class of Vanguard's index funds. The "Investor" class is the most expensive class available; this is price Vanguard charges for the convenience of the target date funds. Otherwise, an investor can get even closer to the benchmark by managing their own allocation and using a cheaper share class ("Admiral" or "Institutional"). But for most folks the difference will be trivial -- we're talking a difference of maybe $1 for every $10,000 you invest, depending on what share classes are available to you.
Thanks for your replies. The bench mark used by 401-k was Dow Jones target .... Index. Checked on another 401-k & it was using 70% Barclays US Gov/Credit Interm TR USD & 30% S&P TR USD for VTINX , (target date retirement income). % changed as target date was increased. I'll check out other retirement funds & see how they performed.
* Note: Vanguard's target date funds only invest in the "Investor" class of Vanguard's index funds. The "Investor" class is the most expensive class available; this is price Vanguard charges for the convenience of the target date funds. Otherwise, an investor can get even closer to the benchmark by managing their own allocation and using a cheaper share class ("Admiral" or "Institutional"). But for most folks the difference will be trivial -- we're talking a difference of maybe $1 for every $10,000 you invest, depending on what share classes are available to you.
That's one basis point (1% of 1%). Admiral (or ETF) shares save investors more than that, though still peanuts.
The underlying funds currently used (per prospectus) are:
Total Bond Market II Index (VTBIX, ER 0.09%) - vs. VBTLX or BND (0.06%)*
Total Stock Market Index (VTSMX, ER 0.16%) - vs. VTSAX or VTI (0.05%)
STerm Inf Prot Securities Index (VTIPX, ER 0.17%) - vs. VTAPX or VTIP (0.08%)
Total Int'l Bond Index (VTIBX, ER 0.17%) - vs. VTABX (0.14%) or BNDX (0.15%, sic)**
Total Int'l Stock Market Index (VGTSX, ER 0.19%) - vs. VTIAX (0.12%) or VXUS (0.13%, sic)**
* Total Bond Market II Index fund is "Available only as an underlying investment in Vanguard funds of funds or similar products." (Vanguard fund page). The closest equivalent is Total Bond Market Index.
This illustrates a common problem in reproducing funds of funds - some underlying funds may not be available to retail investors. Here at least there is a virtually identical substitute. For other funds of funds, such as VPGDX (which makes extensive use of VASFX) there may not be reasonable facsimiles.
** The ERs for Admiral and ETF shares come from Vanguard's pages. These are funds where the ETF shares cost more than the Admiral shares.
Comments
With a target date fund, that kind of change will be harder to track versus a target allocation fund of which I favor. It's a personal choice which style fits your needs the best. I had decided that I wanted control over allocation versus the set it and forget it funds. Most people favor target date.
I hope you get your answer.
I didn't see a single target date fund where the fund's performance has exceeded the benchmark for any period. All of them are lagging the benchmarks over all periods. In Vanguard's defense, the lag is very small and could possibly be entirely attributable to the expense ratio -- in other words, it is about as close to the benchmark as an actual investor can reasonably expect to get.*
The fund pages also further explain that that benchmark is derived "by applying the fund’s target asset allocation to the results of the following benchmarks", meaning that Vanguard must be adjusting their benchmark whenever the fund allocation is changed. So that wouldn't explain any differences. Perhaps your 401k statement is using another benchmark?
* Note: Vanguard's target date funds only invest in the "Investor" class of Vanguard's index funds. The "Investor" class is the most expensive class available; this is price Vanguard charges for the convenience of the target date funds. Otherwise, an investor can get even closer to the benchmark by managing their own allocation and using a cheaper share class ("Admiral" or "Institutional"). But for most folks the difference will be trivial -- we're talking a difference of maybe $1 for every $10,000 you invest, depending on what share classes are available to you.
Checked on another 401-k & it was using 70% Barclays US Gov/Credit Interm TR USD & 30% S&P TR USD for VTINX , (target date retirement income). % changed as target date was increased. I'll check out other retirement funds & see how they performed.
Derf
The underlying funds currently used (per prospectus) are:
- Total Bond Market II Index (VTBIX, ER 0.09%) - vs. VBTLX or BND (0.06%)*
- Total Stock Market Index (VTSMX, ER 0.16%) - vs. VTSAX or VTI (0.05%)
- STerm Inf Prot Securities Index (VTIPX, ER 0.17%) - vs. VTAPX or VTIP (0.08%)
- Total Int'l Bond Index (VTIBX, ER 0.17%) - vs. VTABX (0.14%) or BNDX (0.15%, sic)**
- Total Int'l Stock Market Index (VGTSX, ER 0.19%) - vs. VTIAX (0.12%) or VXUS (0.13%, sic)**
* Total Bond Market II Index fund is "Available only as an underlying investment in Vanguard funds of funds or similar products." (Vanguard fund page). The closest equivalent is Total Bond Market Index.This illustrates a common problem in reproducing funds of funds - some underlying funds may not be available to retail investors. Here at least there is a virtually identical substitute. For other funds of funds, such as VPGDX (which makes extensive use of VASFX) there may not be reasonable facsimiles.
** The ERs for Admiral and ETF shares come from Vanguard's pages. These are funds where the ETF shares cost more than the Admiral shares.