Vanguard Lowers Expense Ratio for Target Retirement Funds - Adds Income and Growth Trust Fund
Vanguard Lowers Expense Ratio for Target Retirement Funds - Adds Income and Growth Trust Fund
[Title was "VFIFX vs VTRLX [Vanguard Target Retirement 2050 - Investor vs. Institutional]"
Update 04/10/2022: - Title was "Vanguard lowers expense ratios for Target Retirement Funds". The new fund is discussed starting in this post --admin LadyGeek]
Hi everyone,
This is my first post here. I am 35 and while I have done some investing, I admittedly didn't do very much in my 20's and early 30's. I don't know very much, but I am trying to learn to start doing better.
I have an IRA account that I have been contributing to on Vanguard for a little while and I was putting into VFIFX. My job uses Fidelity and my 403b through them I selected the Vanguard 2050 target fund and thought it was the same, but I just noticed that it is VTRLX.
Can someone help explain the difference in these? Is there any advantage to one vs the other?
Thanks in advance
Update 04/10/2022: - Title was "Vanguard lowers expense ratios for Target Retirement Funds". The new fund is discussed starting in this post --admin LadyGeek]
Hi everyone,
This is my first post here. I am 35 and while I have done some investing, I admittedly didn't do very much in my 20's and early 30's. I don't know very much, but I am trying to learn to start doing better.
I have an IRA account that I have been contributing to on Vanguard for a little while and I was putting into VFIFX. My job uses Fidelity and my 403b through them I selected the Vanguard 2050 target fund and thought it was the same, but I just noticed that it is VTRLX.
Can someone help explain the difference in these? Is there any advantage to one vs the other?
Thanks in advance
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Re: VFIFX vs VTRLX [Vanguard Target Retirement 2050 - Investor vs. Institutional]
Welcome to Bogleheads!photojoe_ wrote: ↑Thu Feb 04, 2021 2:36 pm Hi everyone,
This is my first post here. I am 35 and while I have done some investing, I admittedly didn't do very much in my 20's and early 30's. I don't know very much, but I am trying to learn to start doing better.
I have an IRA account that I have been contributing to on Vanguard for a little while and I was putting into VFIFX. My job uses Fidelity and my 403b through them I selected the Vanguard 2050 target fund and thought it was the same, but I just noticed that it is VTRLX.
Can someone help explain the difference in these? Is there any advantage to one vs the other?
Thanks in advance
Vanguard has several mutual funds that have different "share classes".
They each have the *same* holdings, but the expense ratios are slightly different.
You can think of this as a regular package of detergent is one price per ounce, but the larger economy size has the same ingredients but each ounce costs slightly less.
That insitutional share class ordinarily has a very high minimum investment and the lowest expense ratio. But many 403b type accounts make that slightly less expensive institutional share class available to those in the plan. (The total investment amount for everyone in the plan would usually be quite a large amount, of course, even if no one participant had anything close to that stated minimum.)
RM
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Vanguard lowers expense ratios for Target Retirement Funds
[Thread merged into here --admin LadyGeek]
Hi:
News from Vanguard: Vanguard to Lower Investor Costs by an Estimated $190 Million through Enhancements to its Target Retirement Series.
Hi:
News from Vanguard: Vanguard to Lower Investor Costs by an Estimated $190 Million through Enhancements to its Target Retirement Series.
Vanguard today announced continued efforts to meet the evolving needs of retirement savers, retirees, and plan sponsors by lowering costs, streamlining investment options, and enhancing its industry-leading target-date offer. The firm will consolidate its lineup with the planned mergers of Vanguard Institutional Target Retirement Funds into Vanguard Target Retirement Funds (TRFs), which is expected to result in a lower expense ratio of 0.08% (8 basis points) for each TRF following completion of the mergers.
The TRF mergers are expected to be completed in February 2022. The merged funds will retain the same investment strategy, asset allocations, and glide path, informed by more than four decades of client insights and investment management expertise. With an anticipated expense ratio of 0.08%, investors will have access to a sophisticated, diversified asset allocation solution at just one-fifth of the average industry costs.
regards,Vanguard is also adding to its retirement income solutions with Vanguard Target Retirement Income and Growth Trust, available to eligible defined contribution plans. The new trust’s higher (50%) equity allocation in retirement is intended for participants whose wealth, risk tolerance, and/or additional sources of income allow for higher discretionary spending in retirement. The new trust is designed to be an opt-in alternative to the lower equity allocation (30%) of Vanguard Target Retirement Income Trust— most appropriate for participants whose primary investment objective is stable inflation-adjusted income to cover basic living expenses.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Thanks for posting.
That's great to see such a drop coming in ER. Currently, the Institutional TRF are all at 0.09% whereas the Investor class ranges from 0.15% for the far-dated (2045 or later) to 0.12% for the near-dated 2015 and Income funds. (per https://institutional.vanguard.com/fund ... ReturnsNAV)
Vanguard has lots of funds with both retail & institutional share classes. I wonder why they chose to combine share classes for such a high-visibility set of funds, and not the other ones? And maybe we'll see more of the same combining later on with other funds?
That's great to see such a drop coming in ER. Currently, the Institutional TRF are all at 0.09% whereas the Investor class ranges from 0.15% for the far-dated (2045 or later) to 0.12% for the near-dated 2015 and Income funds. (per https://institutional.vanguard.com/fund ... ReturnsNAV)
Vanguard has lots of funds with both retail & institutional share classes. I wonder why they chose to combine share classes for such a high-visibility set of funds, and not the other ones? And maybe we'll see more of the same combining later on with other funds?
Re: Vanguard lowers expense ratios for Target Retirement Funds
I found this little part of it to be interesting:
"Vanguard is also adding to its retirement income solutions with Vanguard Target Retirement Income and Growth Trust, available to eligible defined contribution plans. The new trust’s higher (50%) equity allocation in retirement is intended for participants whose wealth, risk tolerance, and/or additional sources of income allow for higher discretionary spending in retirement."
"Vanguard is also adding to its retirement income solutions with Vanguard Target Retirement Income and Growth Trust, available to eligible defined contribution plans. The new trust’s higher (50%) equity allocation in retirement is intended for participants whose wealth, risk tolerance, and/or additional sources of income allow for higher discretionary spending in retirement."
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
Re: Vanguard lowers expense ratios for Target Retirement Funds
Good to know.
I moved to TDF from Schwab with expense ratio of 0.08 (and paid $20 to do so from my Vanguard account). The move paid off thus far. Somewhat surprising was the miniscule fee of $20 provided a behavioral benefit, it was is enough to help me resist tweaking and timing.
Now I have homework. Schwab has only about 35 percent of equities in international (Vanguard is about 40) and no international bonds. I think I like more international equities, but international bonds ... I read Vanguards white paper a while back and didn't get it. I have time to decide.
I moved to TDF from Schwab with expense ratio of 0.08 (and paid $20 to do so from my Vanguard account). The move paid off thus far. Somewhat surprising was the miniscule fee of $20 provided a behavioral benefit, it was is enough to help me resist tweaking and timing.
Now I have homework. Schwab has only about 35 percent of equities in international (Vanguard is about 40) and no international bonds. I think I like more international equities, but international bonds ... I read Vanguards white paper a while back and didn't get it. I have time to decide.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
Re: Vanguard lowers expense ratios for Target Retirement Funds
I wonder if we'll hear Fidelity make a similar move on their Freedom Index TDF's. Their index based TDF's were competitive in ER.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
This is excellent news!
One of the more frequently asked questions that we get on this forum, regarding the Vanguard Target Retirement funds, is whether or not it's worth it to invest in the individual (underlying) funds instead.
Personally, I've been in the camp of "the target retirement funds are cheap enough... and reduce the risk of behavioral errors - so stick with them". Now with this reduction in expense ratio, there is even less reason to switch to the individual funds.
For example, for the Vanguard Target Retirement 2055 fund (VFFVX), the new expense ratio will be 0.08%.
If instead you invest in the ETF share class of the underlying funds:
0.543 * 0.0003 + 0.364 * 0.0008 + 0.062 * 0.00035 + 0.031 * 0.0008 = 0.05%
0.08% - 0.05% = 0.03%
OK - so a difference of 3 basis points. In my opinion, inconsequential.
One of the more frequently asked questions that we get on this forum, regarding the Vanguard Target Retirement funds, is whether or not it's worth it to invest in the individual (underlying) funds instead.
Personally, I've been in the camp of "the target retirement funds are cheap enough... and reduce the risk of behavioral errors - so stick with them". Now with this reduction in expense ratio, there is even less reason to switch to the individual funds.
For example, for the Vanguard Target Retirement 2055 fund (VFFVX), the new expense ratio will be 0.08%.
If instead you invest in the ETF share class of the underlying funds:
Code: Select all
Fund: Allocation: Expense Ratio:
VTI 54.3% 0.030%
VXUS 36.4% 0.080%
BND 06.2% 0.035%
BNDX 03.1% 0.080%
0.08% - 0.05% = 0.03%
OK - so a difference of 3 basis points. In my opinion, inconsequential.
Last edited by Silence Dogood on Wed Sep 29, 2021 5:07 am, edited 1 time in total.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
We certainly say 3 basis points is inconsequential when comparing VTI to FZROX, so why not in this case? I agree.
Re: Vanguard lowers expense ratios for Target Retirement Funds
So its an extra 3 basis points for Vanguard to maintain asset allocation in Target Retirement funds, 15 basis points for Digital Advisor, or 30 basis points for PAS to do it with some additional help from an in person advisor. Three basis points looks pretty cheap for those who want simplicity.Silence Dogood wrote: ↑Tue Sep 28, 2021 6:03 pm For example, for the Vanguard Target Retirement 2055 fund (VFFVX), the new expense ratio will be 0.08%.
If instead you invest in the ETF share class of the underlying funds:
0.543 * 0.0003 + 0.364 * 0.0008 + 0.062 * 0.00035 + 0.031 * 0.0008 = 0.05%Code: Select all
Fund: Allocation: Expense Ratio: VTI 54.3% 0.030% VXUS 36.4% 0.080% BND 06.2% 0.035% BNDX 03.1% 0.080%
0.08% - 0.05% = 0.3%
OK - so a difference of 3 basis points. In my opinion, inconsequential.
Re: Vanguard lowers expense ratios for Target Retirement Funds
My son’s 401k had Fido TD at much higher er than Vanguard equivalent (before this reduction) and I advised him to roll his own using other much lower cost options. The Fido 401k let’s you auto rebalance, so the only effort is adjusting the target every few years.
Re: Vanguard lowers expense ratios for Target Retirement Funds
My first thought was to tell my son to move his Roth from Lifestrategy to closest Target fund, if Vanguard does not make similar changes to Lifestrategy. Can save 5-6 bps/year. Can always move to new year if one wants to maintain AA over time, similar to Lifestrategy. As I see no Institutional version of Lifestrategy, maybe they can’t make the same changes. But if not, alot of assets could transfer in IRA accounts that have no tax impact.sycamore wrote: ↑Tue Sep 28, 2021 11:40 am Vanguard has lots of funds with both retail & institutional share classes. I wonder why they chose to combine share classes for such a high-visibility set of funds, and not the other ones? And maybe we'll see more of the same combining later on with other funds?
Last edited by beyou on Thu Sep 30, 2021 8:27 pm, edited 1 time in total.
Re: Vanguard lowers expense ratios for Target Retirement Funds
Yeah, I was just thinking, it would be nice if they lowered LifeStrategy as well. But this is nice too see for Target Date.
Re: Vanguard lowers expense ratios for Target Retirement Funds
Agreed, and the vast majority would probably get worse results managing all four individual funds on their own.Silence Dogood wrote: ↑Tue Sep 28, 2021 6:03 pm
OK - so a difference of 3 basis points. In my opinion, inconsequential.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Great news!! Just when I was thinking of moving my Roth from TDF to 3 fund. I may have to rethink. Only thing that stops me if I really need international bonds.
Re: Vanguard lowers expense ratios for Target Retirement Funds
Awesome. The best investment decision I made was to stop investing in individual stocks. The next best was investing in target date funds and going about my life.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
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Re: Vanguard lowers expense ratios for Target Retirement Funds
You guys are so fortunate. Up here Vanguard Canada charges 25bp to 32bp for their all-in-one ETFs.
- Cheez-It Guy
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Re: Vanguard lowers expense ratios for Target Retirement Funds
True, but you have poutine, maple syrup, and RUSH.Bylo Selhi wrote: ↑Wed Sep 29, 2021 12:25 pm You guys are so fortunate. Up here Vanguard Canada charges 25bp to 32bp for their all-in-one ETFs.
Re: Vanguard lowers expense ratios for Target Retirement Funds
That's great news. I have all my retirement funds in VFORX and now I'm even more happy that I'm there.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
It will be very strange to see a Target Retirement Fund with a lower ER than VTIAX or VTWAX. Hopefully we will see those come down a bit more as well in the coming year(s).
VTWAX and chill
Re: Vanguard lowers expense ratios for Target Retirement Funds
Hmmn, I use PAS, but this might be a better option for me. However, I am guessing it would involve the selling of the funds I have now triggering capital gains? I have the typical Vanguard 4 funds deal right now. If there is not enough info here, let me know and I will start a new thread with that info. Thanks!
Re: Vanguard lowers expense ratios for Target Retirement Funds
And Coffee Crisp bars.Cheez-It Guy wrote: ↑Wed Sep 29, 2021 12:27 pmTrue, but you have poutine, maple syrup, and RUSH.Bylo Selhi wrote: ↑Wed Sep 29, 2021 12:25 pm You guys are so fortunate. Up here Vanguard Canada charges 25bp to 32bp for their all-in-one ETFs.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
If those funds are held in a taxable account, and if they have net gains, then yes. Anything in tax-advantaged accounts can be sold without impact to buy whatever you want.Infomom2 wrote: ↑Thu Sep 30, 2021 5:33 pm Hmmn, I use PAS, but this might be a better option for me. However, I am guessing it would involve the selling of the funds I have now triggering capital gains? I have the typical Vanguard 4 funds deal right now. If there is not enough info here, let me know and I will start a new thread with that info. Thanks!
Re: Vanguard lowers expense ratios for Target Retirement Funds
If held in a taxable account then yes, gains would be taxed. For IRA, no problem.Infomom2 wrote: ↑Thu Sep 30, 2021 5:33 pm Hmmn, I use PAS, but this might be a better option for me. However, I am guessing it would involve the selling of the funds I have now triggering capital gains? I have the typical Vanguard 4 funds deal right now. If there is not enough info here, let me know and I will start a new thread with that info. Thanks!
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Yeah one of the reasons I dumped my life strategy fund and decided to hold some of the individual funds I can get at admiral prices. The automatic rebalance is not worth it.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
This is an interesting development. 0.08% ER to use Vanguard Target Retirement Income Fund (VTINX) as an emergency fund alternative might not be a bad idea.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
If I were a new investor I'd be a little concerned and want to know more about Vanguard's possible intent to put a large percentage of their target date funds in private equity.
Re: Vanguard lowers expense ratios for Target Retirement Funds
Can you please elaborate?GoneOnTilt wrote: ↑Sat Oct 02, 2021 10:50 am If I were a new investor I'd be a little concerned and want to know more about Vanguard's possible intent to put a large percentage of their target date funds in private equity.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Here's a link in which Vanguard refers to it:DB2 wrote: ↑Sat Oct 02, 2021 11:44 amCan you please elaborate?GoneOnTilt wrote: ↑Sat Oct 02, 2021 10:50 am If I were a new investor I'd be a little concerned and want to know more about Vanguard's possible intent to put a large percentage of their target date funds in private equity.
https://institutional.vanguard.com/offe ... funds.page
Also, it's discussed in the most recent episode of Bogleheads on Investing. Rick Ferri has a great interview with Ted Aronson. Really worth a listen, even with the private equity thing aside. Very interesting. I said "large percentage" because I thought there was a reference to up to 30% in the podcast. I was driving. I could be mistaken.
I would just want to know a lot more before I invested. But maybe that's just because I don't know anything about private equity! Anyway, here's the link:
https://bogleheads.podbean.com/
Re: Vanguard lowers expense ratios for Target Retirement Funds
Thanks!GoneOnTilt wrote: ↑Sat Oct 02, 2021 12:02 pmHere's a link in which Vanguard refers to it:DB2 wrote: ↑Sat Oct 02, 2021 11:44 amCan you please elaborate?GoneOnTilt wrote: ↑Sat Oct 02, 2021 10:50 am If I were a new investor I'd be a little concerned and want to know more about Vanguard's possible intent to put a large percentage of their target date funds in private equity.
https://institutional.vanguard.com/offe ... funds.page
Also, it's discussed in the most recent episode of Bogleheads on Investing. Rick Ferri has a great interview with Ted Aronson. Really worth a listen, even with the private equity thing aside. Very interesting. I said "large percentage" because I thought there was a reference to up to 30% in the podcast. I was driving. I could be mistaken.
I would just want to know a lot more before I invested. But maybe that's just because I don't know anything about private equity! Anyway, here's the link:
https://bogleheads.podbean.com/
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Out of those 3 what’s the most important? Let me answer that…RUSH!Cheez-It Guy wrote: ↑Wed Sep 29, 2021 12:27 pmTrue, but you have poutine, maple syrup, and RUSH.Bylo Selhi wrote: ↑Wed Sep 29, 2021 12:25 pm You guys are so fortunate. Up here Vanguard Canada charges 25bp to 32bp for their all-in-one ETFs.
Re: Vanguard lowers expense ratios for Target Retirement Funds
I would be shocked if TD funds ended up 30% PE.GoneOnTilt wrote: ↑Sat Oct 02, 2021 12:02 pmHere's a link in which Vanguard refers to it:DB2 wrote: ↑Sat Oct 02, 2021 11:44 amCan you please elaborate?GoneOnTilt wrote: ↑Sat Oct 02, 2021 10:50 am If I were a new investor I'd be a little concerned and want to know more about Vanguard's possible intent to put a large percentage of their target date funds in private equity.
https://institutional.vanguard.com/offe ... funds.page
Also, it's discussed in the most recent episode of Bogleheads on Investing. Rick Ferri has a great interview with Ted Aronson. Really worth a listen, even with the private equity thing aside. Very interesting. I said "large percentage" because I thought there was a reference to up to 30% in the podcast. I was driving. I could be mistaken.
I would just want to know a lot more before I invested. But maybe that's just because I don't know anything about private equity! Anyway, here's the link:
https://bogleheads.podbean.com/
PE by it’s very mature is a smaller more illiquid market.
The rest of the TD funds are all index funds, and now they will add an actively managed highly concentrated risky fund ? And this would surely add to the ER, offsetting benefits of this share class merger. They should offer PE if there is demand, but I see no reason to add to EXISTING TD funds. If they want to create active TD funds, then go for it, but do not mess with the index oriented TD funds.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Why not listen to RUSH while eating poutine, eh?SquawkIdent wrote: ↑Sat Oct 02, 2021 1:41 pmOut of those 3 what’s the most important? Let me answer that…RUSH!Cheez-It Guy wrote: ↑Wed Sep 29, 2021 12:27 pmTrue, but you have poutine, maple syrup, and RUSH.Bylo Selhi wrote: ↑Wed Sep 29, 2021 12:25 pm You guys are so fortunate. Up here Vanguard Canada charges 25bp to 32bp for their all-in-one ETFs.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Yes, in Lakeside Park, on Bastille Day.Cheez-It Guy wrote: ↑Sat Oct 02, 2021 7:48 pmWhy not listen to RUSH while eating poutine, eh?SquawkIdent wrote: ↑Sat Oct 02, 2021 1:41 pmOut of those 3 what’s the most important? Let me answer that…RUSH!Cheez-It Guy wrote: ↑Wed Sep 29, 2021 12:27 pmTrue, but you have poutine, maple syrup, and RUSH.Bylo Selhi wrote: ↑Wed Sep 29, 2021 12:25 pm You guys are so fortunate. Up here Vanguard Canada charges 25bp to 32bp for their all-in-one ETFs.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
That fund has 30% equity so when the market fell last year around 30% you'd have had a 9% loss on your savings. Not the end of the world but still what if you needed the money as many did at that time due to job loss furlough etc?anon_investor wrote: ↑Fri Oct 01, 2021 11:04 pm This is an interesting development. 0.08% ER to use Vanguard Target Retirement Income Fund (VTINX) as an emergency fund alternative might not be a bad idea.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Vanguard lowers expense ratios for Target Retirement Funds
Would it make sense for Vanguard to introduce a "tax efficient" version of their Target Date Funds?
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Re: Vanguard lowers expense ratios for Target Retirement Funds
I personally wouldn't do it, but there was a thread about utilizing that strategy:arcticpineapplecorp. wrote: ↑Sat Oct 02, 2021 8:45 pmThat fund has 30% equity so when the market fell last year around 30% you'd have had a 9% loss on your savings. Not the end of the world but still what if you needed the money as many did at that time due to job loss furlough etc?anon_investor wrote: ↑Fri Oct 01, 2021 11:04 pm This is an interesting development. 0.08% ER to use Vanguard Target Retirement Income Fund (VTINX) as an emergency fund alternative might not be a bad idea.
viewtopic.php?p=5131734#p5131734
My 10 month emergency fund is currently 60% I Bonds and 40% cash (at a FDIC insured bank)
Re: Vanguard lowers expense ratios for Target Retirement Funds
While looking at The Trees.GoneOnTilt wrote: ↑Sat Oct 02, 2021 8:01 pmYes, in Lakeside Park, on Bastille Day.Cheez-It Guy wrote: ↑Sat Oct 02, 2021 7:48 pmWhy not listen to RUSH while eating poutine, eh?SquawkIdent wrote: ↑Sat Oct 02, 2021 1:41 pmOut of those 3 what’s the most important? Let me answer that…RUSH!Cheez-It Guy wrote: ↑Wed Sep 29, 2021 12:27 pmTrue, but you have poutine, maple syrup, and RUSH.Bylo Selhi wrote: ↑Wed Sep 29, 2021 12:25 pm You guys are so fortunate. Up here Vanguard Canada charges 25bp to 32bp for their all-in-one ETFs.
RIP Neil
Re: Vanguard lowers expense ratios for Target Retirement Funds
While sipping RUSH beer https://henderson-brewing-company.mysho ... tions/rushh82goslw wrote: ↑Sun Oct 03, 2021 5:13 amWhile looking at The Trees.GoneOnTilt wrote: ↑Sat Oct 02, 2021 8:01 pmYes, in Lakeside Park, on Bastille Day.Cheez-It Guy wrote: ↑Sat Oct 02, 2021 7:48 pmWhy not listen to RUSH while eating poutine, eh?SquawkIdent wrote: ↑Sat Oct 02, 2021 1:41 pmOut of those 3 what’s the most important? Let me answer that…RUSH!
RIP Neil
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Indeed friend. RIP Neil.h82goslw wrote: ↑Sun Oct 03, 2021 5:13 amWhile looking at The Trees.GoneOnTilt wrote: ↑Sat Oct 02, 2021 8:01 pmYes, in Lakeside Park, on Bastille Day.Cheez-It Guy wrote: ↑Sat Oct 02, 2021 7:48 pmWhy not listen to RUSH while eating poutine, eh?SquawkIdent wrote: ↑Sat Oct 02, 2021 1:41 pmOut of those 3 what’s the most important? Let me answer that…RUSH!
RIP Neil
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Re: Vanguard lowers expense ratios for Target Retirement Funds
Canada, we salute you!
Re: Vanguard lowers expense ratios for Target Retirement Funds
If you are in a low tax bracket, the tax cost for an index-based target-date fund isn't that great. You will be holding the same funds that you would hold if you held separate bond and stock funds, but separate funds might allow you to reduce taxes by holding all your bonds in tax-deferred (or, depending on yields and your tax situation, holding all your bonds in taxable). If you value the simplicity of a portfolio that manages itself, it may still be reasonable to use the target-date funds.
In a higher bracket, you would want to use municipal bonds. The IRS won't allow a tax exemption for municipal-bond interest unless the fund is at least 50% munis, which makes muni-based target-date funds impossible. (This is also the reason that Vanguard Tax-Managed Balanced is 49% stock.)
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Re: Vanguard lowers expense ratios for Target Retirement Funds
It's just because of US tax laws. I bet it could be done in other jurisdictions that allow for accumulating ETFs that legally can avoid any taxable distributions (including dividends) before sale.
Re: Vanguard lowers expense ratios for Target Retirement Funds
Some people max out their retirement accounts and would like to save some more in taxable accounts. Or how about individuals who would like at least some of their savings to be accessible prior to retirement (for a possible emergency expense or home purchase, etc)?
I may be mistaken but it seems to me one way to make them more tax efficient is for Vanguard to have a version of the TDF that allocates all its bonds in municipal funds.
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Re: Vanguard lowers expense ratios for Target Retirement Funds
this is good news -- nice to save a few bucks per year...
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Re: Vanguard lowers expense ratios for Target Retirement Funds
You are mistaken. If an investor is concerned about tax efficiency in their taxable account then there is no way using a Target Date Fund would make ANY sense, even a "tax efficient" Target Date Fund.etfan wrote: ↑Sun Oct 03, 2021 3:05 pmSome people max out their retirement accounts and would like to save some more in taxable accounts. Or how about individuals who would like at least some of their savings to be accessible prior to retirement (for a possible emergency expense or home purchase, etc)?
I may be mistaken but it seems to me one way to make them more tax efficient is for Vanguard to have a version of the TDF that allocates all its bonds in municipal funds.
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Target date ER race
Lovely competition.
Morningstar (10/4/2021), "Vanguard Cuts Target-Date Fund Fees as Fidelity Continues to Gain Momentum", link.
"Once the merger [of Vanguard fund share classes] finishes, all shareholders will pay 0.08%, and there will be no plan-level minimum; investors outside of a plan will still have the $1,000 minimum."
Morningstar (10/4/2021), "Vanguard Cuts Target-Date Fund Fees as Fidelity Continues to Gain Momentum", link.
"Once the merger [of Vanguard fund share classes] finishes, all shareholders will pay 0.08%, and there will be no plan-level minimum; investors outside of a plan will still have the $1,000 minimum."
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: Vanguard lowers expense ratios for Target Retirement Funds
Topics merged regarding Vanguard lowering target date fund expense ratios.