Target date funds ... so much for "set and forget" [and WSJ article]

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Whakamole
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by Whakamole »

TdF fan wrote: Sun Jan 23, 2022 10:59 am
lazynovice wrote: Fri Jan 21, 2022 8:33 pm That’s true. The fund I am thinking of that I am unsure if it has an institutional class is FSKAX. It’s offered in 401(k) and to retail. Both instances have a .015% ER. It’s doubtful Fidelity would offer a 401(k) version for less than .015%.
FSKAX is the institutional class or I should say it was the institutional class before the merger of the premium class (FSTVX) and other classes into FSKAX. My statements from that time (Nov. 2018) show "activity out" of FSTVX and "activity in" to FSKAX and have a description of "merger". Fidelity did that same merger with several of their index funds (all classes being merged into the institutional class) around that same time.

For me it was of no tax consequence since it was all in my IRA and Roth IRA.

Here is a thread here with a bit more information: viewtopic.php?t=262557
It sounds like Fidelity knows how to treat individual investors right. Vanguard could stand to learn a few things from them.
Stumptowngal
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by Stumptowngal »

quietseas wrote: Sun Jan 23, 2022 10:34 am
nedsaid wrote: Sun Jan 23, 2022 10:31 am Write on the chalkboard 100 times:

Do not put a Target Date Retirement fund in a taxable account.

Do not put a Target Date Retirement fund in a taxable account.

Do not put a Target Date Retirement fund in a taxable account.

And so on....

(Copy and paste doesn't count) :wink:
I'm of the same opinion for any fund of funds (including LifeStrategy). We'll have to see what the future brings.
I totally agree regarding not having a LifeStrategy fund in taxable . . .at least from our own personal experience.

We just completed our third and final year of selling off our LifeStrategy fund in our taxable account The end of year capital gains distributions had become a very unwanted tax drag. We purchased the fund eons ago when it originally held only 20% international stock and no international bonds. Plus our account was fairly low worth at the time. Now was our opportunity to close it out before starting RMDs in another year.

In addition to eliminating the tax problem, we’re also less enamored with the changing holdings and percentages thereof that can occur over time in a fund of funds.
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by Geologist »

Whakamole wrote: Sun Jan 23, 2022 11:59 am
TdF fan wrote: Sun Jan 23, 2022 10:59 am
lazynovice wrote: Fri Jan 21, 2022 8:33 pm That’s true. The fund I am thinking of that I am unsure if it has an institutional class is FSKAX. It’s offered in 401(k) and to retail. Both instances have a .015% ER. It’s doubtful Fidelity would offer a 401(k) version for less than .015%.
FSKAX is the institutional class or I should say it was the institutional class before the merger of the premium class (FSTVX) and other classes into FSKAX. My statements from that time (Nov. 2018) show "activity out" of FSTVX and "activity in" to FSKAX and have a description of "merger". Fidelity did that same merger with several of their index funds (all classes being merged into the institutional class) around that same time.

For me it was of no tax consequence since it was all in my IRA and Roth IRA.

Here is a thread here with a bit more information: viewtopic.php?t=262557
It sounds like Fidelity knows how to treat individual investors right. Vanguard could stand to learn a few things from them.
Except that, as discussed earlier in this thread, Fidelity did the same thing in 2019. See viewtopic.php?f=10&t=299021 for a discussion at that time.
promethean-in-fla
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by promethean-in-fla »

The reporting says institutional investors migrating to another similar fund for a lower expense ratio caused asset sales to meet redemptions that triggered capital gains distributions. Based on possible unrealized gains in the funds and my level of investment in the funds, my greatest potential exposure would be in the two broad equity funds VTSAX and VTIAX. Looking at the prospectuses for them, it appears what happened with the target date funds reported on by the WSJ should not be an issue. They both have a variety of institutional share classes within the same fund. Of course, I'm exposed to the consequence of redemptions by other shareholders for other reasons.

From the statutory prospectus for VTSAX:

"This prospectus offers the Funds’ Admiral Shares. A separate prospectus offers
the Funds’ Investor Shares, which are generally available only to Vanguard funds
that operate as fund of funds and to certain retirement plan clients that receive
recordkeeping services from Vanguard. Another prospectus offers the Funds’
Institutional Shares and Institutional Plus Shares of Total Stock Market Index
Fund, which are generally for investors who invest a minimum of $5 million and
$100 million, respectively. Another prospectus offers Institutional Select Shares
for the Total Stock Market Index Fund, which are generally for investors who
invest a minimum of $5 billion. In addition, each Fund issues ETF Shares (an
exchange-traded class of shares), which are also offered through a
separate prospectus."


From the statutory prospectus for VTIAX:

"This prospectus offers the Fund’s Admiral Shares. Separate prospectuses offer
the Fund’s Investor Shares, which are generally available only to Vanguard funds
that operate as funds of funds and to certain retirement plan clients that receive
recordkeeping services from Vanguard, and Institutional Shares and Institutional
Plus Shares, which are generally for investors who invest a minimum of $5
million or $100 million, respectively. Another prospectus offers the Fund’s
Institutional Select Shares, which are generally for investors who invest a
minimum of $3 billion. In addition, the Fund issues ETF Shares (an
exchange-traded class of shares), which are also offered through a
separate prospectus."
lazynovice
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by lazynovice »

TdF fan wrote: Sun Jan 23, 2022 10:59 am
lazynovice wrote: Fri Jan 21, 2022 8:33 pm That’s true. The fund I am thinking of that I am unsure if it has an institutional class is FSKAX. It’s offered in 401(k) and to retail. Both instances have a .015% ER. It’s doubtful Fidelity would offer a 401(k) version for less than .015%.
FSKAX is the institutional class or I should say it was the institutional class before the merger of the premium class (FSTVX) and other classes into FSKAX. My statements from that time (Nov. 2018) show "activity out" of FSTVX and "activity in" to FSKAX and have a description of "merger". Fidelity did that same merger with several of their index funds (all classes being merged into the institutional class) around that same time.

For me it was of no tax consequence since it was all in my IRA and Roth IRA.

Here is a thread here with a bit more information: viewtopic.php?t=262557
Thank you very much! Would never have found that on my own. Now need to figure out the same thing for SWTSX (Schwab’s total market fund). My gains in those funds are so large, there is nothing I can do about it. I’m a sitting duck. But this is one less thing to worry about.

Edit: This is rather embarrassing. I was a holder of FSTVX when it was merged. I didn’t remember it until I read that thread. I remember now that I was very happy with the drop in ER.
Last edited by lazynovice on Sun Jan 23, 2022 4:15 pm, edited 1 time in total.
cas
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by cas »

Aha. I just randomly came across a Morningstar article that (probably) adds more context to this issue: Vanguard Cuts Target-Date Fund Fees as Fidelity Continues to Gain Momentum (Oct 4, 2021)


Summary: Hints are that Vanguard and Fidelity seem to be having a knock-down-drag-out fee-based battle over the Index Target Date space.

A timeline from the article and elsewhere. (Very broadly worded and approximate in the service of brevity.)
  • 2019: Fidelity lowers (index) target date expense ratios below Vanguard's.
  • 2019: Fidelity rearranges their target date deck chairs within their Freedom Index series, resulting in very large capital gain distributions in December 2019
  • 2020: From article:
    Since 2020, Fidelity Freedom Index has supplanted Vanguard's retail business as the top index-based target-date series among mutual funds. Fidelity's net $34 billion of inflows into its index-based series nearly tripled Vanguard's $13 billion haul. It's a stark reversal from the previous two years, when Vanguard’s retail business brought in more than $70 billion of net inflows while Fidelity garnered less than $20 billion.
  • 2021: Vanguard lowers target date expense ratios for small-medium-ish business defined contribution plans
  • 2021: Vanguard rearranges their target date deck chairs, resulting in very large capital gain distributions in December 2021
  • From article:
    History suggests Fidelity won't stay idle.
  • 2022: Fidelity starts implementing yet more target date deck chair rearrangement. (unknown whether expense ratio will change or whether there will be any tax effects)
  • 2022: Vanguard lowers target date expense ratios for all customers and implements yet more deck chair rearrangement. (unknown tax effects)

    Side Note: Note that capital gains distributions (potentially large) could result if either one of them went into net redemptions due to losing target date assets to the other. It isn't impossible that the deck chair rearranging that resulted in the large cap gain distributions from both in recent years might end up being a lesser evil for those in taxable accounts than having loss of the battle to the other lead to large net redemptions (resulting in large cap gain distributions).
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by LadyGeek »

cas wrote: Sun Jan 23, 2022 4:11 pm ...
I should point out that this rearrangement is exactly why I model the target date funds in my portfolio. Start with How to build a lazy portfolio, then go to Approximating Vanguard target date funds and look at the Vanguard 2020 fund example. OK, it's a bit old but the approach is the same.

Let the pros do the work for you. Pick the target date fund that matches your asset allocation (stocks / bonds) and align your portfolio to the latest deck chair arrangement. No muss, no fuss. There's no need to decide on US vs. non-US, TIPS or not, etc.
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by lazynovice »

LadyGeek wrote: Sun Jan 23, 2022 4:30 pm
cas wrote: Sun Jan 23, 2022 4:11 pm ...
I should point out that this rearrangement is exactly why I model the target date funds in my portfolio. Start with How to build a lazy portfolio, then go to Approximating Vanguard target date funds and look at the Vanguard 2020 fund example. OK, it's a bit old but the approach is the same.

Let the pros do the work for you. Pick the target date fund that matches your asset allocation (stocks / bonds) and align your portfolio to the latest deck chair arrangement. No muss, no fuss. There's no need to decide on US vs. non-US, TIPS or not, etc.
My conundrum is what to tell my spouse to do after I die. He understands low cost investing but I don’t think he is going to want to fiddle with rebalancing. I felt reasonably safe sending him the Lifecycle fund route and even have in my notes to him to go the TDF route. But now, that’s out the window. And I have lost so much trust in Vanguard over the last few years, I can’t send him the PAS route. I guess I’ll just stay alive!
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by LadyGeek »

There are other low-cost advisor services out there. Fidelity is just one example. Feel free to start a thread in the personal finance forum if you want to pursue this further.
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sc9182
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by sc9182 »

lazynovice wrote: Sun Jan 23, 2022 8:52 pm
LadyGeek wrote: Sun Jan 23, 2022 4:30 pm
cas wrote: Sun Jan 23, 2022 4:11 pm ...
I should point out that this rearrangement is exactly why I model the target date funds in my portfolio. Start with How to build a lazy portfolio, then go to Approximating Vanguard target date funds and look at the Vanguard 2020 fund example. OK, it's a bit old but the approach is the same.

Let the pros do the work for you. Pick the target date fund that matches your asset allocation (stocks / bonds) and align your portfolio to the latest deck chair arrangement. No muss, no fuss. There's no need to decide on US vs. non-US, TIPS or not, etc.
My conundrum is what to tell my spouse to do after I die. He understands low cost investing but I don’t think he is going to want to fiddle with rebalancing. I felt reasonably safe sending him the Lifecycle fund route and even have in my notes to him to go the TDF route. But now, that’s out the window. And I have lost so much trust in Vanguard over the last few years, I can’t send him the PAS route. I guess I’ll just stay alive!
Heh - not a bad choice of staying alive, and longer for both !!

Things change/evolve over years - especially over the horizon of retirement time-frames (we may be talking 10-15-20, or possibly 30+ years). Whatever you chose today - likely going to be need some tweaking along such long horizons. No choice but to engage spouse along the way in life's and financial journey -- ideally, have limited/minimal life-insurance to take care of un-eventful/un-timely demise of self/spouse.
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Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by iamblessed »

[Thread merged into here --admin LadyGeek]

Seems like it is three times normal levels.
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markjk
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by markjk »

Quite a few threads on this out there. For example:
viewtopic.php?f=10&t=362699

The root cause is rebalancing. Any of these "fund of funds" must take action to keep their asset allocation in check. In a year where equities fly high and bonds do next to nothing, that requires some action on the parts of the fund managers to keep allocations on target.

I'm not an expert on this by any means but the full answer is a bit more complex and involves the type of share (whether it's institutional or investor shares), funds cash flow, rebalancing philosophy/approach, etc. Vanguard has taken some bad press for how they handled many of those funds this year.

If you are in a tax-advantaged account and are re-investing dividends/cap-gains, it doesn't matter much. For those with these types of funds in taxable accounts, it was an unpleasant surprise.
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by iamblessed »

The market was up more in 19 than 21 but it did not have this problem?
lrobb
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by lrobb »

https://texasnewstoday.com/a-huge-tax-b ... rd/614552/
It happened because a big client left a bag for a small client. Vanguard Target Funds are offered in multiple formats. Smaller clients get the standard version. Larger customers, such as corporate retirement plans, can get an institutional version of the same holding at a lower price.

At the end of 2020, Vanguard reduced the organization’s minimum investment in the Target Retirement fund from $ 100 million to $ 5 million. It caused a crowd of elephants as the retirement plans of millions of dollars moved from standard target funding to institutional equivalents. (The client must sell out one format and buy the other.)
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by lane7068 »

Just saw a Youtube video about this: Rob Berger----Vanguard Throws Some Target Date Fund Investors Under the Bus
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by LadyGeek »

I merged iamblessed's question into the ongoing discussion. The combined thread is in the Investing - Theory, News & General forum (general discussion).
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by mgp »

markjk wrote: Mon Jan 24, 2022 1:15 pm Quite a few threads on this out there. For example:
viewtopic.php?f=10&t=362699

The root cause is rebalancing. Any of these "fund of funds" must take action to keep their asset allocation in check. In a year where equities fly high and bonds do next to nothing, that requires some action on the parts of the fund managers to keep allocations on target.

I'm not an expert on this by any means but the full answer is a bit more complex and involves the type of share (whether it's institutional or investor shares), funds cash flow, rebalancing philosophy/approach, etc. Vanguard has taken some bad press for how they handled many of those funds this year.

If you are in a tax-advantaged account and are re-investing dividends/cap-gains, it doesn't matter much. For those with these types of funds in taxable accounts, it was an unpleasant surprise.
Was this be a problem only for funds of funds ?
Was this an issue for VBIAX ? It is not a fund of funds but it tries to keep a 60/40 allocation.
Curious if VBIAX had or not a similar problem.
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by dbr »

mgp wrote: Mon Jan 24, 2022 4:36 pm
markjk wrote: Mon Jan 24, 2022 1:15 pm Quite a few threads on this out there. For example:
viewtopic.php?f=10&t=362699

The root cause is rebalancing. Any of these "fund of funds" must take action to keep their asset allocation in check. In a year where equities fly high and bonds do next to nothing, that requires some action on the parts of the fund managers to keep allocations on target.

I'm not an expert on this by any means but the full answer is a bit more complex and involves the type of share (whether it's institutional or investor shares), funds cash flow, rebalancing philosophy/approach, etc. Vanguard has taken some bad press for how they handled many of those funds this year.

If you are in a tax-advantaged account and are re-investing dividends/cap-gains, it doesn't matter much. For those with these types of funds in taxable accounts, it was an unpleasant surprise.
Was this be a problem only for funds of funds ?
Was this an issue for VBIAX ? It is not a fund of funds but it tries to keep a 60/40 allocation.
Curious if VBIAX had or not a similar problem.
The actual cause was a peculiar exit of money from the retail fund to the institutional fund when Vanguard lowered the minimum amount for institutional funds in 401K's. I think it is in the threads about this. Probably this was a one-time upset but Vanguard either didn't think or didn't care that some investors were going to be harmed by this.

The other factor was people holding those exact blended funds in taxable accounts, but this exact event is not general to blended funds. There are other reasons that are good enough to not hold any such funds in taxable accounts.
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by markjk »

dbr wrote: Mon Jan 24, 2022 4:46 pm The actual cause was a peculiar exit of money from the retail fund to the institutional fund when Vanguard lowered the minimum amount for institutional funds in 401K's. I think it is in the threads about this. Probably this was a one-time upset but Vanguard either didn't think or didn't care that some investors were going to be harmed by this.

The other factor was people holding those exact blended funds in taxable accounts, but this exact event is not general to blended funds. There are other reasons that are good enough to not hold any such funds in taxable accounts.
Thanks. Here is a good WSJ article from Friday (1/21) that explains it well.
https://www.wsj.com/articles/vanguard-t ... 1642781228
longinvest
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by longinvest »

dodecahedron wrote: Sun Jan 23, 2022 11:44 am
longinvest wrote: Sat Jan 22, 2022 10:13 pm
dodecahedron wrote: Sat Jan 22, 2022 10:04 pm
longinvest wrote: Sat Jan 22, 2022 9:15 pm
BornInCA wrote: Sat Jan 22, 2022 6:46 pm It’s surprising that Vanguard Tax-Managed Balanced is the only tax-managed balanced fund out there. Only thing that sucks about this fund is that there is no international stocks in it. I think some time ago Morningstar did recommend that there should be some tax-managed/tax-efficient target date retirement funds. I am sure there can be a market for such products.
The iShares Core Allocation ETFs are globally diversified:
But those iShares Core Allocation ETFs do not claim to be tax-managed. I think BorninCA is correct that Vanguard Tax-managed Balanced is the only tax-managed balanced fund out there.
Dodecahedron, in the linked document I see:
Key benefits:
...
2. Harness the experience of BlackRock and the efficiency of iShares ETFs to get a broad mix of bonds and global stocks.
...
There's a claim of efficiency. It's marketing material, so, it's difficult to say what they exactly mean by efficiency, but ETFs are generally more tax-efficient than mutual funds in taxable accounts.
I think it is a stretch to assume *tax* efficiency in this context without the explicit use of the word "tax".

It is generally acknowledged that mutual funds and ETFs are a very efficient way for individual investors to hold a broadly diversified portfolio simply because they reduce transactions costs (commissions and bid-asked spreads) and hassle involved. Such funds can be efficient in that sense without necessarily being tax-efficient.
Dodecahedron, it would be a mistake to consider a mutual fund to be as tax-efficient as a similar ETF in taxable accounts (except for Vanguard's dual-share funds, like its Total Stock Market ETF-Fund (VTI / VTSAX)). An ETF mostly isolates its investors from the tax consequences of active trading by other investors. As we've seen in this thread, a mutual fund doesn't.

An all-in-one ETF, like an iShares core allocation ETF, can use the continuous creation and redemption of shares by authorized participants to tax-efficiently gradually rebalance towards its target allocation. In all likelihood, an all-in-one ETF will be more tax efficient for a do-it-yourself investor than directly holding and rebalancing its underlying ETFs in a taxable account, thanks to the tax-efficiency of the ETF structure.*

* Let's keep the debate about mirror vs spread allocation across accounts for another thread, like this one (third paragraph of linked post).

I think that an iShares core allocation ETF is good enough in a taxable account once tax-advantaged accounts are full. As I've written earlier in this thread, Vanguard's mistake in 2021 doesn't change my opinion that holding a Target-Date fund or a LifeStrategy fund is also good enough in a taxable account once tax-advantaged accounts are full. A globally-diversified all-in-one index ETF or mutual fund significantly simplifies investing, especially for a less-knowledgeable surviving spouse or caretaker, and it can help sidestep a long list of behavioral pitfalls.
Last edited by longinvest on Mon Jan 24, 2022 6:35 pm, edited 4 times in total.
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Re: Target date funds ... so much for "set and forget"

Post by Jason Zweig »

lazynovice wrote: Sat Jan 22, 2022 8:30 am
Jason Zweig wrote: Fri Jan 21, 2022 11:10 am I wrote a column about this in today's WSJ:

https://www.wsj.com/articles/vanguard-t ... 1642781228

Jason Zweig
Thanks for the article. It appears Vanguard is merging the funds this year. I’m curious why Vanguard didn’t merge the funds before lowering the entry point on the institutional share class. It seems that step would have saved those in taxable accounts a lot of money. Did you happen to ask them why they didn’t do that? Was there a law or IRS reg preventing it?
I asked but did not get a direct response.
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by dodecahedron »

Jason Zweig has posted an interesting followup that includes responses to feedback from his readers to his column on this topic.

I believe you have to be a WSJ subscriber* to view the post. The specific part dealing with the Vanguard Target Date funds is titled "Sitting-Hawk" is not a Sitting Duck and appears about a quarter of the way down from the beginning of the post.

(*Unsolicited testimonial for Jason Zweig: in my opinion, his columns alone are worth the price of a WSJ subscription. WSJ subscribers can sign up for a bonus email with posts like the above.)
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by dodecahedron »

markjk wrote: Mon Jan 24, 2022 1:15 pm The root cause is rebalancing. Any of these "fund of funds" must take action to keep their asset allocation in check. In a year where equities fly high and bonds do next to nothing, that requires some action on the parts of the fund managers to keep allocations on target.
Rebalancing need not be a cause of anything problematic for tax efficiency as long as the mutual fund is growing from new contributions! A flourishing mutual fund that is growing sufficiently fast can easily rebalance using the new cash inflows to purchase securities to address the imbalance.

The root cause of this particular tax efficiency catastrophe is that the TDF was shrinking (actually hemorrhaging assets!)
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by dodecahedron »

mgp wrote: Mon Jan 24, 2022 4:36 pm
markjk wrote: Mon Jan 24, 2022 1:15 pm Quite a few threads on this out there. For example:
viewtopic.php?f=10&t=362699

The root cause is rebalancing. Any of these "fund of funds" must take action to keep their asset allocation in check. In a year where equities fly high and bonds do next to nothing, that requires some action on the parts of the fund managers to keep allocations on target.

I'm not an expert on this by any means but the full answer is a bit more complex and involves the type of share (whether it's institutional or investor shares), funds cash flow, rebalancing philosophy/approach, etc. Vanguard has taken some bad press for how they handled many of those funds this year.

If you are in a tax-advantaged account and are re-investing dividends/cap-gains, it doesn't matter much. For those with these types of funds in taxable accounts, it was an unpleasant surprise.
Was this be a problem only for funds of funds ?
Was this an issue for VBIAX ? It is not a fund of funds but it tries to keep a 60/40 allocation.
Curious if VBIAX had or not a similar problem.
VBIAX (Vanguard Balanced Admiral Fund) had a relatively tiny capital gains distribution in 2021 (just a few percent), which illustrates that rebalancing can be a pretty manageable tax issue, as long as the fund is not experiencing a lot of net redemptions (or, even better, if the fund is growing from new contributions).

An even better example is VTMFX (Vanguard Tax Managed Balanced Admiral Fund) which managed to stay balanced and had ZERO capital gains distributions in 2021, illustrating that rebalancing is not necessarily a source of tax inefficiency. However, the posted link also notes that VTMFX has about 1/3 of its NAV in UNrealized capital gains, so if the fund were to shrink for whatever reason in the future (e.g., due to falling out of fashion, more aggressive competitor pricing, whatever), it could be forced to pass along huge capital gains to investors, even if placid financial markets required no rebalancing.
Last edited by dodecahedron on Tue Jan 25, 2022 1:03 pm, edited 1 time in total.
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by dodecahedron »

LadyGeek wrote: Sun Jan 23, 2022 4:30 pm I should point out that this rearrangement is exactly why I model the target date funds in my portfolio. Start with How to build a lazy portfolio, then go to Approximating Vanguard target date funds and look at the Vanguard 2020 fund example. OK, it's a bit old but the approach is the same.

Let the pros do the work for you. Pick the target date fund that matches your asset allocation (stocks / bonds) and align your portfolio to the latest deck chair arrangement. No muss, no fuss. There's no need to decide on US vs. non-US, TIPS or not, etc.
I am curious to know more about your approach, LadyGeek. Are you planning to re-align your portfolio every time your chosen model TDF rejiggers its asset allocation, something that Vanguard has done multiple times in the past (e.g., increasing international, adding international bonds, adding TIPS, who knows what else in the future?)

Or is your plan to choose one TDF model at a particular moment frozen in time to use as a permanent set-it-and-forget basis for your asset allocation?
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by LadyGeek »

Only when I rebalance, which is once a year. At the end of December, I look for the target date fund that matches my desired asset allocation. I then match my allocations to that target date fund's underlying composition. The only difference is that I'll go to the nearest 5%.

If a target date fund has more than 4 funds (they usually do), I'll make a judgment call to only use the top 4 and tweak the allocations accordingly.

Since I'm retired, I'm now looking at the fixed "all-in-one" funds. This year was rebalanced according to the Vanguard LifeStrategy Conservative Growth (VSCGX).
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Re: Why did LT Cap Gains on Vanguard Target Retirement 2025 Fund (VTTVX) go so crazy high this year?

Post by markjk »

dodecahedron wrote: Tue Jan 25, 2022 10:45 am
markjk wrote: Mon Jan 24, 2022 1:15 pm The root cause is rebalancing. Any of these "fund of funds" must take action to keep their asset allocation in check. In a year where equities fly high and bonds do next to nothing, that requires some action on the parts of the fund managers to keep allocations on target.
Rebalancing need not be a cause of anything problematic for tax efficiency as long as the mutual fund is growing from new contributions! A flourishing mutual fund that is growing sufficiently fast can easily rebalance using the new cash inflows to purchase securities to address the imbalance.

The root cause of this particular tax efficiency catastrophe is that the TDF was shrinking (actually hemorrhaging assets!)
+1 Yup, totally agree. My mistake.
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by dodecahedron »

LadyGeek wrote: Tue Jan 25, 2022 12:09 pm Only when I rebalance, which is once a year. At the end of December, I look for the target date fund that matches my desired asset allocation. I then match my allocations to that target date fund's underlying composition. The only difference is that I'll go to the nearest 5%.

If a target date fund has more than 4 funds (they usually do), I'll make a judgment call to only use the top 4 and tweak the allocations accordingly.

Since I'm retired, I'm now looking at the fixed "all-in-one" funds. This year was rebalanced according to the Vanguard LifeStrategy Conservative Growth (VSCGX).
Interesting. So you chose the top 4 funds from VSCGX (which are all Investor class funds--I assume you chose the Admiral counterparts), specifically Total Bond Market II, Total Stock, Total International Stock, Total International Bond?

I too am retired and while LadyGeek's approach has some appeal for me in theory, there is no all-in-one fund anywhere that matches my desired asset allocation.

My desired AA has 25% in intermediate TIPS--no fund that I know of has that much in TIPS of any kind. (I think the closest is VTINX, Vanguard Target Retirement Income, which has 17% in short term TIPS.)

And Vanguard's decision to include hedged international bonds in their all-in-one funds completely mystifies me. At least for now, I will stick with TIAA Trad and CDs for the remainder of my fixed income.
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by lazynovice »

dodecahedron wrote: Tue Jan 25, 2022 10:18 am Jason Zweig has posted an interesting followup that includes responses to feedback from his readers to his column on this topic.

I believe you have to be a WSJ subscriber* to view the post. The specific part dealing with the Vanguard Target Date funds is titled "Sitting-Hawk" is not a Sitting Duck and appears about a quarter of the way down from the beginning of the post.

(*Unsolicited testimonial for Jason Zweig: in my opinion, his columns alone are worth the price of a WSJ subscription. WSJ subscribers can sign up for a bonus email with posts like the above.)
Thanks for the update!
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by LadyGeek »

dodecahedron wrote: Tue Jan 25, 2022 1:01 pm Interesting. So you chose the top 4 funds from VSCGX (which are all Investor class funds--I assume you chose the Admiral counterparts), specifically Total Bond Market II, Total Stock, Total International Stock, Total International Bond?

I too am retired and while LadyGeek's approach has some appeal for me in theory, there is no all-in-one fund anywhere that matches my desired asset allocation.

My desired AA has 25% in intermediate TIPS--no fund that I know of has that much in TIPS of any kind. (I think the closest is VTINX, Vanguard Target Retirement Income, which has 17% in short term TIPS.)

And Vanguard's decision to include hedged international bonds in their all-in-one funds completely mystifies me. At least for now, I will stick with TIAA Trad and CDs for the remainder of my fixed income.
Actually, I used the ETF versions. Like you, I'm not totally satisfied with the theoretical allocations and I do play a little. Here's what I targeted at the end of December 2021. I'm "supposed" to be closer to a 40/60 allocation (age in bonds), but I was feeling a bit more aggressive and went with 45/55 instead.

Code: Select all

VSCGX	Allocation
Vanguard Total Bond Market II Index Fund Investor 42.00%	45%	BND	Vanguard Total Bond Market ETF
Vanguard Total Stock Market Index Fund Investor   24.50%	25%	VTI	Vanguard Total Stock Market ETF
Vanguard Total International Stock Index Fund     16.30%	15%	VXUS	Vanguard Total International Stock ETF
Vanguard Total International Bond Index Fund 1    15.40%	15%	BNDX	Vanguard Total International Bond ETF
Vanguard Total International Bond II Index Fund   1.80%	        ---	(none)
Note: Vanguard has since updated the underlying fund allocations (VSCGX). I'm not revisiting this until it's time to rebalance. Also, my Vanguard funds are held at Fidelity.
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Re: Target date funds ... so much for "set and forget" [and WSJ article]

Post by sunny5885 »

This may be a dumb question but, can vanguard do this with other funds I.e vfiax ( vanguard: s&p 500 fund held in a taxable account?
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Rob Berger says vanguard threw me under a bus !

Post by briang_g »

[Thread merged into here --admin LadyGeek]

All,

I wanted some place safe to park some money in a brokerage account. I put it in a Target retirement date Vanguard fund. I am not savvy, but knew after tax isn't the best place for this fund, but it was meant short term, a few month. I did this about the middle of December. It was VTHRX.

I come across this video:
https://www.youtube.com/watch?v=CxAEi42U3gU&t=437s

My self admitted limited understanding of the Video was that Vanguard had a very similar institutional fund with a slightly lower fee, and very high minimum value to buy into fund, meant for institutions to invest in.

They lowered the entrance Fee, causing many institutional investors to to go from the "regular" fund, to the institutional fund. That caused the regular fund to have to sell stuff, causing a very large long term capital gain change.

I went to morningstar and did what he did for my fund, and it showed a approx $6 long term gain on an approx 38 dollar NAV price.

Does this mean I pay 6/38 (roughly 16%) of my account balance in long term capital gains ? so if my account balance was $38, I would have capital gains of 6, so pay 15% of 6 ? So 90 cents in taxes ?

Now I just bought the stock 2 weeks before the end of the year, is anything prorated ? I pay the full 90 cents ?

If what I said was correct, then on my 60K investment, i managed to lose about 1500 dollars rather quickly.

Thanks ....
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Re: Rob Berger says vanguard threw me under a bus !

Post by mhalley »

You are not alone. Many people got screwed by Vanguards action. While this was an unprecedented event for td funds, you did several things incorrectly. The cap gains are not prorated, if you owned the fund on the ex dividend date, you receive the full distribution.
1. You bought a td fund in a taxable account.
2. You bought the dividend.
3. You put short term money in a fund with a large stock allocation.
You should be able to see exactly how much cap gains you will have to pay taxes on at your brokerage.
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Re: Rob Berger says vanguard threw me under a bus !

Post by rob »

Those of us in the funds in taxable need to get a cigarette.... I sold mine...
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Re: Rob Berger says vanguard threw me under a bus !

Post by GaryA505 »

I was about to start buying VTSAX (Vanguard Total Stock) in my taxable account, but now am having second thoughts because it has institutional shares. I know, sure I could use VTI but I prefer mutual funds.

So, how about VDADX (Vanguard Dividend Appreciation), does it have institutional shares? I couldn't find it listed anywhere.
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Re: Rob Berger says vanguard threw me under a bus !

Post by anon_investor »

GaryA505 wrote: Tue Jan 25, 2022 11:59 pm I was about to start buying VTSAX (Vanguard Total Stock) in my taxable account, but now am having second thoughts because it has institutional shares. I know, sure I could use VTI but I prefer mutual funds.

So, how about VDADX (Vanguard Dividend Appreciation), does it have institutional shares? I couldn't find it listed anywhere.
VTSAX is fine since they can wash out capital gains using the ETF share class (VTI).
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Re: Rob Berger says vanguard threw me under a bus !

Post by richard.h.gao »

You bought the dividend. Never buy into a fund at the end of the year.

https://investor.vanguard.com/investing ... g-dividend
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Re: Rob Berger says vanguard threw me under a bus !

Post by Cubicle »

Mutual funds (at Vanguard, at least until until their patent expires (2023 I think)) which have an ETF share class will not have this problem.

Vanguard mutual funds without an ETF share class are vulnerable.

Other company's mutual funds are also vulnerable.
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Re: Rob Berger says vanguard threw me under a bus !

Post by livesoft »

richard.h.gao wrote: Wed Jan 26, 2022 12:18 am You bought the dividend. Never buy into a fund at the end of the year.
I think this is poor advice because because it should be "Don't buy a fund just before it pays a large distribution." It would be OK to buy a fund at the end of the year after it pays a large distribution or even before that if it paid a small distribution.

And generally it would not be good to buy a fund at any time of the year just before it paid a large distribution.

And folks (including Vanguard) should not conflate "dividend" with "distribution" as someone could see that the upcoming dividend was 2 cents while ignoring that at the same time the a capital gains distribution of $20 per share was going to paid out.
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Re: Rob Berger says vanguard threw me under a bus !

Post by LilyFleur »

mhalley wrote: Tue Jan 25, 2022 11:21 pm You are not alone. Many people got screwed by Vanguards action. While this was an unprecedented event for td funds, you did several things incorrectly. The cap gains are not prorated, if you owned the fund on the ex dividend date, you receive the full distribution.
1. You bought a td fund in a taxable account.
2. You bought the dividend.
3. You put short term money in a fund with a large stock allocation.
You should be able to see exactly how much cap gains you will have to pay taxes on at your brokerage.
Jason Zweig wrote about this on 1/21/22 in the Wall Street Journal. Part of the article explains that Vanguard, and other institutions, should have warned investors not to hold these funds in a taxable account. A popup could have warned them before they purchased the funds.
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Re: Rob Berger says vanguard threw me under a bus !

Post by UpperNwGuy »

briang_g wrote: Tue Jan 25, 2022 10:56 pm I wanted some place safe to park some money in a brokerage account. I put it in a Target retirement date Vanguard fund. I am not savvy, but knew after tax isn't the best place for this fund, but it was meant short term, a few month. I did this about the middle of December. It was VTHRX.
How did you happen to choose this fund instead of a short-term bond fund, a money market fund, or a high yield savings account? Were you hoping to obtain better yield?
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Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by Ed 2 »

[Thread merged into here --admin LadyGeek]

Given Vanguard distributed huge gains short and long in age based index funds to accommodate institutional investors. The question is which fund is next ??? I am not going to wait this surprise and going to convert all my taxable index funds like Total International and Total Stock Market US index fund into ETF’s . I lost my trust to new Vanguard management without Bogle. What do you think??
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by livesoft »

Since you asked, I think you are reacting impetuously. There are reasons to ditch Vanguard, but this is not one of them for folks who do not have Target Date funds in a taxable account.

Full disclosure: We have less than 20% of our assets held at Vanguard and are not adding to them.
Last edited by livesoft on Wed Jan 26, 2022 5:41 am, edited 1 time in total.
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by Ed 2 »

livesoft wrote: Wed Jan 26, 2022 5:39 am Since you asked, I think you are reacting impetuously.
Institutional International Index funds open account limits I think over 1 billion dollar’s . What will happen if they decide to lower the limit for institutional investor like they done to age based?
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by livesoft »

Ed 2 wrote: Wed Jan 26, 2022 5:41 amInstitutional International Index funds open account limits I think over 1 billion dollar’s . What will happen if they decide to lower the limit for institutional investor like they done to age based?
Are there not ALREADY institutional share classes of the funds you mentioned? If they lowered the limit of those funds, then how would it affect the Admiral share class? Do you think you would stampede out of Admiral and cause the problem?
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by burritoLover »

Vanguard also has this weird mutual fund link to ETFs that represents a tax risk. I think I’m done with Vanguard in taxable, at least as far as new contributions.

https://www.morningstar.com/articles/96 ... -tax-risks
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by Ed 2 »

livesoft wrote: Wed Jan 26, 2022 5:43 am
Ed 2 wrote: Wed Jan 26, 2022 5:41 amInstitutional International Index funds open account limits I think over 1 billion dollar’s . What will happen if they decide to lower the limit for institutional investor like they done to age based?
Are there not ALREADY institutional share classes of the funds you mentioned? If they lowered the limit of those funds, then how would it affect the Admiral share class? Do you think you would stampede out of Admiral and cause the problem?
I honestly don’t know. But you may look at Rob Berger video on YouTube and he explains it very well what happened and what may happen to other funds.

https://m.youtube.com/watch?v=CxAEi42U3gU
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by livesoft »

Maybe it is time now to put all my money into Vanguard Target Date funds? It would be unlikely that another debacle like the recent one will happen again any time soon to Vanguard Target Date funds.
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by Ed 2 »

livesoft wrote: Wed Jan 26, 2022 5:48 am Maybe it is time now to put all my money into Vanguard Target Date funds? It would be unlikely that another debacle like the recent one will happen again any time soon.
Hope you right , I understand your sense of humor. But those guys who went under don’t, I think. In my opinion next can be Total International Index funds , admiral and regular. VTSAX not so much
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Re: Taxable account. Never knew that Vanguard can pull the rug under small investors , but they did!

Post by livesoft »

OK, watched the video. In all our taxable accounts, we have one single Vanguard mutual fund and it is not Total US Stock Market Index nor Total International Stock Market Index and it also has an ETF share class. I remain totally unconcerned.

Maybe there will be a stampede to convert to the ETF share class of many Vanguard index funds. This means that folks will have to abandon the legacy mutual fund platform at Vanguard which can be considered a benefit.
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