Target funds attractive right now?

[geo99]

Recently moved jobs and have been allocating my 401k funds to Vanguard Target Retirement 2070 Fund (VSVNX). It's 10% bonds (7% US, 3% EXUS), 36% international and the rest in VTSAX.

Life cycle funds are great for simplicity's sake, but given current environment I actually find this set up no worse than anything else I can drum up from Vanguard. Healthy exposure to EXUS, some bonds, and broad exposure to US markets. The only thing I might change is slightly higher international exposure but I don't pretend to know what to set at.

Wondered if anyone is reassessing funds like this.

[Watty]

It is impossible to time the market and know if this is a particularly good or bad time for an investment but in the right situation target date funds are a great choice for retirement accounts. The main reason not to use one are;

1) You do not have a good low cost one in your 401k, which is a way too common problem.

2) You have a lot of retirement money in taxable accounts so you need to worry about tax efficiency.

I am retired and most of my money is in retirement accounts in a target date fund.

A huge advantage of a target date fund is that it will be much easier to manage as I get older and also easier for my wife who knows less about investing to manage if she needs to someday.

The only thing I might change is slightly higher international exposure but I don't pretend to know what to set at.

I don't have any magic insight as to what percentage international would be right but one thing to keep in mind is that about 40% of the S&P 500 companies revenue comes from their international operations. Some people decide to not even bother buying an international index fund because they figure that is already enough international exposure. If you also own an international fund you likely already have plenty of international exposure.

[geo99]

Are funds like VSVNX tax efficient? I assumed not because target date funds hold bonds? The expense ration is 0.08%. Given it holds things I’d probably want anyway, my point is it seems like not a bad option. Especially since as you say you can’t time the market! The last decade wasn’t great for these funds but I don’t expect the disparity between these and SP 500, for instance, to be as great.

[Beensabu]

Vanguard Target Retirement 2070 Fund (VSVNX)

Congratulations. You've made me feel old.

Are funds like VSVNX tax efficient? I assumed not because target date funds hold bonds?

They're not. Some folks who held these in taxable had a nasty surprise at the end of 2021. That could happen again at some point.

Given it holds things I’d probably want anyway, my point is it seems like not a bad option.

It's not a bad option at all, as long as you leave it alone.

The last decade wasn’t great for these funds

It wasn't a great decade for international. And 40% of the stock allocation in Vanguard's target date funds is international.

I don’t expect the disparity between these and SP 500, for instance, to be as great.

It probably will be, actually. Especially over time, as the bond allocation increases. Be careful to select an appropriate benchmark to check your performance against, if you feel like checking on that. The S&P 500 index is not an appropriate benchmark here. Don't compare it to that.

[geo99]

Don't feel too bad. I'll be in my 80s in 2070. I picked the farthest out one to have the lowest bond holdings, though as I mentioned I don't mind them in the current rate environment. I'm also inclined to hold 30%+ in international. So in that sense the fund ticks all my boxes for the moment. Maybe in a couple years I'll switch it up. I don't expect US to outperform international to the same extent, but I won't get into that discussion since it's anyone's guess!

[tennisplyr]

It is impossible to time the market and know if this is a particularly good or bad time for an investment but in the right situation target date funds are a great choice for retirement accounts. The main reason not to use one are;

1) You do not have a good low cost one in your 401k, which is a way too common problem.

2) You have a lot of retirement money in taxable accounts so you need to worry about tax efficiency.

I am retired and most of my money is in retirement accounts in a target date fund.

A huge advantage of a target date fund is that it will be much easier to manage as I get older and also easier for my wife who knows less about investing to manage if she needs to someday.

The only thing I might change is slightly higher international exposure but I don't pretend to know what to set at.

I don't have any magic insight as to what percentage international would be right but one thing to keep in mind is that about 40% of the S&P 500 companies revenue comes from their international operations. Some people decide to not even bother buying an international index fund because they figure that is already enough international exposure. If you also own an international fund you likely already have plenty of international exposure.

+1

[Watty]

Are funds like VSVNX tax efficient? I assumed not because target date funds hold bonds? The expense ration is 0.08%.

Part of the problem with the tax efficiency is not just the bonds but that they are constantly buying and selling investments on a daily basis to keep their target asset allocation. If you have to invest retirement money in a taxable account then it is better to set up a three fund portfolio which is not all that hard to do.

https://www.bogleheads.org/wiki/Three-fund_portfolio

https://www.bogleheads.org/wiki/Tax-eff ... _placement

With a three fund portfolio you can use new contributions, withdrawls, and manually reinvesting dividends and interest to better minimize the amount of buying and selling of the mutual funds that you need to do to rebalance.

[dbr]

Recently moved jobs and have been allocating my 401k funds to Vanguard Target Retirement 2070 Fund (VSVNX). It's 10% bonds (7% US, 3% EXUS), 36% international and the rest in VTSAX.

Life cycle funds are great for simplicity's sake, but given current environment I actually find this set up no worse than anything else I can drum up from Vanguard. Healthy exposure to EXUS, some bonds, and broad exposure to US markets. The only thing I might change is slightly higher international exposure but I don't pretend to know what to set at.

Wondered if anyone is reassessing funds like this.

The advantages and disadvantages of these funds are not changed. If this fund suits your purpose then by all means use it. Such funds would never have made sense for me, but that does not mean anything in particular. A main consideration is what else you have and how the total is distributed across tax deferred, taxable, and tax exempt holdings (Roth).

[NiceUnparticularMan]

I think low-cost Target funds are a great way to invest tax-deferred retirement savings accounts.

For taxable retirement savings accounts, I think a lot of the proposed benefits to multi-fund approaches are way less reliable than some seem to think, such that a Target or other one-fund approach might still make sense. See this great thread:

viewtopic.php?t=287967

People point to the Vanguard Target taxation scandal, which I think was a somewhat constrained issue specific to that situation, but in any event you could likely avoid it entirely by choosing a static balanced fund instead.

That said, I personally think a viable alternative for taxable accounts could be a multi-fund approach without rebalancing. This freaks some people out, but I think if you already have a lot of rebalancing going on in tax-deferred accounts, not rebalancing in your taxable account becomes a less pressing issue. And then the benefits of rebalancing are kinda dubious anyway, and specifically might be outweighed by the behavioral issues with rebalancing, even before get to tax issues.

[Doctor Rhythm]

…
Life cycle funds are great for simplicity's sake, but given current environment I actually find this set up no worse than anything else I can drum up from Vanguard.
…
Wondered if anyone is reassessing funds like this.

I don’t know what you mean by “current environment” and how/why it makes a TDF more attractive than in a different environment.

For the large majority of workers saving for retirement, I feel an index TDF is the best default investment - certainly for retirement accounts. It self-balances & reduces risk over time, which are two actions that are often neglected. Probably most importantly, it helps keep the investor’s fingers away from their portfolio.

[grabiner]

Are funds like VSVNX tax efficient? I assumed not because target date funds hold bonds? The expense ration is 0.08%. Given it holds things I’d probably want anyway, my point is it seems like not a bad option. Especially since as you say you can’t time the market! The last decade wasn’t great for these funds but I don’t expect the disparity between these and SP 500, for instance, to be as great.

Given the current yields, bonds are usually less tax-efficient than stocks, but it doesn't matter whether you hold them inside or outside a target-date fund.

What matters most is which account you hold the bonds in. If bonds are less tax-efficient for you than stocks, then you can hold a taxable account that is all stock, and hold all your bonds in your 401(k) and IRA (and also some stock there if your 401(k) and IRA are smaller than your target bond allocation). This would have a lower tax cost than a target-date fund. Conversely, if bonds are more tax-efficient for you than stocks (for example, you are in a high tax bracket in CA, and would hold CA munis), you can hold all your bonds in your taxable account.

But the other reason to avoid target-date funds in taxable is that you are locked into the target allocation. If you do hold bonds in a taxable account but hold separate bond and stock funds, then you can choose to sell bonds in order to hold fewer bonds, or bonds in a different account, or a different type of bonds, and pay little or no capital-gains tax.

[dharrythomas]

I the Target Date funds, particularly with the expenses so low. My entire TSP account, my entire Traditional IRA, and the bulk of our Roth IRAs are in Target Date funds. Broad diversification, rock bottom pricing, automatic rebalancing, professional management with reducing risk as we age, you don’t have to stick with the date closest to your 65th birthday, so you can refine your risk. What is not to like?

We do not hold them in our taxable accounts.

[the_wiki]

Presumably one buying a target date fund is doing so for a very long term buy and hold strategy. In that context, recent performance is not very relevant. If you like the strategy, invest.

[Charles Joseph]

I don't have any magic insight as to what percentage international would be right but one thing to keep in mind is that about 40% of the S&P 500 companies revenue comes from their international operations. Some people decide to not even bother buying an international index fund because they figure that is already enough international exposure. If you also own an international fund you likely already have plenty of international exposure.

Count me as one who doesn't bother. 100% US here, like, forever. Been hemming and hawing lately but am not going to change course.