Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Was just looking at the 2065 TDF that I have in my 401k and wondering why it holds ~3% in cash. Totally get if a small amount is allocated to cash to meet redemptions but 3% seems a bit high. The average 2065 TDF in the right column shows only ~2.25% allocation to cash which still seems high.
- typical.investor
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Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
I'd think that cash is effectively a zero duration bond such that a rate hike won't result in a NAV loss the way a bond fund would. Even a short duration bond could have a 2-3 year duration and suffer a 2-3% loss with a 1% hike. The bond will recover if reinvested but not if used to fund redemptions in the next 2-3 years.25millz wrote: ↑Sat Jun 03, 2023 2:13 am Was just looking at the 2065 TDF that I have in my 401k and wondering why it holds ~3% in cash. Totally get if a small amount is allocated to cash to meet redemptions but 3% seems a bit high. The average 2065 TDF in the right column shows only ~2.25% allocation to cash which still seems high.
And cash rates now are actually better than like a 10 year treasury, so nice!
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Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
It seems unlikely that a TR 2065 fund is holding cash to process redemptions, to time interest rate movements, or to try to enhance yield. I think it is more likely that it has cash to deploy from contributions and underlying fund distributions.
- typical.investor
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Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Vanguard itself reports:
Fund name 2065
Total Stock Market Index Fund Institutional Plus Shares 54.12%
Total International Stock Index Fund Investor Shares 36.56%
Total Bond Market II Index Fund 6.52%
Total International Bond II Index Fund 2.80%
Fund name 2065
Total Stock Market Index Fund Institutional Plus Shares 54.12%
Total International Stock Index Fund Investor Shares 36.56%
Total Bond Market II Index Fund 6.52%
Total International Bond II Index Fund 2.80%
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
I don’t think the version of the fund in my 401k is the same as the listed version. I believe it’s a trust that’s only available in 401ks or something like that.typical.investor wrote: ↑Sat Jun 03, 2023 3:29 am Vanguard itself reports:
Fund name 2065
Total Stock Market Index Fund Institutional Plus Shares 54.12%
Total International Stock Index Fund Investor Shares 36.56%
Total Bond Market II Index Fund 6.52%
Total International Bond II Index Fund 2.80%
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Do you know which one you specifically have?25millz wrote: ↑Sat Jun 03, 2023 8:40 amI don’t think the version of the fund in my 401k is the same as the listed version. I believe it’s a trust that’s only available in 401ks or something like that.typical.investor wrote: ↑Sat Jun 03, 2023 3:29 am Vanguard itself reports:
Fund name 2065
Total Stock Market Index Fund Institutional Plus Shares 54.12%
Total International Stock Index Fund Investor Shares 36.56%
Total Bond Market II Index Fund 6.52%
Total International Bond II Index Fund 2.80%
Vanguard has many such trusts:
Target Retirement 2065 Trust: https://institutional.vanguard.com/inve ... /fund/2259
Target Retirement 2065 Trust I: https://institutional.vanguard.com/inve ... /fund/1793
Target Retirement 2065 Trust II: https://institutional.vanguard.com/inve ... /fund/1794
Target Retirement 2065 Trust Plus: https://institutional.vanguard.com/inve ... /fund/1796
Target Retirement 2065 Trust Select: https://institutional.vanguard.com/inve ... /fund/1795
It's not clear what data that Morningstar chart (that you posted) is using. Vanguard gives its data to Morningstar but it's not clear necessarily what time frame is used, whether Morningstar is "rolling up" the data across funds of the same target date, or what.
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
When was the snapshot taken?
Accrued but unpaid dividends would show up as cash. For a fund of fund there is about 4 days of the year when this happens.
Accrued but unpaid dividends would show up as cash. For a fund of fund there is about 4 days of the year when this happens.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Vanguard lists the short term reserves at 1.5%, which I imagine comes from the short term reserves of each of the four funds that make up TR2065.
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Theee percent cash is not a significant drag on long-term returns.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
It is the Target Retirement 2065 Trust II. I grabbed that screenshot from fidelity who is the administrator for my 401k. I’m not sure I can find the trust on Morningstar.sycamore wrote: ↑Sat Jun 03, 2023 9:54 amDo you know which one you specifically have?25millz wrote: ↑Sat Jun 03, 2023 8:40 amI don’t think the version of the fund in my 401k is the same as the listed version. I believe it’s a trust that’s only available in 401ks or something like that.typical.investor wrote: ↑Sat Jun 03, 2023 3:29 am Vanguard itself reports:
Fund name 2065
Total Stock Market Index Fund Institutional Plus Shares 54.12%
Total International Stock Index Fund Investor Shares 36.56%
Total Bond Market II Index Fund 6.52%
Total International Bond II Index Fund 2.80%
Vanguard has many such trusts:
Target Retirement 2065 Trust: https://institutional.vanguard.com/inve ... /fund/2259
Target Retirement 2065 Trust I: https://institutional.vanguard.com/inve ... /fund/1793
Target Retirement 2065 Trust II: https://institutional.vanguard.com/inve ... /fund/1794
Target Retirement 2065 Trust Plus: https://institutional.vanguard.com/inve ... /fund/1796
Target Retirement 2065 Trust Select: https://institutional.vanguard.com/inve ... /fund/1795
It's not clear what data that Morningstar chart (that you posted) is using. Vanguard gives its data to Morningstar but it's not clear necessarily what time frame is used, whether Morningstar is "rolling up" the data across funds of the same target date, or what.
- Fat-Tailed Contagion
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Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Maybe because "cash" is yielding ~5% now?
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Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
It’s a passive index TDF though. They shouldn’t be making asset allocation decisions outside of the glide path so I’m not too convinced this is the answer.
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Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
Per Vanguard, it does not intentionally hold cash, which lends credence to the idea that it's an accounting quirk and not worth worrying about.
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
In terms of short term reserves, as of 4/30/23, Total Stock Market has 0.57% in MKTLIQ and 0.32% in SLCMT1142. Total Int'l has 1.52% in SLBBH1142, 0.46% in MKTLIQ and 0.03% in SLCMT1142. Total Bond II has 0.55% in MKTLIQ. Total Int'l Bond II has 0.57% in MKTLIQ.
If you add these togther, with the weightings for TR2065, you end up with 1.25% for short term reserves. Vanguard's page for TR2065 lists 1.50% for short term reserves, not far off.
If you add these togther, with the weightings for TR2065, you end up with 1.25% for short term reserves. Vanguard's page for TR2065 lists 1.50% for short term reserves, not far off.
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
I would ignore this. It likely isn’t really holding cash long term
Crom laughs at your Four Winds
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Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
How could a fund could be managed across all types of events with respect to the fund without ever holding any cash?
Re: Why is cash allocation so high in Vanguard 2065 Target Date Fund?
I also saw this in the Balanced fund, I thought it was basically 60/40, but over time, I’ve noticed it be like 59/37/4. Not a big deal relatively, but it was something I noticed, and it was before higher yields in cash.
Yules
Yules