I have my Roth IRA approaching 6 figures in Vanguard Target Retirement 2050 (hope to FIRE at least 10-15 years sooner) mainly since it seemed to make sense when I opened it as a hands off fund that takes care of itself.

Now analyzing this fund more closely https://investor.vanguard.com/mutual-funds/profile/VFIFX

it's really mainly just 2 funds I already hold in my taxable:
Vanguard Total Stock Market Index Fund Investor Shares 54.40%
Vanguard Total International Stock Index Fund Investor Shares 35.60%
Vanguard Total Bond Market II Index Fund 7.00%
Vanguard Total International Bond Index Fund Investor Shares 3.00%


I don't really have a set allocation in mind, but the rest of my portfolio is <5% International Index, and not holding Bonds anywhere else currently

Trying to decide if it's worth moving the Roth funds out of the Target and just putting them into Admiral Stock/Intl Indexes, mainly since the Target fund has 0.15% expense ratio (0.4%/0.11% for the Admirals), since exchanging funds within Roth can be done freely without creating any taxable events right

I don't plan to buy a home/vehicle or need major funds anytime soon, just currently pumping everything saved into VTSAX/VIGAX
hoping to hit 7 figure NW within 5 years and FI within 10-15

I love target-date funds for the vast majority of Americans. Simply put-it would be great if every company auto-enrolled new hires into their 401k and auto-invested in a TD fund unless the participant went in and changed it.

With that being said, it sounds like you know a lot more than most beginners. There are some advantages to ditching the TD fund

1. Lower Exp ratio as you mentioned. Granted, if you're under .2%, it's not a huge deal.
2. Ability to tilt towards expected higher returns. I like the research from Dimensional Funds a lot. The main premise is that yes, markets are efficient and you should own the entire market at a low cost. But, there are still parts of the market that have historically outperformed and may continue to do so. Specifically, value, profitability, and small-cap.

Small-cap is a pretty good example. Total Mkt index doesn't have a ton of exposure to small-cap due to cap weights. So, breaking up into SP 500 and a Sm Cap index allows you to put more in SmCap than the 5-10% that the TotMkt index allots. Same idea with emerging markets.
---In a Roth, I think it makes sense to tilt more towards higher SmCap and EmgMkts than your other accounts (Roth should be the most aggressive). Speaking of which, I love that idea-building your total portfolio for all of your accounts, and then constructing it by putting the highest risk/highest return parts in the Roth (i.e. want a 80/20 stock/bond mix? Roth should be 100% stock, own the bonds elsewhere)

Can you elaborate on that a little? Why does it matter where the risk is?

The higher risk stocks will drive a disproportionately higher share of your returns over the long haul, and given Roth returns will not be taxed, it is more advantageous from a tax perspective to have your more aggressive investments there.

I've come full circle with target date funds.

When I first started, I used them, on the basis that I didn't know how to invest yet.

Then a few years later I educated myself and created a sophisticated portfolio, using index funds, bonds, reit, international, and small value, with a cost basis less than target date funds. Portfolio was far out on the efficient frontier. Also, this portfolio was a lot less boring than the target date funds.

I've continued to educate myself and study up.

Now, years later, I've found that the more I learn the less I know. I've found that perfecting the academic slicing and dicing of funds is not the important thing. The important thing is to keep pumping money into investments and to maintain a consistent portfolio and diversification, to avoid chasing recent returns. I've found that rebalancing out of stocks and into bonds or into international is a very difficult thing to do over the last 10 years, and that is too easy to adjust your investments to chase returns under the guise of "tweaking my long term portfolio". It is very difficult to put rebalance real money into an asset class which has lagged for 5 years.

With this experience, I've moved into vanguard target date funds. They have a cost basis of 0.15% and are fully diversified, do the progressively more conservative investing automatically, and remove all rebalancing effort from you, which removes the chance you'll chase returns when you rebalance.

I'm a big fan and think they are a wise investment.

Target date funds, IMO, allocate assets and shift allocation over time in a manner that's a good mix assuming you are retiring at the standard 20x expected living costs in retirement.

For those who want more flexibility in retirement dates, who are looking to have considerably more than the minimum needed, or other unique goals - your asset mix should probably look a lot different.

Maybe I should have been more specific, but I'm not advocating for TD funds for 50+-year-olds. I agree that they are far too heavy in FI as they progress.

As long as the allocation is >90% stock, I would rather have 28-year-old average Joes doing that than nothing. Plus, it ensures they have exposure internationally and aren't putting everything in some random sector fund in their 401k.

FrioAg 00 said:

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Target date funds, IMO, allocate assets and shift allocation over time in a manner that's a good mix assuming you are retiring at the standard 20x expected living costs in retirement.

For those who want more flexibility in retirement dates, who are looking to have considerably more than the minimum needed, or other unique goals - your asset mix should probably look a lot different.

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Totally agree. But people who are looking to retire earlier have additional income that they can be flexible with and adjust asset allocation accordingly. People planning on retiring later can always shift to a fund with a longer time range. I view target funds as being the base for a retirement. Not the totality.

Completely agree. At my company we've done exactly that - we auto-enroll new employees into our 401k at the 5% to maximize our matching matching, and we automatically put them in target date funds based on their age.

I do look at reports on what our employees do and I am exited when I see them tweaking their own contributions, allocations and plans. We call it an engagement dashboard and I also track things like phone inquiries, and number of times they log in to check their balances.

Employees engaged in their financial health are generally happier, culturally positive and more productive

I also recently realized my old 401K from previous employer was transitioned to Fidelity last year and defaulted into their target date fund at 0.3% ER, my plan is to gradually shift at last half of this as well as the TD funds in my Roth towards total stock indexes in the coming months or so to <.05% ER's

Pay attention to the "glide path" when investing in target date funds. This is the allocation change that occurs as one gets closer to age 65. There is a big difference between fund company asset allocations when a person reaches age 65. Just make sure the fund company you choose has an asset allocation at age 65 that matches your risk tolerance.

Roth is untaxed as long as you live right? I plan to retire much earlier than 65, but not use the funds til much later, so for just this acct(won't be a large portion of portfolio) I'll prob let ride in mostly equities

EliteZags said:

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Roth is untaxed as long as you live right? I plan to retire much earlier than 65, but not use the funds til much later, so for just this acct(won't be a large portion of portfolio) I'll prob let ride in mostly equities

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Untaxed and equally as important for you, without RMDs

Roth's are untaxed... for now. As the gap between rich and poor grows, I fully expect there to be some type of "wealth tax" imposed on conventional and Roth IRA balances. We can only plan with what the current laws are, but you just have to look at the recent change in taxes on inherited IRAs (part of the SECURE act) to recognize that nothing is sacred.

As far as target date funds are concerned, I also shifted away from them for awhile thinking I could allocate more effectively. But as I got older and busier, that got harder to do. I also shifted back to them (eventually) but when I did so I used a much longer timeline (more aggressive). The idea being, you don't just need to get TO retirement, you need to get THROUGH retirement. In my case, retiring in my early 50s, I could easily have 30+ years to go, so I felt I couldn't get too conservative too soon.

As someone mentioned, pay attention to the "glide path" -- what is the mix on Target 2020 (i.e., retiring this year)? If that feels too conservative to get through the next 30 years, adjust your target horizon upward by 10, 15, or even 20 years to stay more aggressive.

I'll suggest Vanguard Target Date Funds for those that don't want an actively managed fund or want lower fees, but don't want to learn about other funds and won't do any other research. Some people wait to start investing until they feel like they have the very best setup and Target Funds are better than not starting or randomly picking higher fee funds.

I don't have any, but they aren't the worst option.