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I rolled over a 401k from a previous employer about a year ago into a Vanguard Rollover IRA, and then 100% into a Vanguard target retirement fund (VFORX to be exact). I currently have $11,000.00 in that fund and continue to contribute each month. The VFORX seems to be doing well, however lately I've been wondering if that money would not work better for me in the long run in a different fund, such as an ETF, or other Vanguard fund (even one with admiral shares since I can do the $10,000 minimum)?
This is more of a "nest egg" type investment separate from my other more liquid investments where I plan on only contributing, and not ever withdrawing until retirement.
It really depends on how much you like researching investment options and how much you'll stick with your choice(s) afterward.
Target Date funds are good for most people because most people don't know what they're doing when it comes to investing and don't really want to learn. Target Retirement funds provide an instant diversified portfolio that gradually gets more conservative with time. Most people are bad at adjusting their portfolios. Even when they know what they should do, they often don't do it.
Vanguard's target date funds have the advantage of low costs.
Are there better options? I think so. That doesn't mean VFORX is a bad option, though.
But having someone telling you what they think is better may not help you make a selection. You have to learn the basics of stock and bond investing first so that you'll be comfortable with any choice you make. Until then, keep it in the target retirement fund.
Remember, once you get a reasonably diversified portfolio that's at least 50% in stocks (which you already have in the target retirement fund), the biggest determinant of having a good nest egg is the amount you save.
I dislike the vanguard retirement date funds in an IRA.
The funds have 4 sub-components: us stock, international stock, us bonds, foreign bonds.
Of these,
US stock: good buy for a 401K, prefer individual stocks and bonds to indexing in an IRA where you can do that but this is a legitimate choice
International stocks: the best value of the 4 at current prices, but inefficient in an IRA/401K because you can't offset the foreign withholding taxes, so you're basically giving up the tax benefits of the account! Own this stuff in brokerage account, not a 401K/IRA
US Bonds: Includes a bunch of tax advantaged stuff where you're again being tax inefficient by holding it in a 401K/IRA
International bonds: near zero yield, you're basically speculating on the dollar falling and their interest rate staying near zero. Avoid.
My two cents: stock-pick if you have the inclination and ability. If you don't, keep the IRA to domestic stocks and taxable bonds. Keep your foreign stocks and tax-advantaged bonds in a brokerage account. Don't buy international bond funds at all given current yields on the European and Japanese debt that makes up most of them.
edit: This presumes you have overflow savings in a brokerage account. If not then the date funds are more okay since you can't get that diversification without the tax hit. Still hate the international bond component at current interest rates.
Last edited by ALackOfCreativity; 07-07-2018 at 11:09 AM..
I dislike the vanguard retirement date funds in an IRA.
The funds have 4 sub-components: us stock, international stock, us bonds, foreign bonds.
Of these,
US stock: good buy for a 401K, prefer individual stocks and bonds to indexing in an IRA where you can do that but this is a legitimate choice
International stocks: the best value of the 4 at current prices, but inefficient in an IRA/401K because you can't offset the foreign withholding taxes, so you're basically giving up the tax benefits of the account! Own this stuff in brokerage account, not a 401K/IRA
US Bonds: Includes a bunch of tax advantaged stuff where you're again being tax inefficient by holding it in a 401K/IRA
International bonds: near zero yield, you're basically speculating on the dollar falling and their interest rate staying near zero. Avoid.
My two cents: stock-pick if you have the inclination and ability. If you don't, keep the IRA to domestic stocks and taxable bonds. Keep your foreign stocks and tax-advantaged bonds in a brokerage account. Don't buy international bond funds at all given current yields on the European and Japanese debt that makes up most of them.
edit: This presumes you have overflow savings in a brokerage account. If not then the date funds are more okay since you can't get that diversification without the tax hit. Still hate the international bond component at current interest rates.
I think these are good points. Despite their drawbacks, I am convinced target retirement funds are best for most people, because most people's eyes glaze over when you get specific about investing options.
I'll piggyback on the bolded and say a good alternative to target retirement funds would be Vanguard Wellington. 60% to 70% stocks 30% to 40% bonds. Pretty much your classic balanced mutual fund with low costs and solid long term returns. If you want more international stocks and bonds than Wellington offers (typically only 5% in international stocks and only U.S. based bonds), they now have Vanguard Global Wellington, which is a new fund, but run by the same people in the same investment style as the much older Vanguard Wellington.
I think picking individual stocks is a bad idea for 90% of the population, and that's probably an underestimate.
Nearly all of my portfolio either is in Vanguard Target Fund or either mirrors it with Vanguard individual index funds. I like it. It is simple, and the costs are very low.
Most people have no business investing in individual stocks....too risky.
I rolled over a 401k from a previous employer about a year ago into a Vanguard Rollover IRA, and then 100% into a Vanguard target retirement fund (VFORX to be exact). I currently have $11,000.00 in that fund and continue to contribute each month. The VFORX seems to be doing well, however lately I've been wondering if that money would not work better for me in the long run in a different fund, such as an ETF, or other Vanguard fund (even one with admiral shares since I can do the $10,000 minimum)?
This is more of a "nest egg" type investment separate from my other more liquid investments where I plan on only contributing, and not ever withdrawing until retirement.
Any advice is appreciated.
Thank you
I do not care for Vanguard nor target-based funds. All of our IRA money is at Fidelity brokerage invested in top-ranked funds (none of which are Fidelity funds). As we will not need the money for at least 20 years, it is aggressively invested. My goal is to outperform the S&P 500 by 1-2% over the long-term.
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