After comparing the possible combinations of mutual funds to satisfy my target asset allocation, I decided that for now, simple is better. In placing all of my IRA funds in Vanguard Target Retirement 2035 (VTTHX), I get great diversification while avoiding any minimum account or custodial fees of any kind. The fund is almost fully invested, with minimal reserve cash, and the holdings are very close to my chosen asset allocation:
Vanguard Total Stock Market Index Fund – 62.1%
Vanguard Total Bond Market Index Fund – 22.0%
Vanguard European Stock Index Fund – 10.8%
Vanguard Pacific Stock Index Fund – 4.7%
That is, approximately 60% US Stocks, 20% International, and 20% Bonds. In addition, the expense ratio of only 0.21% is just that of the underlying funds, there is no additional management fee like many other fund of funds such as from Fidelity. As my account grows, I will definitely exchange this fund to get a more specific asset allocation, but for now I am satisfied.
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After doing my own evaluations, I think VTTHX is probably the best option in terms of costs and asset allocation. I’m still somewhat torn between Vanguards Target Funds, and T. Rowe Price’s, which are more aggressive.
The Vangaurd target retirement funds look really nice, and cheap. I just don’t know if I want that level of disversification yet. I feel like I’d like to stay away from bonds for a bit while I’m young and can handle the risk. But I’m probably going to fund a Roth for 2005, and I’d like to put something tax-inefficient in there, like VBMFX. So I guess what I’m saying is I don’t know yet, but I’ve got the rest of the year to decide, and I may just end up with one of the target retirement funds.
Anyway, glad to see another finance blogger going passive and low-cost with Vangaurd.
I think T. Rowe Price is a good company if you are looking for actively managed funds. The expense ratio of their Retiremnet 2035 Fund (TRRJX) is 0.84%, which is ok for actively managed, but still you’re betting 0.63% every year that they can beat the market. They also don’t charge an additional fund fee on top of the underlying funds, or I guess the expenses are absorbed by the underlying funds.
TRRJX is about 90% Stocks/10% Bonds, which is about the same as the Vanguard 2045 Fund (VTIVX). It looks like TRP is more aggressive relative to years, but it all boils down to what you feel comfortable with.
Tax Efficiency is definitely something to worry about, I agree. For now, I’m not. ‘Cause I’m too lazy to run the numbers vs. avoiding minimum balance fees.
Being only 10% in bonds isn’t going to make to much of a difference in the end. I think everyone regardless of age should have a little diversification.
More importantly than choosing what fund is trying to figure out
if your entire savings will be confiscated. It’s impossible to plan
out to 2035, but by then, with 55+ trillion in debt, America will
need to dramatically raise taxes. Many political think tanks have
already toyed with ideas of 10% surcharge taxes on 401k money
etc. Also, there is the potential for collapse of the dollar or the
entire fiat based money system, period.
Then consider the costs of nursing homes & health care….a large
401k will do nothing more than knock you out of government help
once they start crimping down on the hand outs and do means
testing. I think the vast beneficiaries of 401k’s will be nursing homes,
the government and the IRS. It is JMHO that 401ks are the
governments money but people haven’t figured it out yet.
I love Vangaurd funds as the expenses are low and historically they have done as well or better than the actively managed funds with higher fees. I have VTTHX and like its allocation for diversification. Yet because i’m 36, I like to look at other focus funds as well. i have been dollar cost averaging deposits among 5 Vangaurd funds, including: target 2035, Energy Fund, Emerging Markets Fund, REIT index fund. This gives me a hedge on inflation, international exposure, as well as beaten down sectors like rea estate. The point is to be still in the game when the market rebounds!
The Vangaurd target retirement funds look really nice, and cheap. I just don’t know if I want that level of disversification yet. I have VTTHX and like its allocation for diversification. Yet because i’m 33, I like to look at other focus funds as well.
Cool ~ Great information here on this fund, I recently started up my 401k at lowes and this is the fund I am vested in. Nice Blog keep it rolling.
G~
Thx for the post! I am looking to invest my husbands 401k and am researching other investments (Roth IRAs).
Thanks!