Vanguard funds

[Troyrb]

I'm new to investing and needed some advise. I currently have about 25k in a Vanguard MM. I put the money in around Dec. 2008 so I put it in a MM so I would lose money right off the bat. Now I see my money going nowhere at just over 1% interest while the stock market has been raising lately. I wanted to move my money into something more aggressive because it part of my retainment fund that I shouldn't need for at least 20 yrs.

I'm a little confused regarding the Vanguard Target funds because they all show a negative performance or only around a 1.56% since inception. This seems almost as low as my MM fund or am I missing something here? Sorry if this is a dumb question but I really know very little about investing.

[Broken Arrow]

No, these are really good questions. Ones that every investor should bring up before they put their hard-earned money into it.

The worst of the stock market turmoil appears to be over, and it appears that we are now returning to just regular turmoil. As such, it's been flat lately, with support for 8000.



I wouldn't read too much into it, but the point is, a sideways market is one of the toughest environments to make a call, regardless of whether you are a momentum investor or a contrarian investor.

A bigger point is that it's best not to try to time the market, but especially in a market like this. I think it's best to simply stick to an asset allocation that best suits you.

As for Target Retirement Funds, I'm not sure which one you are looking at, but these funds are not designed for short-term over-performance anyways. Rather, they are designed to take the complexity out of long-term retirement investing. And because we are still in a recession, it's not surprising to me that many are currently under-performing.

[elessar78]

When was the inception? A Schwab Target 2040 fund that I looked at recently, was created in 2005. So when the stocks held within were bought, they were bought prob. at the height of the market and then lost half it's value in 2008. It's just too short of a time span to rate the success/failure of a fund. IMO, at least ten years is the minimum I'll look at.

But this is a good question. I tend to invest into index funds, so I'm curious to see what people think of Target funds.

[disneysteve]

Not a dumb question at all.

Target funds have lost money along with everything else in the past couple of years since most of them are heavy on stocks in their allocation.

As you have noticed, though, the market has been doing quite well in recent months. I know the market close a couple of days ago put it at an 8-month high, so by being in a money market, you did miss a nice run up in stock prices. Still the market is well below it's all time high of a couple of years ago, so don't feel too bad.

Start investing by shifting money on a regular basis from your MM into something more aggressive. A Target fund is a perfectly good choice for retirement. I believe they have a $3,000 minimum so you would start by transferring $3,000 as a lump sum. After that, you could feed the money in slowly over time, perhaps $2,000/month for 11 months. That would get your $25,000 fully invested in 1 year. The Vanguard 2030 fund is up 9.46% year to date as of 6/30.

[disneysteve]

I tend to invest into index funds, so I'm curious to see what people think of Target funds.

Most Target funds are just a basket of index funds.

For example, the Vanguard 2030 fund I referenced above is made up of:

1 Vanguard Total Stock Market Index Fund Investor Shares 67.3%
2 Vanguard Total Bond Market II Index Fund Investor Shares* 16.0%
3 Vanguard European Stock Index Fund Investor Shares 8.5%
4 Vanguard Pacific Stock Index Fund Investor Shares 4.5%
5 Vanguard Emerging Markets Stock Index Fund Investor Shares 3.7%

[Broken Arrow]

Personally, I like Target Retirement Funds.

While cookie-cutter solutions lack sex appeal, their true strength lies in the fact that they will help most investors avoid the worst kind of asset allocation and investing mistakes that one can make out there.

As such, they make an excellent one-stop-shop for your retirement investing needs. People who are interested in going beyond these funds can still use them as a core, and then "tilt" a certain percentage of their portfolio elsewhere.

[GREENBACK]

I have a Vanguard 20/20 fund for my Roth. I haven't been in it long. It's down like everything but has been creeping up. The only problem with these funds is that they're all with the same company and no one company owns all the best stocks and bonds. If you don't want to do your homework on investing they're a decent choice and way better than trying to guess. I think that's why they're popular.

[creditcardfree]

I believe they have a $3,000 minimum so you would start by transferring $3,000 as a lump sum. After that, you could feed the money in slowly over time, perhaps $2,000/month for 11 months. That would get your $25,000 fully invested in 1 year.

This is a good idea. It is called dollar cost averaging. Instead of putting all your money in at once, at one price, you put the money in at regular intervals, to take advantage of the fact that prices change. Some months, the price may be lower and you buy more shares. Other months, the price is higher and you purchase fewer shares. This works better than timing or guessing about what stock prices/mutual fund prices are going to do the day you invest.

[alandolfo]

I have a prime money market fund it gets about 1% right now.

[alandolfo]

I also have a mid-cap growth fund

[elessar78]

Most Target funds are just a basket of index funds.

For example, the Vanguard 2030 fund I referenced above is made up of:

1 Vanguard Total Stock Market Index Fund Investor Shares 67.3%
2 Vanguard Total Bond Market II Index Fund Investor Shares* 16.0%
3 Vanguard European Stock Index Fund Investor Shares 8.5%
4 Vanguard Pacific Stock Index Fund Investor Shares 4.5%
5 Vanguard Emerging Markets Stock Index Fund Investor Shares 3.7%

Would there be higher management costs associated with a Target fund because of having multiple indexes? Or is it transitive in the sense that an individual index would have low management costs so a collection of index funds would also have low costs?

[disneysteve]

Would there be higher management costs associated with a Target fund because of having multiple indexes? Or is it transitive in the sense that an individual index would have low management costs so a collection of index funds would also have low costs?

At least with Vanguard, there is no added management cost to the Target Funds. The expense ratio is the blended expenses of the funds contained within. The 2030 fund, for example, has an expense ratio of 0.19% which is super low.

[am_vanquish]

Personally, I like Target Retirement Funds.

While cookie-cutter solutions lack sex appeal, their true strength lies in the fact that they will help most investors avoid the worst kind of asset allocation and investing mistakes that one can make out there.

As such, they make an excellent one-stop-shop for your retirement investing needs. People who are interested in going beyond these funds can still use them as a core, and then "tilt" a certain percentage of their portfolio elsewhere.

Am I the only person who recalls seeing headlines/articles about how target funds are underperforming? Especially for those target dates in the 5-10 year horizon, they did not accomplish the goal of protecting the wealth that had already been accumulated (some of these were down 40% right as people were planning to retire). I'm a bit surprised at all of the support for target funds in this thread. I would have expected more of a "the person who cares most about your money is you" tone from you guys. I think target funds are really providing false security. Anyone in a target fund should be examining the asset allocations VERY closely. There's too much pressure from financial institutions and fund managers to perform, so they have a more aggressive allocation than they should (even as they promote the "automatic" reallocation).

I don't have time to find/post supporting articles now, but I'll come back later.

[disneysteve]

I think target funds are really providing false security. Anyone in a target fund should be examining the asset allocations VERY closely.

I would agree with this. You DO need to pay attention to the asset allocation of a Target fund just as you need to pay attention to the asset allocation of a portfolio you put together yourself. If the fund's allocation doesn't match your needs or risk tolerance, the fund isn't right for you.

Target funds with short horizons (like 2010 funds) did drop a lot in the recent market downturn because they were fairly heavy in stocks, probably heavier than someone within 2 years of retirement should have been. But that isn't the fund's fault. It is the investor's fault for not understanding what they were investing in.

[GREENBACK]

But that isn't the fund's fault. It is the investor's fault for not understanding what they were investing in.

Of course it is the investors fault but the main reason for getting into these funds is that you don't have to monitor them. I doubt that anyone who knows how, or cares to, pick and choose funds and how to re-adjust their allocations would much bother with these.