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For my roth this year, I was thinking of using Vanguard's retirement for 2045. I am 27. It seems good in that it automatically adjusts as I get older. Anyone think there is a better product out there?
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If you want to make one choice and forget about it, choose a fund close to your retirment date and move on.
It's not what I do, but I spend time to research the funds I own and rebalance twice a year.
It's OK to pick a target fund and leave be... you could do much worse than that strategy. -
IMO there are better "products" out there but by that I mean using separate funds to build a portfolio that is tailored to your specific needs and wants. However building that portfolio, you need to some financial knowledge and be able to spend some time on it every now and then. I'm not trying to make it sound like you have to be a financial guru or quit your day job in order to do that because by all means you don't. If you have a little knowledge and a little time you can do it. However if you don't have the knowledge or time, and would rather use a "set-it-and-forget-it" approach I feel those Target Funds are great.
Another reason a fund like that may be good for you, even if you want to construct your own portfolio, is that you're just starting an IRA (congrats). With just one or two years of contributing, you probably wouldn't be able to really construct a well diversified portfolio due to fund minimums and IRA maximums. If you ever want to build your own portfolio, you could always split the Target fund into separate funds when you have enough money in the account.
Although I think that fund is good, do you have any other retirement investments (ie. 401k, taxable, etc...)? The reason I ask is because when deciding things such as asset allocation, risk, etc..., you should take into consideration all accounts that are used for the same goal and treat them as one in those aspects.The easiest thing of all is to deceive one's self; for what a man wishes, he generally believes to be true.
- DemosthenesComment
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I think it is a good idea. You can always transfer your IRA into another fund as you learn more about investing.Comment
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Most investing advice will center around a "core" fund or funds, then add a few complimentary funds around it.
The Vanguard target series uses the "total stock market index" as it's core fund. Around 50% of assetts appear allocated to this fund (sidebar: prospectus did not list % where I was reading... one more reason I have an issue with Vanguard)
Others might use "S&P 500" index as their core.
My primary core is an equity income fund (2/7 of my position ~29%) PRFDX
I have second "core" fund which is PRWCX, this is at least 14%. Both are conservative equity funds.
The complimentary funds are used to reduce risk and volatility. Small Caps, bond funds, International funds, commodities and real estate would be some examples.
I have complimentary funds in small cap domestic, mid cap domestic, international large cap, International small cap, and emerging markets bond (junk bonds).
None of the complimentary funds will ever exceed 14% (if they do, I sell enough to reduce to 14% and buy either PRWCX or PRFDX).
So when building an IRA, you could choose the target fund route and let Vanguard pick for you.
You could go target fund route, then convert to your own mix in 3-5 years when you have around 10k to divy up.
You could choose your core fund now, open the Roth in that. Add to it until you get to "fund minimums"/"IRA minimums", then choose complimentary funds once you have your core at the minimum.
One advantage to the third approach is you will learn quite a bit in the 3 years accumulating the minimums. Even if you don't know much now, you can learn about complimentary funds after you choose your core.
The biggest issue is choosing a solid core fund... you don't want to picka core fund now, then change your mind in 10 years, 5 years, or whatever.
A timeline for T Rowe Price might be:
2007 invest 4k in core fund pay $10 IRA fee
2008 invest 2.5k into core fund (hit $5000 minimum and avoid $10 fee) and open second fund with 2.5k (pay $10 fee on second fund)
2009 invest 2.5k into core fund and 2.5k into second fund.
Core is at 10k, second fund is at 5k. Because you have more than 10k of combined assets all IRA fees are now waived on all accounts
2010
Invest 1k into core fund and second fund
Invest 1k into 3 other new funds
2011 and on, continue investing to get each fund to right % of portfolio.Last edited by jIM_Ohio; 03-04-2007, 08:48 AM.Comment
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I agree, a core fund or funds is/are key. The target fund could be considered a core fund but you have keep track of it as its' holdings change over time. These slight changes may somewhat throw off your asset allocation if you have added complimentary funds to the portfolio. And the % of the Total Stock Market Index Fund in the Vanguard 2045 Fund is 72.1%.Originally posted by jIM_Ohio View Post
Just for clarification...complimentary funds, individually, may be more risky and volatile than your core holding(s) but when added, can reduce the risk and volatility of the portfolio as a whole.Originally posted by jIM_OhioThe easiest thing of all is to deceive one's self; for what a man wishes, he generally believes to be true.
- DemosthenesComment
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All good points - the only thing I can think of to add is that you may not want to "divvy" up too much anyway, when just starting out. That is, you may be of the opinion to be 0% bonds, if retirement isn't untiil 2045 (about 40 years).
In that case, pick a growth equity fund and when it builds up, start picking different ones (small caps, REITS, commodities, international) to diversify.
Another point to consider this is - do you have money beyond $4000 to invest?
Because let's say you have $8000/year to invest - I would put 4K into a high risk equity fund (ROTH IRA) and then perhaps pay down debt (which in effect is like getting a sure 6-8% return as per a bond) with the other.
If that's the case, then why be in bonds at all? See my point?
Good luck with whatever you decide.Comment
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Adding to what scanner said, there are many "conservative" financial instruments.
Bonds are one
Paying down debt is another
A third is Social Secutiy (if it's there, it's a bond/ annuity like vehicle)
A fourth might be a pension (if you have a pension, other assets can be invested more aggessively).
I have looked at 401k loans as a short term bond (needed money for a house, so I borrowed from myself, and paid myself back, while the loan was out I had rest of 401k invested quite aggressively).
Owning bonds at a young age is not what I would suggest... but if you are not comfortable with 100% equities, consider the whole financial picture while deciding how much % bonds you want.
Scanner, that was a great post.Comment
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I think your choice is a fine one. As mentioned previously, you can move the money later. Vanguard has many good choices with low fees. The most important thing is to start investing and get the money working for your retirement.My other blog is Your Organized Friend.Comment
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Since I don't have a lot of money to invest right now, I just stick with the Target Retirement, but once I accumulate enough to avoid all fee, I'm going for other funds
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I hope not...I just invested my 2006 IRA money in the 2045 fundOriginally posted by bigsaver View Post
There are some great posters here who are giving you a lot of good info!Comment
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The top five holdings for VTIVX according to morningstar.com:Originally posted by jIM_Ohio View Post
69.23 % - Vanguard Total Stock Mkt Idx
10.64 % - Vanguard European Stock Index
10.04 % - Vanguard Total Bond Market Index
5.13 % - Vanguard Pacific Stock Index
2.51 % - Vanguard Total Stock Market ETF
I think it is a great fund to start with.Comment
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