Ah, mutual fund companies love your money, and fully realize many people are lazy, busy, or just don’t want to deal with money. So they created the All-in-One fund. The one I like the best for our purposes is the Vanguard Target Retirement 2045 Fund (VTIVX). I don’t really care about the dates on the funds, as each company does things a bit differently. Let’s look under the hood. Currently, VTIVX has the following underlying funds:
Vanguard Total Stock Market Index Fund (VTSMX) – 70.4%
Vanguard Total Bond Market Index Fund (VBFMX) – 12.1%
Vanguard European Stock Index Fund (VEURX) – 11.8%
Vanguard Pacific Stock Index Fund (VPACX) – 5.7%
Breaking that down roughly gives you:
Actual Asset Allocation
46% Large Cap
18% Mid Cap
6% Micro/Small Cap
6% Pacific (Japan mostly)
There is no Emerging Markets at all, and only a small amount in Small Cap stocks. Those, along with a more value focus, are what I felt was missing from this mix, and looked to achieve by using more one fund. In addition, there is no ability to place more tax-inefficient assets into tax-sheltered accounts. Still, with this there is no rebalancing to worry about, the allocation adjusts with time, and the annual expense ratio is a low $21 per $10,000, or 0.21%.
But wait! Just as I write this, Brian of Our Money alerts me that Vanguard is changing the makeup of their Target funds, as well as adding some more dates.
From the press release:
* The funds’ equity allocation paths will be modified to provide a somewhat greater exposure to equities over a longer period of time. The result will be an increase of roughly 10 to 20 percentage points per fund, depending on the target retirement date.
* Vanguard Emerging Markets Stock Index Fund will be added to each of the funds (representing roughly 1% to 2.5% of assets), further diversifying their exposure to international markets.
The first bullet about having less bonds and more equities doesn’t really concern me, as again you shouldn’t just go by the dates, but examine the asset allocation underneath. If it gets too aggressive, simply switch to another fund with an earlier date like 2035. Adding a bit of Emerging Markets is nice, but it’s still only a small change.
The overwhelming appeal of this fund remains that (1) even though it is simple, you could easily do worse if you mess around with actively-managed funds or go nuts trading individual stocks, and (2) you don’t have to think about what to buy. Got your annual bonus, and want to invest it? Buy some VTIVX. Think you can set aside $100 every month? Buy some VTIVX. Hubby sleeping with your best friend? Hire a private investigator and blackmail him. Then take the money… and buy some VTIVX. =)
What were the other options again?
By Jonathan Ping | Retirement | 3/20/06, 10:38pm