Retirement Portfolio End of Year Check-Up

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Just to be clear, I only trade individual stocks on my Play Money portfolio. All our retirements funds are going to stay in low-cost index funds. Currently everything is in two funds – Vanguard Target Retirement 2035 (VTTHX) and Vanguard Target Retirement 2045 (VTIVX).

According to, VTTHX has a year-to-date (YTD) return of 6.82%, and VTIVX has a year-to-date return of 7.54%. Not a bad year, their S&P 500 index fund only has a YTD return of 5.93%. The international diversification of this fund of funds has helped this year, with the Vanguard Pacific Stock Index Fund (VPACX) returning 22.28% YTD. I’ve already got my $8,000 ($4,000 x 2) ready to invest in our Roth IRAs in January.

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  1. I just double checked your YTD numbers and they are incorrect. I believe you are using the 1-Year numbers instead of YTD. The true YTD numbers are TR2035 6.82% and TR2045 7.54%.

    Still not too bad vs. the S&P 500.

  2. Yep, you’re right, thanks for letting me know. I was consciously trying to avoid that mistake too! Grr

  3. My Roth got both VTIVX and a similar fund from T Rowe Price.

    The only minus of Vanguard retirement funds is that their primary stock source is a large cap blend fund (rather than also mid and small caps)…

    BTW, I use dollar cost averaging so that I don’t have to gamble all on only one day of the year.

  4. For my own purposes, I really don’t find these target funds attractive. For one, I have assets all over the place in IRAs and my 401(k) where I don’t have choices over what is offerred in the plan. My approach is first to look at the world market cap which is approximately 50% US and 50% International. Then I split each into 4 divisions between small and large, value and growth. In addition, I mix in some emerging markets. The end result is:

    12.5% US Large Value
    12.5% US Large Blend/Growth
    12.5% US Small Value
    12.5% US Small Blend/Growth
    10% Int. Large Value
    10% Int. Large Blend/Growth
    10% Int. Small Value
    10% Int/ Small Blend/Growth
    10% Emerging Markets

    Since I have 30 years or so until retirement, I throw bonds in the garbage as I am quite comfortable with the risk of equities over a 30 year span vs. bonds. Then I invest in the best offerings of my 401(k) and fill in the gaps using IRA funds.

    If REITs begin settling down in the next few years, I might begin buidling my allocation to 5% for some additional non-correlating diversification.

    Obviously, from what I have laid out, the target funds just don’t fit my situation or my asset allocation strategy.

  5. I’m not entirely convinced about doing dollar cost averaging when

    a) You have the money available and ready to go
    b) Your time horizon is long

    The market still averages up, I think it’s better to get it all in if you got it ready. If you don’t, then DCA is a good idea.

  6. I think 70-75% Vanguard Total Stock Market Index and 25-30% Vanguard Total International Index would work better for you. There’s no reason for you to own any bonds right now. Your time horizon is very long and stocks are the better relative value.

  7. DCA protects you in down years (who knows?) and doesn’t cost you more. Though time horizon is long, you only rely on 30 entry points over the course of 30 years… Plus, the available money can always sit in MMA or short-term CD.

  8. I think DCA has some merit if you are looking to deploy large amounts of capital in some allocation strategy over a shorter timeframe. Imagine if you inherited a few hundred thousand and deployed the money in 2000/2001.

    DCA probably doesn’t mean much if it’s just your $4000 IRA contribution and you will continue contributing that amount for many years to go.

    I still prefer to DCA my contributions though because at least historically (if I recall correctly), the market tends to be higher in Q1 from the “holiday rally” or whatever other reason. Therefore, you might often times get a better deal on shares in Q2 and Q3 when the market traditionally lags. In short, DCA is just another diversification factor from my point of view.

  9. I’m looking to open a Roth IRA for 2005 and am debating as to which firm to use. I think I’ve narrowed it down to Fidelity and Vanguard. Any comments toward either?

  10. (Jane, not Janw)

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