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************************************************* In this video we are talking about an alternative to owning Vanguard Target Date Funds in your retirement account and how you can save over $70,000 in doing so….(read more)
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DO NOT Buy Vanguard Target Date Funds! SAVE $70,000 || Vanguard Index Funds
When it comes to investing for a secure financial future, many individuals turn to mutual funds as a reliable and convenient option. Vanguard, one of the most renowned investment management companies, offers a range of mutual funds to cater to different needs. However, while Vanguard has gained widespread popularity, it is crucial to understand the potential drawbacks of certain investment options, such as Vanguard Target Date Funds. In this article, we will explore the shortcomings of these funds and advocate for considering Vanguard Index Funds as a superior alternative that can potentially save you $70,000 over the long term.
Vanguard Target Date Funds are designed to be a one-stop investment solution, aiming to provide a balanced portfolio adjusted to an individual’s target retirement date. These funds automatically adjust the asset allocation mix over time, gradually shifting towards a more conservative approach as the target date approaches. While this may sound appealing, there are several reasons why these funds may not be the best choice for your investments.
Firstly, Vanguard Target Date Funds have relatively higher expense ratios compared to Vanguard Index Funds. An expense ratio is the annual fee charged on the fund’s assets for management and administrative costs. Target Date Funds require active management to maintain their balance, leading to higher fees. In contrast, Vanguard Index Funds replicate the performance of a specific index, requiring minimal management and resulting in lower expense ratios. Over time, the compounding effect of higher expense ratios can significantly eat into your investment returns.
Moreover, Target Date Funds may not align with your individual risk tolerance and investment objectives. These funds assume that all investors with the same target retirement date have similar risk profiles, which is not always the case. It is crucial to have a personalized asset allocation strategy that takes into account your specific risk appetite, financial goals, and time horizon. Vanguard Index Funds offer greater flexibility, allowing investors to tailor their portfolios more precisely to their individual needs.
Furthermore, by investing in Vanguard Index Funds over the long term, you can potentially save $70,000 or more compared to Vanguard Target Date Funds. This significant amount stems from the difference in expense ratios between the two options. A study conducted by financial research firm NerdWallet found that over a 30-year investment period, Vanguard Index Funds’ lower expense ratios can potentially save investors thousands of dollars. This additional capital can be reinvested or used to boost your retirement savings.
So, what makes Vanguard Index Funds an attractive alternative? These funds passively track a specific index, such as the S&P 500, reflecting the overall performance of the market. As a result, they tend to have lower costs, tax efficiency, and greater consistency in achieving market returns. With a wide range of index funds available across various asset classes, you can build a diversified portfolio tailored to your preferences and risk tolerance.
In conclusion, while Vanguard is a reputable investment management company, it is essential to critically evaluate the options it offers. Vanguard Target Date Funds may not be the optimal choice due to their higher expense ratios, limited customization, and potential mismatch with individual risk profiles. Instead, consider Vanguard Index Funds, which offer lower costs, increased flexibility, and the potential to save thousands of dollars over the long term. By exercising careful analysis and selecting the right investment options for your individual financial situation, you can pave the way towards a more successful and financially secure future.
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I'm in a Vanguard target date fund via my company 401k. I don't want to lose the company matching I'm getting from the company but I definitely want to reallocate where my money is going. I see a total market fund and a vantuard 500 fund, but they're both admiral shares. I'm not sure what the difference is, but it seems like that would be a better place to put most of my money. Any thoughts?
THX
Hello Joe, new subscriber here, thanks for so many informative videos. You say in one of your videos that you don’t own any bonds in your portfolio because your retirement target date is many years away, so my question is.. Is it better to have no bonds at all in your portfolio and have, let's say, 70% domestic stocks and 30% international or is it better to have an allocation similar to Fidelity's where they have 54% US Stocks, 40% International Stocks, and 6% Bonds? This is if I choose to do this with M1Finance where I can allocate my assets in my pie as I want to. Thanks again for your great content!
I personally don’t like Target date funds for 2 main reasons. 1. The costs, as you illustrated. And 2. Their stock allocation. I personally don’t like holding that much international stocks. I generally like to be in the 10% range for international. Also, I like having more control over my funds. Say there’s a major correction. I’d sell my bonds to raise money to buy the dip. Can’t do that if they’re locked in a target date fund
With M1 finance do we have to rebalance the simulated target date fund from time to time?
@The Average Joe Investor , I am curious if you would recommend doing this same method with an M1 Finance Target date retirement fund? Or , just stick with the method that you showed in the video with Vanguard? Thanks.
I like that strategy allot I am using a similar strategy in my Roth ira
Very disingenuous click bait headline. Should read, how to perform better than a Vanguard Target Date Fund. Vanguard is perfect for idiots like me, the same type that buy a nice reliable boring used car.
Wow this video is just a clever advertisement for m1finance. Totally already lost all trust in anything you have to say. I'm out
Thanks Joe on your video.. Im 49 and I know I'm late in the game but finally getting started on investing…
Great info! Moving my target date funds over now 🙂
But how do I get my HR Dept to give me the pretax benefit?
i have VFIFX, but I think you have good points. does M1 offer something that vanguard doesn't though? seems like i could just sell my current shares and purchase the ETFs through vanguard for the same expense ratios/outcome and not mess with a new interface. cheers.
How you plan to move your 401k without the penalty fees or no having to quite your job ..
What if I open an Roth IRA with Schwab.. do I have to open up a new Roth IRA for M1 finance? Or does those funds automatically transfer?
Thanks in advance! New investor newbie of 2 weeks! I’m happy to come across ur channel
Hi, thank you. I just come across your video and checked out your channel, thank you for explaining finances in the terms that everyone can understand.
I have a question about this video. In the UK we get tax relief of 20%. So if I put £100 into my pension extra £20 will be added to my pension pot by the government. If I buy ETFs through standard investment ISA I would loose than benefit. How can I calculate if lower fees worth loosing out on the 20% tax relief.
Thank you for info! But why cant I invest in IRA with Vanguard as well? How is M1 better then Vanguard when it comes to IRAs? Thanks!
A lot of people are paying their local Financial Advisor and losing 2% out the back end. I'll stick with my target fund
Luv that nice work what if… u already own a 2065 retirement fund how do I sell or transfer my retirement fund into index/etfs funds ??? On vanguard of course
I guess I'm lucky. My employer 401k offers the Vanguard target date funds and the ER is already .05.
Great video. Thank u for posting
I started a new job after graduating college and I got a Vanguard Target Retirement 2060 Inv with my employer. Here I am receiving mail from them and being too scared to even look at it because I never learned anything about investing or even retirement. This made it so easy to understand!! Thank you!!!
Your point about reducing expense ratios via M1 by mimicking the investment portfolio of a good target fund is well taken, but did you consider the impact of employer match contributions for target funds? For example, if a company offers a 5% match with a target fund, why wouldn't I take the free money? Won't I come out ahead if I have more money to invest in a target fund then I would with the M1 portfolio that does not have employer match contributions?
In regards to rebalancing, would you not want/need to sell and rebuy shares based on the new percentages or allocation? Or are we just modifying percentages for newly purchased shares?
It wouldn’t save me much if anything because my target retirement funds (target 2065) are in my brokerage. Eventually I’d have to rebalance over a certain account balance which is taxable. I’d reach that rather quickly at over 2k/month contributions increasing and capping out at 4K/month by 29 in my brokerage. I’m 25. [Yes I do max my Roth IRA and contribute to an employee 5% matching plan (TSP); and these I manage more individually, because of the tax benefits.]
What about doing this on the Vanguard platform? Why use something else? Thank you
using your example if you had 30 years to retire would you still keep the bonds at 10 percent or no bonds at all for the first 10 or 20 years?
Hi Joe. Quick question hopefully you can answer I'm 31 and looking to invest for the next 35 years I have a vanguard account roth Ira looking for very high growth and return what would it take for me to become millionaire by 65?
Even though the Expense Ratio are very low on these ETFs, the ROI of the target date fund will offset the cost. I used VFFVX that has a 10.08% return since inception.
Great info. To bad that M1 does not have the option to create a roth ira for my kids under my account as Vanguard does. I am definitely doing this on my acct.
What if that is the only decent choice in your 401k . ?
Isn’t there a difference between Target Date Funds and Target Date Index Funds, i.e. the Index versions having a much lower net expense ratio?
Most people are going to do just fine with a target date fund. Yeah, the fee are slightly more expensive than if you just build your own portfolio, but a lot of people to do not have the discipline to do that. Target date fund takes care of that for them and allows them to just focus on plugging money into their 401k, IRA, or whatever like it's a savings account and not have to worry about the investing part of it.
What is m1finance? My 401k is with vanguard can I still use this method?
I watched up to the 60 second marker.
All I saw was a pinkie toe with no nail repeat the title of the video broken across several exclamatory bits of empty value. I even listened to the sentence about not wasting my time and getting straight to the point. If you have to waste my time saying that you arent going to waste my time, you have already wasted my time.
Holy christ dude this video is buzzfeed clickbait bullshit. If you really have info for anyone, just actually say it. Watching you babble about your title for 10% of your video kills every cell in yoir viewers body. I lost a buzz just getting through your intro, and I have hella good weed.
Now im wasting my time on a tutorial for you about not wasting anybodys time by not telling them that you wont be wasting their time.
Fuck you.
He states an Investment Return of 10% is high, but he's "just comparing the two, not factoring in inflation". That number matters, though. The same inputs, except with a more realistic (IMO) Investment Return of 6%, result in a difference of <$28k. Also bear in mind if you're single, you'll only be able to contribute $6k per year to an IRA, not $12k like his example states, which is a difference of <$14k. But I guess that doesn't make for as exciting of a video title…
Target date fund expense ration: 0.15%
Individually added up: .03 + .08 + .08 + .04 = 0.23%
Maybe a stupid question but.. How does that save?
I have owned a Vanguard TDF for many years and I'm averaging a 9.8% return. Are you a CFP, series 7 broker or series 66 investment adviser? Are you offering to rebalance and manage M1 ETF portfolios for investors you don't even know? There are tools built into TDFs that provide automatic planning and risk mitigation for busy people who are not candidates for what you're recommending. Automation and consistency directly through Vanguard's TDFs plays a part in a diversity of retirement planning approaches. Show us your actual ETF and TDF portfolio(s) with at least a 5-year history comparing outcomes.
I would do a 3 fund pie cutting out BNDX as it is hedged to the US dollar so its pretty much going to track exactly the same as BND and thus is redundant and does not offer any risk reduction. I would go 65%VTI, 25% VXUS, 10%BND.
Is there a way to find out exactly when vanguard changes their allocation and not just update every January 1st?
Hello Joe,
One question: I have a Webull and a Robinhood investment account. Do you think I also need a M1 account too? Thank you! Desert Doug
Stonks only go up! Buy them all!!!