jmz668 said:666beers said:I can't believe that no one had given this post green. This is such a valuable insight.
It's not much different to "water makes you wet".

Well, the thing is that you can work out that water is wet pretty quickly.

DavidScubaDiver's point is not one that can be seen immediately - the problem will appear ten, twenty or even thirty years down the track. And by then there is nothing an taxable investor can do, because to rebalance they'll be hit with long-term capital gains tax on a presumably large balance or if they stay with the fund they get hit with loads of bond interest that's taxable at normal rates.

Shandril said:I'm no dissing the vehicle. Yes for those too lazy or too dumb to setup a small number of index funds to mimic those target retirement funds and revisit that portfolio every 5 years, it might be ok. They pay thru the nose for their lack of involvment in their finances. Fair enough.

But how can OP pretend to be a financial planner? I'm a clueless self-educated investor and even I know that those target retirement funds can only have higher fees than their underlying funds.
The Vanguard funds don't, they only pass through the fees from the underlying funds.

jmz668 said:Shandril said:I'm a clueless self-educated investor and even I know that those target retirement funds can only have higher fees than their underlying funds. The Vanguard funds don't, they only pass through the fees from the underlying funds.Same with T. Rowe Price.

Ok maybe some investment firms won't have extra fees to attract people into those (easy buy and hold crowd I guess) but at the very least the fees won't be any lower. I can see the point for avoiding low balance fees on some funds. I didn't account for very low portfolios but speaking of vanguard, those balances are really low and with electronic delivery can be easily avoided even for low balance portfolios so not a major difference.

In truth having fees for the extremely minimal amount of extra work required to keep those target funds going is bad form. There's very little decision making. No stock picking like for the underlying funds and next to no maintenance since they don't rebalance that often either.

And as far as capital gains, how could you pay less than the underlying funds? If they shift you from stock funds to bond funds, they're still selling the underlying stock funds and buying the bond funds. How would it not trigger capital gains upon the sell event?. It's the same rational that you got for a regular fund and underelying stocks. The target funds barely change asset allocations so they generate fewer capital gain events. But I don't think the vehicle itself shelters you at all from capital gains. The strategy might but that's all. Also I got the impression that a lot of those retirement funds are geared for the 401(k) or IRA investor. If you don't pick the ones with underlying tax-efficient funds, you're gonna get hit with taxable events left and right. But again I don't think you'll pay any less tax than if you invested on your own in the same underlying funds in the same taxable account and did the rebalancing yourself.

jmz668 said:Shandril said:I'm no dissing the vehicle. Yes for those too lazy or too dumb to setup a small number of index funds to mimic those target retirement funds and revisit that portfolio every 5 years, it might be ok. They pay thru the nose for their lack of involvment in their finances. Fair enough.

But how can OP pretend to be a financial planner? I'm a clueless self-educated investor and even I know that those target retirement funds can only have higher fees than their underlying funds.
The Vanguard funds don't, they only pass through the fees from the underlying funds.

You are correct, but with the Vanguard Target 20xx funds, you never qualify for admiral shares, and the lower fees they have. I'm not faulting Vanguard for that, but it is a fairly minor point which is worth brining up, since the Target 20xx funds certainly do qualify for admiral share status as investors in their underlying funds.