Vanguard 529: Target date Portfolios or choosing your own?
I don't mind putting in the extra legwork - just wondering if this community knows about how individual portfolios have done compared to the target ones that Vanguard supplies.
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Target date funds are notoriously mediocre. Don’t use them if you don’t have to.
Thanks - I didn't know this
Have a podcast with the relevant research. And more papers have come out about their deficiencies more recently.
Awesome! Listening now!
In my state I have a Vanguard 529 fund. I don’t have the ability to have an individualized portfolio; I have to pick some fund. They have Target date funds and a variety of other funds. I did some research into the funds and found one that is called Vanguard Total Stock Market Index Portfolio which seemed as close to VTSAX/VTI as I could get. It’s been doing well. My kids are young so I will likely move the money to something more conservative when they get closer to college age.
Thank you - this is really helpful. So basically the same advice as brokerage investing for long-term, then manually make conservative closer to college.
Yes, that's right. When they get to high school is around the time you might want to make adjustments depending on when you are planning to use the money.
The New York 529 allows you to choose a Vanguard growth fund over a target date fund. I just changed mine this way.
The target date funds generally have higher fees but do not necessarily have better results. You need to find more details on each available fund's fees and expenses. There is usually a Net % expenses shown.
Real examples from the funds I am able to choose in my 401k:
Target date 2060 fund has a 0.29% Net expense (All the target date funds are 0.29%)
Blend of Large US Equity has a 0.02% Net expense
Blend of foreign Large Equity has a 0.04% Net expense
Blend of Small and Mid cap US Equities has a 0.05% Net expense
Most of the fixed income (bond) options I have range from 0.29% - 0.49% Net expense
Etc, etc.
Expenses can be a huge drag on returns and they only get worse the longer you hold the investement.
The extra leg work I would recommend would not be trying to choose stocks you think are winners, but digging into the fees and expenses of the funds available for you to select. As JL Collins puts it, "forget about the needle. Buy the haystack."
Thank you! Appreciate your detailed response and we will keep this in mind
There are great free online tools where you can test scenarios yourself to see performance differences and other metrics. Testfol dot io is one such site. Here is a link comparing the Vanguard Target Retirement 2035 Fund to the Golden Butterfly portfolio created by Tyler at Portfolio Charts. Portfolio Charts dot com is another great site for comparing portfolios.
testfolio | Portfolio Backtester for ETFs and Asset Allocation | testfolio
Are you referring to picking your own investments vs a target date fund?
Yes
There are stock comparisons sites and apps out there that you can check out. Keep in mind that target funds will have fees associated with them that are typically higher that the expenses on most popular index funds. Also, the target date funds have a specific role and will change allocations as you reach that date.
Thanks - good to know about the fees