Stocks — Part XV: Target Retirement Funds, the simplest path to wealth of all

Ok, so you’ve read the Smoother Path to Wealth and thought,  “Aww man.  Three funds?  And I gotta rebalance them every year?  That’s too much to keep track of!”

Picard aww man

But then you hit the link and went to the Simple Path to Wealth.  As you read, you thought, “This is more like it.  Only one fund.  This I can handle.”  But then you got to the part where, maybe 40 years from now as you start looking at retirement, you’re going want to add a couple more.  “Aww man!”

jlcollinsnh hears your pain.  You need the simplest of all possible paths.  You need to be able to buy just one fund and own it till your dying day.  Any asset allocation crap should be handled for you.  You have bridges to build, nations to run, great art to create, diseases to cure, businesses to build, beaches to sit on.  Motorbikes to ride.  I’m here for you bunkie.

More importantly, so is Vanguard with a series of 11 Target Retirement Funds.* For that matter, so are other mutual fund companies, but as you know Vanguard is the primo choice around these parts so we’ll be talking about these. If your 401k or similar plan offers only one of the others, what is said here (excepting expense ratio costs) applies.

*(For some reason this link doesn’t stay set to just the Target Retirement Funds.  To bring them up when you get to the page, look at the left hand column.  Under Asset Class chose Balanced.  Under Fund Minimum be sure only $1000 is checked.  Under Management chose Index.  That should bring them up.  Then you can simply click on each to check out the specifics.)

If you click on the link you’ll see that these eleven funds range from Target Retirement 2010 to Target Fund 2060.  The idea is you simply pick the year you plan to retire and that’s your fund.  Other than adding as much as you can to it over the years and arranging for withdrawal payments when the time comes, there is nothing else you need ever do.  It’s a beautiful and elegant solution.

Let’s peek under the hood.

peek under the hood

Megan Fox wants to….

Each of these Target Retirement Funds (TRF) is what is known as a Fund of Funds.  That just means that the Fund holds several other funds, each with different investments.  In the case of Vanguard, the funds held are all low-cost Index Funds.  That’s a very good thing.  The TRFs ranging from 2020 to 2060 each hold only three funds:

  • Total Stock Market Index Fund
  • Total Bond Market Index Fund
  • Total International Stock Market Index Fund

To those three the TR 2015 fund adds:

  • Inflation-Protected Securities Fund

To those four the TR 2010 fund adds:

  • Prime Money Market Fund

As the years roll by and the retirement date chosen approaches the funds will automatically adjust the balance held, becoming steadily more conservative and safer over time.  You needn’t do a thing.

The expense ratios range from .17 to .19, depending on the fund.  Excellent.

What are the short comings?

Some people say the funds get too conservative too soon. Others complain that they are too aggressive for too long. For my money, I think Vanguard gets it pretty close to spot on.  Maybe a bit conservative for me personally, but then I’m on the aggressive side.  This is easy to adjust for.  If you want a more conservative (greater percentage of bonds) approach, choose a date before your actual retirement.  The earlier the date the more conservative the asset allocation.  If you want more aggressive (greater percentage of stocks), just pick a later date.

In deciding, be sure to remember what we learned looking at the Trinity Study in our discussion of withdrawal rates:  A strong dose of stocks is critical to a portfolio’s survival rate, especially once you begin drawing money out.

BTW, other fund companies use differing allocations for differing retirement dates. If those are what’s offered in your 401k or 403b plan, you’ll need to take a look and then decide. But the same principles apply.

So why doesn’t jlcollinsnh recommend them?

I do, actually, and am with this post.  They are an excellent choice for many, maybe most people.  They will certainly over time out perform the vast majority of active management investment strategies.

But I do have a slight preference for…

…the Smoother Path to Wealth and the Simple Path to Wealth.  Here’s why:

  • The expense ratios are even lower than those of the TRFs.
  • The TRFs all hold the Total International Stock Market Index Fund.  While this is an excellent fund, I don’t feel the need for additional international coverage beyond that found in the Total Stock Market Index Fund.
  • With separate funds, I can keep my bonds in my tax-advantaged accounts, protecting the interest from taxes.

Where are you likely to find Target retirement Funds?

looking under a rock

Painting by Ted Dawson

Target Retirement Funds have become very popular as options in the 401k and 403b retirement plans offered by employers. The thinking is (and it is sound) that most people really have very little interest in investing.  TRFs provide an effective, simple and well-balanced “one decision” solution.  Plus, because such retirement plans are tax sheltered, the interest from the bonds and the dividends from the stocks go untaxed.  Of course, when the funds are withdrawn in retirement taxes will be due.

What should you do?

If your 401k (or the like) offers TRFs or low-cost equivalents from another fund company, they are well worth your consideration.

If you want as simple as possible and still effective, TRFs are for you.

TRFs:  They come with the jlcollinsnh….


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  1. lise
    Posted December 18, 2012 at 3:54 am | Permalink

    Thank you for these posts. I’ve got some way to go before retirement and a few obstacles, such as living in a country that would rather you didn’t save for retirement yourself: Norway. So my comment is a question, do you (or anyone reading) know how to invest in Vanguard from Norway (or indeed any European country)?

    • Posted December 18, 2012 at 8:26 am | Permalink

      Hi Lise….

      Vanguard does have a presence in various countries around the world, including several in Europe. You can check them out here:

      Denmark and Sweden are both included, but unfortunately I don’t see Norway.

      I am a bit surprised Vanguard doesn’t cover the EU as a whole, but that also wouldn’t help you folks in Norway.

      The good news is Vanguard, with its client centered focus, is expanding rapidly. Hopefully Norway is next!

  2. Posted December 18, 2012 at 9:32 am | Permalink

    Thanks for explaining these funds. I also appreciated your arguments for the simple and smoother path to wealth, which I’m doing.

    I’m invested solely in VTSAX in taxable accounts. I do have a 6 month emergency fund in cash outside of that and I’m 28 years old. Why exactly should I buy bonds? I don’t honestly understand the reason for it, as it will increase taxable events for me and likely perform much, much lower than the stock market index. At my age, what makes sense to buy in addition to VTSAX?

    I like your recommendation of VGSLX and may considering buying some. What do you think about my buying those versus bonds? Also, what arguments are there for utilizing my employer’s simple IRA plan and a Roth IRA? I don’t have or contribute to either at the moment. My plan is to retire early (late 30′s/early 40′s) and I have a hard time accepting that I won’t be able to use the money until I’m 59 1/2.

    • Posted December 18, 2012 at 12:03 pm | Permalink

      Hi Kraig….

      Were I in your position and 28, VTSAX is the only fund I’d own, per The Simple Path. Provided you are mentally prepared for the wild ride.

      The only reason to own bonds, especially in this era of super low interest rates, is to smooth out the ride. It is more profitable over time to get mentally tough as per Part I in this series. Same applies to REITS, which I’d own before bonds at your age.

      If your employer offers a match, that makes their IRA plan a no brainer. Especially if your income is high enough to make the tax deduction worthwhile.

      Roth IRAs allow your money to grow tax free and, importantly, be withdrawn tax free when the time comes. That’s why I love them.

      If you plan to retire early, having all your money in IRAs doesn’t work. But then, your savings rate will/should be such that you’ll have plenty invested outside IRAs too. You don’t need access to it all at the same time. I’d do, and did, both.

      Plus, 59.5 will sneak up on you sooner than you know. Trust me on that. :)

      BTW, I’ll be linking to one of your posts in my next.

    • Posted December 18, 2012 at 6:20 pm | Permalink

      Kraig, you are able to withdraw Roth IRA contributions at any time, tax and penalty free, since the money you contribute to a Roth IRA has already been taxed.

      For example, if you contribute $5,000 to your Roth IRA today, you could take out $5,000 from that account next week without paying anything in taxes or fees. Say, however, that you decide to leave the money in there for a year and the $5,000 earns $100 in dividends, you’d still be able to take $5,000 out of your Roth IRA tax and penalty free but you’d have to pay a penalty if you decided to take out the additional $100 that was earned in the account.

      I am also planning on “retiring” in my 30’s but I still max out my Roth IRA every year because it provides a way to obtain additional tax-free growth. I simply maintain a spreadsheet that keeps track of how much I’ve contributed to the account so that I know how much I could withdraw before 59 1/2 (I hopefully won’t touch any of that money until standard retirement age but it’s nice to know that I can).

      So in your case, if you put $5,000 into your Roth IRA every year from now until you retire when you’re 38, you’ll have $50,000 worth of contributions in the account and $19,082 in earnings (assuming a 7% return). You could take that $50,000 out to use in early retirement and leave the $19,082 to grow tax free until you’re 59 1/2. Again assuming a 7% return, the $19,082 will have grown to over $79,000 by the time you eventually reach standard retirement age!

      • Posted December 18, 2012 at 11:43 pm | Permalink

        Mad Fientist and jlcollinsnh,

        Thanks for the great responses. jlcollinsnh, thanks for the recommendation to be 100% in VTSAX. That’s exactly what I was thinking and I love the idea of keeping in that simple.

        Mad Fientist, thanks for the advice on funding the tax advantage accounts due to the ability to pull out my contributions. I think I’m going to open and max out a Roth this year and likely contribute up to the limit on my employer Simple IRA plan.

        jlcollinsnh, I’m looking forward and honored that you will be referencing one of my posts in the near future.


      • Posted December 10, 2013 at 6:11 pm | Permalink

        The explanation by Mad Fientist is probably the most lucid, and frankly the best, reasoning for having a Roth IRA!

        One more factor, if you need more, to consider opening a Roth early is that they have limits to the contribution based on your AGI (Annual Gross Income), as mentioned by Michael above. After a certain point in their professional career, a lot of people will no longer be able to contribute to Roths.

  3. Posted December 18, 2012 at 10:01 am | Permalink

    Great explanation James. I recommend Target Date Funds to everyone that has them available in their 401(k) plan, or cousins 403(b), 457 and TSP. They are a great retirement savings vehicle for anyone that wants a hands-off approach, and like you mentioned, have very low expense ratios (typically).

  4. Posted December 18, 2012 at 3:51 pm | Permalink

    Here’s a better permalink for the Vanguard Target Retirement funds:

    Hope this helps!

  5. Posted December 18, 2012 at 11:15 pm | Permalink

    Smart minds think alike. I started writing an article on Gone Fishin’ Portfolio several days ago. Since it’s entirely comprised on Vanguard funds, I decided to peek at your blog. And, here you are.. writing on the same topic, just notch better than me. John Bogle owes a big thank to my pal! Wait, we all owe a big thank to John. :)

  6. Gypsy Geek
    Posted December 19, 2012 at 2:11 pm | Permalink

    Hi. Are you sure that internal rebalancing in a target retirement fund is not a taxable event? It is my understanding that it is, just as an actively managed mutual fund’s buying and selling within the fund is.

    Also, withdrawing from a 401k/IRA before 59.5 penalty free is possible due to the IRS’s 72t exemption. It does require fancy actuarial tables, etc, but it is possible. And even without the exemption, If you are in a high tax bracket such that the penalty and the tax rate coming out is lower than your rate during your working years, it’s also a bargain.

    For example, say you are in the 33% bracket during your working years, but expect to be in the 15% bracket afterwards. Even if you pay the 10% penalty, 10 + 15 = 25% is less than 33%. However, it may not make sense for everyone…

    • Posted December 19, 2012 at 3:09 pm | Permalink

      Thanks GG…

      and congratulations!

      You’ve caught me out in one of my biggest fears: Making a technical, factual error in one of my posts.

      You are absolutely right and I stand, with my hat off to you, corrected. The re-balencing of the funds in a TRF is indeed a taxable event just like the buying and selling of stocks in any mutual fund is, as you point out. I’ve deleted my incorrect paragraph from the post.

      In the 1.5+ years of writing this blog if I’ve learned anything it is that there are some very smart, well informed folks out there reading it. It is been a matter of pride, and no small amount of fact checking, that my stuff stands up to their scrutiny. But not always.

      You are also correct in that there are strategies for penalty free 401k/IRA withdrawals. Since I discuss this elsewhere I’m less distressed at you pointing out this one. :) As you mentioned, such strategies can be complex and overall my belief is most often most people are better served letting them ride until 59.5+.

      While my pride is wounded, I am genuinely grateful to you. It is important that folks feel confident in the factual accuracy of what they read here. If that means my ego takes the occasional well deserved hit, it is a small price to pay.

      Hope you keep reading and chime in anytime!

      • Gypsy Geek
        Posted December 19, 2012 at 6:35 pm | Permalink

        Don’t feel bad about the tax implications of target retirement funds. I wasn’t going to point it out, but I figured that someone may make the mistake of investing in them thinking they’re a free tax-ride.

        I am an avid reader of your blog, even though I never comment. I must confess that I have read every post you have written at least twice, especially the stock series. It is very refreshing to hear your optimistic, yet balanced view on life and investing.

        My wife and are on a early retirement path (we’re in our mid 30s). By mid next year we should have enough f-you money to to quit our jobs entirely, forever, but we enjoy our work enough to want to continue working. It is a great milestone (for me anyhow, my wife is completely unimpressed because she absolutely loves her job). The plan is for her to take a few months off next year so we can travel, since I work from home. Being free is a good feeling, and is in large part due to the advice from both you and MMM.

        Many thanks!

        • Posted December 19, 2012 at 6:57 pm | Permalink

          No worries GG….

          …. and my thanks to you for calling attention to it is genuine. It really is important that what I post be accurate. I don’t have a proofreader or fact checker, so I’m surprised I’ve done as well as I have.

          I’m honored you are reading the blog and so closely. Especially as you being able to pick out that error indicates you know your stuff.

          Congratulations on your great progress toward FI. My wife still loves her job, too! But at least it gives her lots of time off for our own travels.

          Make your way to New Hampshire and coffee’s on me!

  7. Jim Partin
    Posted February 25, 2013 at 9:12 pm | Permalink

    What a coincidence! I was just reading the jlcollinsnh blog post about Vanguard TRFs and found it interesting as I have been considering rolling my AA terminated defined contribution retirement plan money into this fund. I like what I see with this fund as I really loathe the idea of paying 1-1.5 % of my assets to a financial planner to essentially do the same thing with asset rebalance as my risks tolerance decreases with age and nearer to retirement. Also, I have no aspirations of becoming a financial wizard myself, pilots have a way of ‘investing until it’s gone’ record when it comes to managing their money!

    • Posted February 26, 2013 at 12:30 am | Permalink

      Hi Jim….

      Glad this post helped a bit in your personal analysis!

      If you haven’t already, read this one too:

      As a pilot, you belong to a group of highly paid professionals who spend a lot of time learn and staying current in their own areas of expertise. Doctors, lawyers, engineers and the like are the same. Perfect targets for “advisors.”

      Recently I came across an article about insurance agents, masquerading as investment advisors (nobody wants to talk to an insurance agent), trying to sell life insurance as an investment. A horrible idea for the investor but, as describled by their sales trainer, “an obsenely profitable niche” for them. Profits that come out of the investors pocket, of course.

      They call their investors ELFs: Easy, lucrative and fun.

  8. eric
    Posted March 11, 2013 at 11:51 am | Permalink

    A weekend of reading your site has made clear many facets of the mutual fund maze, and ironically, my employer uses Vanguard for our 401K, though VTSAX is not an option.

    Target Funds are an option, but wondering which (if any) of these other available funds/ideas look better to you – age 35:

    -Stick with 100% in the TRF 2040(VFORX)?
    -50/50 split between VINIX and VEXMX?
    some other combo of any of the following?


    • jlcollinsnh
      Posted March 12, 2013 at 12:18 am | Permalink

      Hi Eric…

      Go to the Vanguard site and look up VTSAX. You ‘ll see that it also comes in “investor shares” and ETF versions. Maybe your employer’s plan offers one of those. Or they might offer VITPX which is the institutional version. This would be the most aggressive way to go.

      If you want to smooth out the ride with some bonds in the mix, the TRF is the best bet.

      • eric
        Posted March 12, 2013 at 6:50 am | Permalink

        Hello Jim and Thanks!

        As suggested I checked the site but its not offered.

        The only two indexes offered in the plan are:

        Vanguard Extended Mkt Index Inv (VEXMX)

        Vanguard Institutional Index Fund Institutional Shares (VINIX)

        Any opinion on these?

        • jlcollinsnh
          Posted March 12, 2013 at 10:37 am | Permalink

          VINIX is the institutional version of the S&P 500 index fund. Super low expense ratio of .04%

          VEXMX is the Investor Shares version of the ‘extended market’ index fund. Expense ratio of .28% This one invests in small and mid-cap stocks not in the S&P 500.

          You could combine them to approximate a total stock market index, but it wouldn’t be just a 50/50 split. Plus you’d have to rebalance occasionally.

          Since the performance of the Total Stock and S&P 500 indexes are very close over time and the expense ratio is so low I’d choose VINIX, set my contributions to the max and forget about it for 20 years. :)

        • eric
          Posted March 12, 2013 at 10:52 am | Permalink

          Thanks Jim!

          As “proof” that I have learned something from reading your site, I kind of guessed that you were going to say VINIX:) Again, thanks.

          I’m a complete noob at this stuff…and never really gave much thought to why the expense ratio even mattered…but now I get it and boy its an eye-opener!! I’ve seen some (non-Vangaurd of course) with annual fees of 6.00+%!! Unreal.

          Excellent site you have here – highly recommended.

          • Theresa Stinchfield
            Posted September 21, 2015 at 3:14 pm | Permalink

            Hi Jim,

            I was actually just going over my employer’s 401k and 457 offerings and I’m in the same boat as Eric–they only offer the Vanguard Target and VINIX. I am 45 and have NO retirement saved (long story and lots of bad choices) so I want to be as aggressive as possible. Since VTSAX isn’t an option and I’m wanting to be ultra-aggressive to make up for lost time, would you suggest the VINIX over the VFIFX? (VFIFX being the 2050 target date and the most aggressive I could find out of the Target selections.)

            Thank you so much for any insight you can offer!!

          • Theresa Stinchfield
            Posted September 21, 2015 at 3:23 pm | Permalink

            Sorry for the additional comment, Jim–I tried to edit my original to add this but it didn’t “take”!

            My follow up question was this: since my employer offers both a 401k and a 457, would you suggest selecting the same fund for each account (VFIFX or VINIX) or picking one for the 401k and a different one for the 457?

            Thank you!!

          • jlcollinsnh
            Posted September 21, 2015 at 3:44 pm | Permalink

            Hi Theresa…

            VINIX is definitely the more aggressive choice: More volatility with, hopefully, more reward over the long term.

            VFIFX will give the smoother, but not entirely smooth, ride.

            Splitting the two between the two accounts gives you the obvious hybrid.

            Personally, I’d go with VINIX. Lower ER too.

            No worries on the split comments. :)

          • Theresa
            Posted September 22, 2015 at 9:54 am | Permalink

            Hi Jim,

            One last follow up question I thought of last night. Since my new employer offers both the 401k and a 457 I’d like to take advantage of both (putting them both into VINIX as you suggested) but I won’t have enough take home pay to max out both for the year. I can put a significant portion of the max into both, but not the full $36,000. That said, would it be wiser to max out one or the other and put the extra into the “non-maxed out” account rather than splitting what I can put in 50/50 between the two accounts? If so, is there an advantage to maxing out the 401k vs the 457?

            Thanks so much! Your insight is tremendously helpful!

          • jlcollinsnh
            Posted September 22, 2015 at 10:29 am | Permalink

            Hi Theresa,

            Since you plan to fund both with VINIX, I’m not sure it much matters. Both plans are fairly similar with a 457 having somewhat more liberal withdrawal policies. Here’s a good brief overview:


            If the differences described might impact your situation, chose accordingly. I’d then fund one to the max and then turn to the other. But that’s mostly because I like simplicity. :)

            Obviously, fund each up to any employer match.

            Thanks for the very kind words!

          • Theresa
            Posted September 22, 2015 at 11:48 am | Permalink

            Thank you–I was thinking it might be wisest to fully fund one and put anything else I can into the other in order to maximize compounded interest in at least one of the accounts. I will review the article you linked in order to decide how to proceed! On a different note, I would like to invest in VTSAX outside of my employer offered accounts as well, and I saw that you suggested bond holdings should go into a traditional IRA due to tax implications. Should I open a traditional IRA for the VTSAX or just use a taxable account? (Granted, I’m not going to have much leftover money to work with after contributing to the 401k and 457 right now, but I’m sketching out a strategy so that when my income goes up I can jump!) I apologize if this has been addressed elsewhere–I’m still very new to your site!

          • jlcollinsnh
            Posted September 22, 2015 at 1:48 pm | Permalink

            Yep, this is all covered in detail in the Stock Series. Along with the nuances required to answer such a broad question. 😉

            Read thru the Series a couple of times and you’ll not only know the answer, but the reasons behind why the answer is the answer it is. :)

            But, in short:

            —Bonds in tax-advantaged accounts
            —Fund tax-advantaged accounts first
            —VTSAX in both

          • Theresa
            Posted September 22, 2015 at 4:54 pm | Permalink

            Ah, yes–the information I was looking for was in the very next segment I read today! (Part XXVI) Thank you so much for your patience! I look forward to reading the rest of your blog, and that of the others you so highly recommend!

          • Theresa
            Posted September 21, 2015 at 6:01 pm | Permalink

            Thank you Jim–that’s what I thought you would say, but that tells me that I’m actually learning from your site! I will go with VINIX on both the 401k and 457. I’m also going to look into an additional Traditional IRA for a bucket of VTSAX. I can’t thank you enough for putting your knowledge and experience out there!

          • Theresa
            Posted October 7, 2015 at 8:56 am | Permalink

            Hi Jim,

            Just wanted to let you know that I just completed my retirement enrollment and I did several things that I wouldn’t have even understood without your awesome advice:

            1) I DECLINED the offered “manager” whose benevolent expertise is offered to keep me from going off the rails…snort. I even had to sign an acknowledgement page that listed four DANGERS of me trying to make my own investment decisions! 😉

            2) I put both the 401k and 457 in 100% VINIX to be as inexpensive and aggressive as possible.

            3) Since I don’t make enough to max out either one after I save enough to front load my IRA at the beginning of every year I decided to put all my available contribution income to the 457 so if I am forced to raid it at least I won’t pay the 10% penalty. (My employer doesn’t match, but puts and amount equal to 5% of my income into the 401k and nothing into the 457. Since there is no match I’m doing the IRA first, 457 second and 401k third provided I eventually make enough to start maxing out all of them!)

            Thank you again for your wonderful blog and attentive advice! I’ll keep you posted!

          • jlcollinsnh
            Posted October 7, 2015 at 12:00 pm | Permalink

            Hi Theresa…

            Congratulations on having done the reading and for having learned what you need to know to take matters into your own hands.

            Now just stay the course and let the market and time work its magic for you.

            Oh, and try hard not to raid that 457! :)

  9. Teresa
    Posted March 17, 2013 at 7:08 pm | Permalink

    Hello Jim,
    THANK YOU VERY MUCH FOR THIS EXCELLENT INFORMATION. It takes quite a while to absorb it all! I have another question similiar to last, what about VIFSX whichis offered within my 401K? Expense ration .05% From my research it appears to be the same as VINIX but traded on the foreign exchange? Very confusing.
    Thank you!

  10. guest052237
    Posted April 18, 2013 at 11:30 am | Permalink

    How about if the expense ratio for the TRF is at 1.28? The fund is T. Rowe Price Retirement 2050.

    Also, the only index option in my 401k is SSgA S&P 500 Index Fund – Class D. Is the class D specification something to worry about? Expense ratio of .28, thoughts on this? It looks like my best bet at this point.

    Thanks for your help!

    • jlcollinsnh
      Posted April 18, 2013 at 3:36 pm | Permalink

      1.28 is a huge expense ratio and I choke on the thought. So, while TRP has some fine funds, I’d avoid this one.

      I did a quick check on

      This is their Index 500 fund and that link shows an expense ratio of .18, less than the .28 you’ve indicated. It might be an extra charge for your 401k, which does seem odd. They should be getting a better deal for you, not less. This might be what’s behind the Class D spec.

      In any event, if these are your choices, I agree it is your best bet and not a bad one at that. If you want to smooth out the ride, you can look for a total bond market fund in your selections to add. Most plans offer one. But if you are young and (this is very important) tough enough to stay the course when the market crashes, all in with the Index 500 works.

      • guest052237
        Posted April 18, 2013 at 4:00 pm | Permalink

        man, thanks for the quick response, i appreciate it!

        the .28 expense ratio is something i can handle given my other options (lowest other than the bond index below).

        i decided to go with 90% in the S&P500, and 10% in the Columbia U.S. Treasury Index w/an expense ratio of .20%. i’m 26 so willing to be pretty aggressive.

        this should be good for my 401k, but will certainly be opening up an ira of some sort, along with a taxable account through vanguard…you’re spot on with those guys, they rock!

        thanks for the great advice, i’ll let you know when i wake up and realize i’m rich :)

        • jlcollinsnh
          Posted April 18, 2013 at 4:06 pm | Permalink

          My pleasure and glad I got to it before we left for Prague.

          Sounds like you’re on a great path. Hope you continue to comment around here on the way to getting rich, too.

          Oh, and when you are, I’ll expect you to buy the coffee….:)

  11. Mike
    Posted June 10, 2013 at 11:26 pm | Permalink

    Hi and thanks for sharing your experience. I am a graduating physician with loads of debt. I will begin making lots of cash in the next few months. Loans are at 6%, mortgage to be @ 3.2%. Income to be very solid. If you were me? What would you do at this juncture?
    1. Pay off ‘bad debt’ aka student loans fast
    2. Put a nice chunk of change into REIT ETFs
    3. Go real aggressive early, small amount in safer funds?
    4. Start acquiring real estate?

    A combination of the above I suppose?
    Many Thanks

    • jlcollinsnh
      Posted June 10, 2013 at 11:49 pm | Permalink

      Hi Mike…

      Do me a favor? Repost this under the “Ask jlcollinsnh” tab above and tell me a bit more about yourself. Age for instance…


  12. Sean
    Posted June 16, 2013 at 8:49 pm | Permalink

    Hello Sir,

    I am already setup on a TRF using my employers 401K and also using Roth IRA on Vanguard.

    I do have additional moneys saved and can I use this to setup a TRF on Vanguard (I am 35) without the IRA option? As in, can I purchase TRF as if I was purchasing some stocks and let my moneys sit in there and not have to wait until I am retirement age to withdraw from this?

    Please advise.

    • jlcollinsnh
      Posted June 16, 2013 at 11:36 pm | Permalink

      Hi Sean…

      Absolutely! You can open a non-IRA account with any Vanguard fund, including the TRFs. But might I make a suggestion?

      TRFs include bonds and bonds pay interest. Outside an IRA that interest is taxable. This is why TRFs are better held in IRAs, and 401Ks and the like.

      VTSAX is all stocks and is considered to be “tax-efficient”. This mostly means there is no bond interest and being an index fund very little trading to trigger taxable capital gains. This is what I’d use in your taxable account.

      Of course, this will tilt your allocation more heavily into bonds. At age 35 this wouldn’t bother me. But if it does you the simple solution is to go with a TRF that has an earlier date and therefore a greater percent in bonds.

      When thinking about your allocation you always want to consider all your investments as a whole.

      • Sean
        Posted June 17, 2013 at 11:17 am | Permalink

        Thanks for your recommendation. I will definitely look into this – I have about $75k – would you suggest I drop the entire amount into the VTSAX? Is it more of a long term thing where I pull out perhaps 10-20 yrs later? Thank you sir!!!

  13. Tom
    Posted July 13, 2013 at 10:09 pm | Permalink

    Jim – Thanks for the detailed series; I have certainly learned a lot! (fyi, I got here from MMM.)

    Right now, I have both my Roth and Traditional IRAs with Vanguard in their Target Retirement Funds for the “set it and forget it” reason you mention above; however, I’m considering moving everything into VTSAX for the slightly lower expense ratios, but mainly because of the dividend opportunities. The target date funds only distribute dividends once per year, while VTSAX distributes quarterly. Free money four times per year is better than one time, right?

    Assuming the above is logical, what are your thoughts on VHDYX (High Dividend Investor Shares)? I realize that it has a higher expense ratio than VTSAX, but the dividend yield is almost twice as much, which is pretty exciting, especially for tax advantaged accounts.

    Thanks again for your help.

    • jlcollinsnh
      Posted July 14, 2013 at 6:26 pm | Permalink

      Hi Tom…

      Seems you have a bit of a mis-understanding as to dividend payouts.

      If your fund is paying you a dividend of, say, $1000 a year, that is how much you’ll get regardless of how often they issue payouts. If they do it annually, you’ll get $1000. If quarterly, $250 each quarter.

      So that’s not a reason to switch to VTSAX. In fact, while I haven’t checked, I’d bet the TRF has the larger annual payout, if only because of the bonds it holds.

      But the slightly lower ER is.

      The other reason is VTSAX is only stocks, no bonds like your TRF. Over time (think decades) this will very likely give you a better return. But in exchange you’ll have to deal with a much rougher ride. Plus, when the time comes, you’ll need to create your own asset allocation. That’s something the TRF does for you automatically.

      Make sense?

      As for VHDYX, understand that with it you are buying only a very specific segment of the market: Dividend stocks. If that’s what you want, this is the best way to do it. But remember, you are giving up all the other segments that VTSAX reaches for you. For more on this:

      • Tom
        Posted July 15, 2013 at 1:24 pm | Permalink

        Thanks for the followup and the dividend article link.

        To clarify, wouldn’t $250 four times per year be better than $1,000 due to compound interest of the original principal plus the dividends?

        • jlcollinsnh
          Posted July 15, 2013 at 8:29 pm | Permalink

          somewhat. not enough that it would influence my investment choice.

  14. Johan
    Posted August 21, 2013 at 10:09 pm | Permalink

    Just a quick question.

    I wanted to start investing but only have $1000 to begin. Is it reasonable to start with a TRF and then switch to the VTSAX after accumulating $10,000?

    • jlcollinsnh
      Posted August 22, 2013 at 10:46 am | Permalink

      Perfectly. Just watch the transaction expenses.

  15. Mark Abner
    Posted September 17, 2013 at 12:45 pm | Permalink

    Jim, This summer I have been enjoying your site, MMM, Mad Fientist, Brave New Life, More than Money. Whew! I’ve learned a lot from you all and you are all inspiring. This is my first post on your site. For years my core non-taxable accounts holding has been VASGX (Vanguard Life Strategy Growth Fund), which is a fund-of-index-funds. Its composition is always pretty darn stable at:
    1 Vanguard Total Stock Market Index Fund Investor Shares 55.9%
    2 Vanguard Total International Stock Index Fund Investor Shares 23.8%
    3 Vanguard Total Bond Market II Index Fund Investor Shares 16.3%
    4 Vanguard Total International Bond Index Fund Investor Shares 4.0%
    Total — 100.0%

    So stocks are 79.7% and bonds 20.3% and expense ratio is .17. I have been surprised not to see any discussion of it on any of the blogs above and so I wonder if I’m missing something and VASGX is not optimized for some major reason? I do wish it offered Admiral shares but expense ratios have dropped over time. The risk profile is comfortable for me since I remember feeling very good for having VASGX’s international exposure a few years ago when the U.S. stock market was flat and for the bond exposure later when everything else tanked. I’ve read your whole great stock series so I know you aren’t much for holding international stocks but wonder if you have any thoughts or concerns about me having probably 80%+ of our non-taxable account stash in this all-in-one fund as I am considering making it 100%. Thanks!

    • jlcollinsnh
      Posted September 20, 2013 at 12:21 pm | Permalink

      Hi Mark and welcome.

      Thanks for the kind words and I’m humbled that you place me in with those other fine blogs. High praise, indeed.

      As for VASGX, it is a fine fund of its kind and it should serve you very well and with minimal hassle over the years. Just set it, forget it and add to it as you can. It will get you there in fine shape. It has plenty of diversification and I have no problem seeing you go to 100% in it.

      As you note, it is a bit more expensive than doing it on your own with pure index funds, but not so much as I’d worry about it. Small price to pay for the convience of not having to deal with periodic rebalancing.

      In fact, if I didn’t enjoy this stuff as I do, I’d likely use a TRF like that one myself.

      • Mark A.
        Posted September 23, 2013 at 9:50 pm | Permalink

        I appreciate you taking a look at it and commenting. I indeed neglected to mention one of the major draws for me – that Vangard handles all the rebalancing – so I’m glad you did.

  16. Emu
    Posted August 6, 2014 at 12:03 pm | Permalink


    I’m enjoying reading through your stock series. Keep up the good work.

    Regarding target retirement funds and value averaging…I’ve recently started working with my father on cleaning up his investments and retirement accounts. He has a sizable chunk of money sitting in a Fidelity IRA which he rolled from a 401k plan a few months ago. This money is sitting in a money market fund within his IRA and we need to get it invested! We will soon roll it to a Vanguard IRA and are looking at putting it in a target fund.

    My question is this: I am interested in Value Averaging and understand how it serves someone investing in one fund, like VTSAX. If we were to drop my father into a target retirement fund, would there be any benefit in value averaging his purchases? How would the built-in diversification of owning USA and International stocks and bonds within the target fund affect things? Would it be better to buy 3 Vanguard funds (USA/Intl/Bond) and value average each one separately?

    Thank you!

    • jlcollinsnh
      Posted August 6, 2014 at 1:07 pm | Permalink

      Welcome Emu…

      Glad you like it.

      As to your question, I am not a fan of dollar cost averaging and value averaging is a version of that. Basically this is a type of market timing. You are betting the market will go down and you’ll be able to buy shares at cheaper prices. Of course it might also go up and then you’ll be paying more. In addition, while you are slowly adding money into the market, you essentially are creating an asset allocation that it very cash heavy.

      My call would be to decide on the asset allocation that best suits your father and implement it.

      All that said, other than for costs and effort, it shouldn’t matter if you use a TRF that matches the allocation you want or if you create your own allocation with the individual funds. Once you decide you can use value averaging in either case.

      • Emu
        Posted August 7, 2014 at 4:57 pm | Permalink

        Certainly dollar cost averaging as part of a regular investment program (401k, etc.) works its own magic by causing more shares to be bought when prices are down. But the thought of slowly investing a lump sum has always bothered me, given the inherent opportunity cost of being stuck in cash.

        Your reply makes perfect sense – thanks again!

  17. Jeremy E.
    Posted August 7, 2014 at 11:26 am | Permalink

    I have an expense ratio question. The expense ratios on these target retirement funds are usually about .18%, but it holds other vanguard funds. So does this mean we are paying for the expense ratio of the retirement fund on top of also the expense ratios of the funds inside it? Which wouldn’t be so bad if they were admiral shares but it says they are investing in the investor shares. So I wonder if the expense ratio is actually .18% or is it closer to .32%?

    • jlcollinsnh
      Posted August 7, 2014 at 4:52 pm | Permalink

      Nope. The TRF fund ER, .18%, is the only ER you are paying with a Vanguard TRF.

      Still, it would be cheaper to buy the four underlying funds separately and do the rebalancing yourself as the individual ERs are less. But that’s what you pay for the convenience of having it done for you.

  18. Stephanie
    Posted September 16, 2014 at 12:35 am | Permalink

    Great article. One correction though:

    You mentioned that the vanguard target date funds invest in three index funds:
    Total Stock Market Index Fund
    Total Bond Market Index Fund
    Total International Stock Market Index Fund

    And you cite that you get “enough” international exposure in the total stock market index fund without adding the total international stock market index fund. I think you are confusing the vanguard total stock maker fund (which is almost all domestic stock) with the vanguard total WORLD stock market index fund (which is comprised of both domnestic and international funds).

    It totally threw me off too–I assumed that the total stock market was actually global (US and non US) but no!


  19. Mark
    Posted September 24, 2014 at 11:25 am | Permalink

    Mr. Collins, currently I have my investments with a broker and realize I am paying to much in expense ratios. I have discussed with him that I am considering moving the entire thing to vanguard. He says the problem with index funds is that you get overly weighted in the larger companies and underweighted in the smaller. Like you get 10x as much apple or wal mart and very little of whole foods as an example. In addition you get more in say the tech sector than in other sectors so it isn’t as diversified as you think. Is this really how it works? I had always thought if you bought the s&p 500 you got an equal amount of each of those stocks. Can you shed some light on this. Sorry if you have already addressed this and I missed it.

    • jlcollinsnh
      Posted September 24, 2014 at 11:02 pm | Permalink

      Hi Mark…

      Your broker is correct. The total stock market index and the S&P 500 index are both weighted by “market cap” — that is to say in it you hold more of a very large company like Apple than a smaller company. By extension, those market sectors with the largest and most successful companies would be overweighed.

      He is wrong, and self-serving, in suggesting this is somehow a bad thing.

      It is, in fact, one of the characteristics that makes the index truly representative of the US economy, and by extension the world economy as these larger US firms are international businesses. This is exactly what we want.

      If, for some reason, you wanted to own a larger percentage of smaller cap companies the sensible and inexpensive way would be to buy NAESX, Vanguard’s small cap index fund:

      Your broker is trying to use your misunderstanding to scare you into staying with him.

      • Mark
        Posted September 25, 2014 at 3:38 pm | Permalink

        Mr. C
        I called my broker today, he knew it was probably coming, and told him I was going to move to Vanguard. I finally got started and have opened my acct with Vanguard. Thank you for your help.

        Funny thought hit me today though – what if your real name is Bogle and Collins is your pin name. Ha ha. Both honest Joe’s though.

        • jlcollinsnh
          Posted September 25, 2014 at 4:34 pm | Permalink

          I’m deeply honored that you would even consider confusing me with Jack Bogle. He is a personal hero of mine and a financial saint.

          But it is easy to tell us apart: He is older, much smarter and far better looking than I.

  20. Posted November 18, 2014 at 10:25 am | Permalink

    Hi Jim,

    Quick question about rebalancing:

    It’s rebalancing time of the year for me, but I can’t figure out what to do. The funds in my 401k are over-performing, and the funds in my IRA and taxable accounts are under-performing.

    My first thought was to open a new fund in my 401k that’s a duplicate of the underperforming fund in another bucket (and divert some of the $ from my existing 401k funds into this fund), but this seems like a hassle (having the same type of fund in multiple places). I’d do “opportunistic rebalancing” but I’m not sitting on much cash.

    Is this my only option? Am I stuck here? Thanks!

    (Also, I didn’t see an article on your blog about rebalancing. Have you not written about it yet?)

    • jlcollinsnh
      Posted November 18, 2014 at 5:35 pm | Permalink

      Hi Joe…

      From the sounds of it, you are stuck adding an additional fund to your 401K as you describe. But unless your allocation is dramatically out of whack, you could just skip it.

      Vanguard has some research that indicates too frequent rebalancing is counter productive. I can’t lay my hands on it at the moment and I forget the reasoning, but the point is that while frequent rebalancing might provide an advantage, it also might not.

      Personally, I do rebalance but in truth mostly because it gives me something to fool around with. I’ve shown my wife how, but I’ve also told her that once I’m gone if she never bothers it will be just fine.

      I haven’t written a post on rebalancing, but I do touch on it at the end of this one:

      Maybe I should have given it it’s own posting…

      • Posted November 18, 2014 at 9:16 pm | Permalink

        Thanks for the reply! I think a post telling everyone they don’t have to rebalance would be pretty refreshing.

        I rebalance every 366 days. Just for reference, my best over-performing fund is currently 9 percentage points above the target allocation, and my worst under-performing fund is 6 percentage points below the target.

        Another approach I just thought of is to redirect future investments to help balance it out over time (this could be thought of as a form of opportunistic rebalancing, that doesn’t require a lot of cash all at once). However, that will have tax implications (i.e. investing less in the 401k and more in the taxable fund), and the IRA doesn’t have much room to add more, with a $5,500 limit ($11k for me and the Mrs.)

        Maybe I’ll wait till next year and see if they balance themselves out.

        • jlcollinsnh
          Posted November 18, 2014 at 10:00 pm | Permalink

          Well, I’m not ready to declare that people shouldn’t rebalance. As I say, I still do. :)

          But I am on the fence about it and I do think people can obsess about it a bit much.

          The idea is that you sell what’s gotten pricey and buy what is the greater value. The counter is why would you sell something that is performing well to buy what is performing less well. That certainly true in a stock v. stock situation. I’m unconvinced it is true in a stock v. bond situation. But I need to give it some more thought and a closer look.

          Meanwhile, if I were off by 9% and 6% I would very likely rebalance. But I also like your idea of directing future cash to serve the purpose.

          OK. Confused yet? :)

          • Posted November 18, 2014 at 11:34 pm | Permalink

            Clear as mud!

          • jlcollinsnh
            Posted November 20, 2014 at 5:38 pm | Permalink

            Well, we can’t have that! 😉

            So I did a little digging and here’s how Jack Bogle answered the rebalancing question in June 2007 on his blog:

            “We’ve just done a study for the NYTimes on rebalancing, so the subject is fresh in my mind. Fact: a 48%S&P 500, 16% small cap, 16% international, and 20% bond index, over the past 20 years, earned a 9.49% annual return without rebalancing and a 9.71% return if rebalanced annually. That’s worth describing as “noise,” and suggests that formulaic rebalancing with precision is not necessary.

            “We also did an earlier study of all 25-year periods beginning in 1826 (!), using a 50/50 US stock/bond portfolio, and found that annual rebalancing won in 52% of the 179 periods. Also, it seems to me, noise. Interestingly, failing to rebalance never cost more than about 50 basis points, but when that failure added return, the gains were often in the 200-300 basis point range; i.e., doing nothing has lost small but it has won big. (I’m asking my good right arm, Kevin, to send the detailed data to you.)

            “My personal conclusion. Rebalancing is a personal choice, not a choice that statistics can validate. There’s certainly nothing the matter with doing it (although I don’t do it myself), but also no reason to slavishly worry about small changes in the equity ratio. Maybe, for example, if your 50% equity position grew to, say, 55% or 60%.

            “In candor, I should add that I see no circumstance under which rebalancing through an adviser charging 1% could possibly add value.

            “Use your own judgment, but perhaps these comments will help.”

            And along the same lines in this interview:

          • Posted November 20, 2014 at 8:04 pm | Permalink

            Wow, I’m actually really surprised at that! Seems like the “conventional wisdom” is wrong. If Bogle and Collins agree, then I won’t worry too much about it!

  21. Dinah
    Posted March 15, 2015 at 9:57 pm | Permalink

    Hi Jim! I traipsed over here from MMM’s sight, and glad I did! I have a question regarding my parent’s investments (I have just starting to learn about investing over the past few months myself and am investing in vanguard). That being said I barely have a handle on my own finances but am in the semi awkward position of trying to help my parents with their money (or rather their investments, they are awesome at living a frugal lifestyle). They have been going to a financial advisor for years and have no part on their own investing. Mom said she’s not interested in learning and feels scared and overwhelmed by the stock market. After having read this article, it sounds like I should just encourage them to transfer all their money over to a vanguard target retirement fund? Seems like the easiest and least scary route for them? They have taught me so much on how to save money and live within my means, I hate to see all their savings being gobbled up by financial advisors!

    • jlcollinsnh
      Posted March 15, 2015 at 11:25 pm | Permalink

      Welcome Dinah…

      I’m glad you are here.

      A TRF should work fine for your parents or they might consider the options I describe here.

      But the most important thing is that they be entirely comfortable with whatever they choose. When the market drops, as someday it surely will, if they just got into these funds to please you they’ll be far more likely to panic and sell.

      Here’s my take on advisors:

      Good luck to you and them!

  22. Caleb
    Posted June 18, 2015 at 6:34 pm | Permalink

    Hi Jim! A friend recently shared your “Simple Path ” link with me. I was intrigued and started into your Stock Series. Fortunately I began right as I am preparing to sign up for my 401(k)! I just finished college and am starting my first career-track job. Before this I knew absolutely nothing about investment, but this has really helped me starting out. Still have a lot to learn.

    I am 22 (almost 23) and my firm uses Great-West for 401(k). I was recommended to put 100% into the longest term TRF, Great-West Lifetime 2055 Fund II T1.

    Seems reasonable, and a good option as you’ve recommended above, however (if I’m reading correctly…still unclear on a lot of terminology) it looks like the expense ratio is 1.10% (they call it “Gross/Net Investment Expenses”).

    The other option I’ve considered is Great-West S&P 500 Index Fund I, which has a ratio of 0.60%. Not great, but much lower (in fact the lowest of any options on the list).

    I really don’t know how to weigh my options as I don’t fully understand the pros and cons beyond expense ratio, and that you recommend more stocks for someone as young as me. I have no problem with the rocky road/wild ride. Once it’s in I don’t intend to touch it before retirement.

    I should also mention that my company offers 25% match — up to ANY amount (sort of a catch 22 on your suggestion to max out their match; on the other hand, the higher I go, the better the deal). I’m starting with 11% of my income going into Roth 401(k) and hope to continue raising that as I figure out a budget when the checks start coming in.

    I am also considering opening a separate Vanguard account and putting 100% of my investment money into VTSAX as soon as I reach the minimum. I am wondering also how best to put all of this together.

    Whether to just max out 401(k) since my company continues to match, or to set some aside for VTSAX on my own, which I don’t think I would do an IRA for. Being able to take as much out as I need for my F-You fund, without pre-retirement penalties, seems extremely valuable to me. Especially if I return to grad school or lose my job.

    Above all I just want my money invested for maximum yield! How do I begin to consider how to divide all of this into separate (or consolidated) accounts? Please help!

    • jlcollinsnh
      Posted June 18, 2015 at 10:01 pm | Permalink

      Welcome Caleb…

      and congratulations on your new job!

      If you want a TRF, at your age the furthest out target date is what you are looking for. But you are correct, a 1.10% ER is stiff. I’d go with the S&P 500 index fund. .60% isn’t great, but it’s much better than the TRF and not bad for a 401(k). Plus, over the decades, it will likely perform better.

      As for understanding these better, here’s your reading assignment:

      The 25% match is an interesting take. Since it is free money, I’d fully fund the 401(k) to get it all before funding any IRA. You can put up to $18,000 in it each year.

      Before you start investing in a taxable account, read this:

      The way to invest for maximum returns is to be sure to take advantage of all your tax-deductable investing opportunities.

      Good luck!

      • Caleb
        Posted June 19, 2015 at 8:39 am | Permalink

        Thanks for your help Jim! Turned in the forms this morning, and I intend to follow your recommendation.

        I am wondering about the $18,000 limit for 401(k). Does that mean both my and my employer’s contributions can total no more than $18,000? Or that I can put in $18,000 and my employer will add their 25% on top of that?

      • jlcollinsnh
        Posted June 19, 2015 at 10:45 am | Permalink

        You can put in $18,000 and your employer’s 25% is in addition to that.

  23. Brian Lines
    Posted August 20, 2015 at 8:32 am | Permalink

    Quick Question from a new (first-time) investor:
    My 403(b) offers TIAA-CREF and Voya as my 2 providers. Voya includes Vanguard TRFs, but sneaks in this little note: “There is an additional annual administrative fee of 0.35% for Vanguard TRFs”

    Does this kill the attractiveness of these funds??

    Based on my limited knowledge, here are the “best” alternatives:
    -TIAA-CREF S&P 500 Index (0.06%)
    -Voya SSgA S&P 500 Index (0.16%)
    -Voya Vanguard Mid-Cap Index Fun Signal Shares (0.08%)
    -TIAA-CREF Small-Cap Blend Index Fund (0.13%)
    -Voya Vanguard Small-Cap Index Fun Signal Shares (0.08%)
    -TIAA-CREF TRF-style funds (0.46%!!!)

    Thanks for your help!

    • jlcollinsnh
      Posted August 20, 2015 at 12:15 pm | Permalink

      Hi Brian…

      Congrats on noticing those extra fees. For most they slip under the radar. Takes the shine off your 403(b), no? 😉

      Here’s my rant on the subject:

      But be sure to read the addendum. As awful and irritating as these excess fees are, you are almost certainly better off funding your plan.

      Of those you listed, this looks best to me: TIAA-CREF S&P 500 Index (0.06%)

      Good luck!

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