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!”

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 to 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.

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 shortcomings?

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?


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 says

    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)?

    • jlcollinsnh says

      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. Kraig - YoungCheapLiving says

    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.

    • jlcollinsnh says

      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.

    • Mad Fientist says

      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!

      • Kraig - YoungCheapLiving says

        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.


      • Krishanu says

        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. Mr. Everyday Dollar says

    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. Shilpan says

    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. 🙂

  5. Gypsy Geek says

    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…

    • jlcollinsnh says

      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 says

        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!

        • jlcollinsnh says

          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!

          • Brett says

            Follow up to taxation when they adjust allocation. What happens when these funds close? Do you have to pay taxes on the lump sum? Can you roll it over elsewhere? I have just started my nest egg and as a physician the tax implications are high on my list so I may just invest myself and move out of the 2045 target fund I started in. I’ve been reading your blog over the last couple days and really appreciate your perspective. Sorry if you’ve answered this elsewhere.

          • jlcollinsnh says

            Hi Brett…

            —The funds don’t close. Once they get to the final allocation they just stay at it.

            —You pay taxes each year on dividends and capital gain distribution, if any.

            —You only pay capital gains taxes on your shares when you sell them.

            —Yes, you can sell your TRF and reinvest in something else any time. But if you have it in a taxable account this will be a taxable event.

            The applies to all mutual funds, not just TRFs

          • Brett says

            Thanks for the timely response. It didn’t make sense that you would have to reinvest and pay taxes on closing. Appreciate you clearing that up for me. Tax wise, I was referring to doing it myself and placing bonds in a tax protected portion of my portfolio. Have a great day.

  6. Jim Partin says

    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!

    • jlcollinsnh says

      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.

  7. eric says

    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 says

      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 says

        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 says

          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 says

          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 says

            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 says

            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 says

            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 says

            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 says

            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 says

            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 says

            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 says

            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 says

            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 says

            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 says

            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! 🙂

  8. Teresa says

    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!

  9. guest052237 says

    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 says

      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 says

        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 says

          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….:)

  10. Mike says

    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 says

      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…


  11. Sean says

    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 says

      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.

  12. Tom says

    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 says

      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 says

        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?

  13. Johan says

    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?

  14. Mark Abner says

    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 says

      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. says

        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.

  15. Emu says


    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 says

      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 says

        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!

  16. Jeremy E. says

    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 says

      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.

  17. Stephanie says

    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!


  18. Mark says

    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 says

      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 says

        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 says

          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.

  19. Joe says

    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 says

      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…

      • Joe says

        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 says

          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? 🙂

          • jlcollinsnh says

            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:

          • Joe says

            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!

  20. Dinah says

    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 says

      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!

  21. Caleb says

    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!

  22. Brian Lines says

    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!

  23. Robert says

    How do you think the Vanguard LifeStrategy Growth fund compare to the Target Retirement funds? The Life Strategy ones appear to be automatically rebalanced but don’t have an “end date”.

    • jlcollinsnh says

      Hi Robert…

      You zeroed in on the difference. Both provide automatic rebalancing, but TRFs shift that balance over time to a more conservative, larger bond percentage.

      No good vs. bad here, just which best fits your goals.

  24. Batul says

    Dear Jim,

    I’ve recently started reading your blog and bought your book, read it cover to cover! I have about $360k in 2 separate 401k plans. The plan with the larger investment (upwards of $300k) didn’t even have access to VTSAX. I ended up rolling over that 401k into my smaller 401k plan (with my new employer) as they do offer access to VTSAX. I’ve taken a deep breath and invested all $360k into VTSAX. I’m 35 and hoping to be financially independent in 10 years (preferably less). I currently own two homes, will be selling one next year and using the proceeds to pay off the third. My goal is to be debt free by July 4, 2017 (I get to celebrate my own independence day!). Once I’m at that point, I will be saving roughly 50% of my income on a yearly basis and investing in VTSAX in taxable accounts.

    Thank you for taking time to educate the masses–you are truly making a huge impact! 🙂

    • jlcollinsnh says

      Wow Batul…

      Sounds like you’ve made great progress and are on a fine course.

      Now, be prepared for the next big drop in the market and, rather than panic, celebrate the extra shares this will allow your 50% saving rate to buy. 🙂

      Thanks for picking up my book. Do me a favor? If you think it deserves it, please put a 5-star review on Amazon.

    • Emu says


      Owning VTSAX directly though Vanguard will eliminate any management fees you’re paying to the provider of your new company’s 401k. At the companies I’ve worked for, this additional fee has averaged 0.25%. If you leave your current company, roll the whole thing into an IRA at Vanguard so you pay only the 0.05% expense ratio of VTSAX. It will make a real difference on a balance as big as yours.

      Jim, back me up! I think you missed Batul’s comment about rolling into another 401k to get access to VTSAX.

      • Batul says

        Hi Emu,

        Thanks for catching that. We did have a provider initially for my new company’s 401k but they were discontinued. It’s directly through Vanguard now and I just checked the ER for VTSAX, it’s at 0.05%. Does this sound ok? Is there anything else I need to look at?

        Jim, it’ll be my pleasure to post a 5-star review. Your book has basically changed my life, it’s the least I can do.

        • Emu says

          I would suspect there’s a fee involved, because someone must be managing the plan for your company. It wouldn’t show up in the ER of the fund…I’ve always found it buried in the plan documents. If there’s really no administration fee, that’s great!

          Either way, the funds are in the 401k and you likely can’t move them until you leave the company. No looking back! Be sure to roll the whole thing to a Vanguard IRA once you leave.

          • batul says

            Good to know, thanks so much. I’m thinking of leaving for greener pastures in a few months and will heed your advice! 🙂

            Thanks for your help,

    • jlcollinsnh says


      You are absolutely correct.

      My reading of Batul’s comment was that the funds had already been rolled into the new 401(k).

      If not, then I agree rolling the old 401(k) into an IRA at Vanguard is the better, cheaper path. 🙂

  25. batul says

    Sorry for the multiple comments, Jim and my comment were seconds apart. Can you please take a look at what I’ve posted and lmk if that makes sense?

  26. Kris Kramer says

    All, and I mean all, of my investments were in V Target Retirement Funds until I started reading, most likely here, about the tax implications of stock dividends vs bond gains. Now I’m in the process of moving all the Target Funds into Index Stock and Index Bond with the bonds in a tax shelter.

  27. Rich P says

    Hello Jim (hopefully you’re still monitoring and responding to this thread),

    Another question from a newbie trying to slowly learn the ropes.

    I’m 44 years old and will most likely be working for another 23 years. (I have three-year old triplet girls.) A year ago I started to consider moving my entire 401k to Vanguard Target Retirement 2040 (VFORX), because I like the idea of setting things on “autopilot”.

    But then I came across The Simple Path to Wealth post. And last week decided to reinvest with 85% in VTSMX (VTSAX wasn’t available) and 15% in bonds (something similar to VBTLX).

    To quiet the little nagging voice in my head that’s wondering if I considered all the ramifications of that decision….

    If the expense ratios of VFORX and VTSMX are the same (currently both at .16%), and I’m willing to essentially leave them alone (except for slight increases in how much I invest in bonds as time goes on), what are the differences in philosophy or outlook that I should be aware of? Ex. Is the target-date fund slightly riskier with more international stock?

    • jlcollinsnh says

      Hi Rich…

      Sounds like you understand it just fine. Mostly it is a matter of if you prefer the funds mix in VFORX or the two fund approach.

      One thing, once you cross the 10k level in VTSMX you’ll be eligible for the Advrial Shares version, VTSAX, and its lower expense ratio.

  28. Greg Gee says

    I am at Fidelity – would you recommend ITOT (iShares) ETF or FSTVX Index Fund.

    ER are like 0.03 (ishares) vs 0.04 for fund.

    I’m drawn to do FSTVX for some reason. However, I was reading that ETF is more tax efficient for taxable.

    So would it make more sense to do ITOT for taxable and FSTVX for Roth, etc?


    • jlcollinsnh says

      Either is fine, Greg…

      and either will work in both taxable and Roth accounts.

      My personal preference is for funds and if you read the Stock Series you’ll know why.

  29. Bharat says

    I agree with you on target date retirement funds and I am currently using VLXVX i.e. Vanguard Target Retirement 2065 Fund Investor Shares.

    I had question about Paul Merriman’s Vanguard recommendations. What do you think about this portfolio recommendations?

  30. TJ says

    Hey Jim!
    Firstly, you’re my hero. True story. I’ve read “A Simple Path To Wealth” at least twice, and I recommend it to everybody I know. Thank you for everything you’ve written and all that you’ve done for the FI community. I’m really happy to see your book doing so well. Sometimes, I just check your Amazon ranking and pump my fist and say, “Go Jim.”

    Secondly, I had a question about Target Retirement Funds and switching to VTSAX. I’ve had my TRF 2055 in my SEP-IRA for about four years, and it gives off a nice, annual December dividend. But, after reading your stuff—and thinking about this for quite a while—I’m seriously considering just exchanging the TRF 2055 for VTSAX.

    My question: Is there a “right” time to do this? What I mean is this: It’s already almost June, 2018, and the TRF will pay a nice annual dividend in December. Should I hold out for that big dividend in 6 months and *then* switch to VTSAX in January of next year? Or am I overthinking this?

    I guess, if I switch now, I’ll benefit from VTSAX’s June/September/December dividends, as well. But which would make more sense?

    Thanks so much!

    • jlcollinsnh says

      Hi TJ…

      Thanks for the very kind words on my book! If you haven’t already, please pop over to Amazon and give it a 5-Star review.

      If you have decided to make the switch to VTSAX, there is no advantage to waiting. Dividends are not “magic money” but rather money paid out that directly reduces the value of the stock that pays them. See:

      Your hero? Ha, you made my day! 🙂

      • TJ says

        Thanks so much, you’re the best! And yes, you’re definitely my hero. Please keep writing more books (if you feel like it). I’ll buy them all. You have such a great, conversational tone and I think all financial writers could learn something from you. Also, your talk at Google was fantastic and I sent it around to my friends & family.

        Re: my question, that’s great to hear and it’s just the nudge I needed to finally move everything over to VTSAX. I’m young enough where I should be in 100% stocks. I signed up for the TRF when I didn’t know anything about VTSAX, or investing. Now, VTSAX has become my favorite five letters. Ha.

        Last question: Since it’s in my SEP-IRA, it doesn’t matter if I exchange the fund, tax wise, right? What about your Roth IRA? I have the same thing going (TRF 2055) and I’ll probably switch that, too.

        Thanks again for everything! And yes, I’ll work on that 5-star review ASAP.

        All the best,
        P.S. I know it’s “THE Simple Path …” not “A Simple Path.” Whoops.

        • jlcollinsnh says

          You got it…

          ..sales and exchanges in tax-advantaged accounts like Roths and SEPs are not taxable events.

          Yep. “The” As in…
          …The one and only 😉

  31. Dan says

    I have a city run 457 plan (traditional or roth) which invest in target funds.
    Admin Fees = $80 a year
    Asset Based Fee = 0.04% (not sure what this is)
    Target Fund 2045, 50, or 55 Expense Ratio = 0.18%

    Or I can choose their own funds.
    Equity Index Fund = 0.01%
    Mid-Cap Equity Index Fund = 0.02%
    Small-Cap Equity Index Fund = 0.40%
    International Equity Index Fund = 0.32%
    Bond Fund = 0.04%

    I don’t think they have Vanguard index funds unfortunately.
    How do these fees compare to Vanguards index funds or target funds?

  32. Jessica Lewis says

    Thank you for this amazing blog with the most heart felt, simple & effective, expert knowledge!

    I have a T Rowe Price Target Date Fund 2045 TRRKX in a Roth IRA that I opened in 2008 (I was 28) with $5000 I was gifted from my grandmother. My return has been 12.72% since inception and my expense ratio is .72%. The account now has about $25k in it. For a number of years I’ve contributed just $100 while I dedicated most of my efforts to paying down student loan debt which is now gone! I also sold my townhome and am completely debt free.

    I have $25k in an emergency fund (in a 2% interest savings account) and another $70k sitting in a savings acct earning 2% interest while I figure out where to put it. Most of this money came from the sale of my home and closing of my business last year along with about $300 per month is savings.

    I want to move my T Rowe Price acct to Vanguard to take advantage of the lower expense ratio. I’m trying to decide if I should stay in a target date fund once I transfer or if I should just buy VTSAX. Is it possible to move out of a Target date fund?

    I’m also curious if I should max out my Roth IRA at the $6000 that is now allowed in 2019 before funding a taxable account. And if I should also have my husband get a Roth IRA for himself and if we should max that our before investing outside of retirement Account?

    I’m guessing max out my Roth each year and his but also take all that cash and get it to vanguard to invest in VTSAX.

    I’m 39 and my husband is 35. We are self-employed together and make just about $70k. While we could earn more probably by getting traditional jobs we truly enjoy being time rich and the lifestyle we have which feels semi retired. We are riding the wave of our business as long as we can which allows us to have more time and more freedom while still making an decent living. We also only need about $48k or less a year to live off of.

    Curious about your thoughts on…

    investing for someone who is self-employed and may need more cash with the ebbs & flows of business cash flow during the year and

    moving to Vanguard but losing the Target Date Fund in exchange for VTSAX

    Putting most my cash in taxable investments -VTSAX

    Thanks again for sharing this wealth of knowledge!

  33. Quinton says

    Hello Mr Collins,love your blog and straight to the point strategies.Me and my wife are early 40s and maxing out 401s and roths in target date funds.We like a simple approach and dont want to invest a lot of time or worry .I would like to do something with our savings that we decided not to spend on new home.Over the last 20 years we saved around 250000 with it now in cds gaining 3.05 percent.We would like to quit are day jobs in 10 years after kids are gone and maybe work for ourselves,wife might stay a little longer.What are a few options you would recommend to park this money for the next 10-15 years.

    • jlcollinsnh says

      Hi Quinton

      Thanks for your comment!

      Mr. Collins is currently traveling and unable to respond just now.

      We find for most questions, he has already covered the topic. Using the Search button might very well provide your answer. If not, please post your question again after October 15, 2019.

  34. Robert says

    Hey, Mr. Collins!
    I am a 34 year-old whose income varies based on my bonuses each year. Some years I’m under the Roth IRA limit, sometimes I’m over the limit. I’m trying to max my contributions each year, but my question is about what my employer offers me. Your section on target retirement funds was very helpful, but I was hoping you could help with my specific situation.

    I was automatically enrolled into my employer’s offered target retirement fund with a target date of 2050. The asset allocation is the typical domestic (51%), international (40%), bonds (6%) and other assets (3%). However, the expense ratio is 0.5% ($5 per $1000). Your section above mentioned that the typical expense ratios range from 0.17 to 0.19%.

    I’m considering making the switch from the safer and more “costly” target retirement fund for one of the offered Vanguard Index Funds (VFTNX or VIIIX). They are more “risky,” but they are as close to VTSAX as I can get in exp ratio, asset allocation, etc.
    1) In your experience, can I jump back to the targeted retirement fund at any point?
    2) Would you recommend sticking with the “safer” targeted retirement fund even though the exp ratio is 0.5%?

  35. Chuck Grenier says

    Mr Collins, your book and approach to investments is so encouraging, and thank you for your expertise and your comfortable style of writing!
    I retired in April 2022 and was excited to read this blog post on Target Date funds. My plan is to invest equally in three Vanguard target date funds: 2025, 2035 and 2045 since I don’t need all of it in 2025. This way I have funds heavier in stocks that I won’t pull from until 2035 or 2045.
    Regarding Social Security I am waiting until my wife turns FRA and then we will take both mine and hers. I understand that her benefit (as a wonderful full-time mother and wife) will no increase any larger than 50% of my FRA benefit. This FRA stuff and when to initiate Social Security has been confusing, but I believe I got good confirmation from a Social Security adviser that the above approach is a good choice.
    Any suggestion regarding our children and how to leave “reasonably minimal” inheritance? We don’t have or plan to take out a Long Term Healthcare policy. Any thoughts on that approach?
    Thanks so much…..even if you don’t have time to respond!

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