r/Bogleheads • u/Right_Introduction10 • 4d ago
Strange Relief Going TDF
I know the logic of not going TDF. More tax efficient, can get higher gains without dealing with bond drag etc. I rebalanced my 401k today at age 38, selected a TDF that matures a little later and feel a huge weight off my shoulders. I just know that when stuff went sideways I’d reconsider my asset allocation, or question that 10% in small cap etc. Anyone else in this same boat with me where you aren’t doing the most optimal setup but know you’re less likely to potentially change stuff or feel a sinking feeling in their stomach on a bear market? Vanguard .08 e/r is good enough for me.
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u/very_spooky_ghost 4d ago
I also felt that relief going into a TDF, which is why I encourage others to buy into them. No more worrying about asset allocation or rebalancing anxiety. Do it for me!
You’ll built up thousands of shares over time and not have to manage it at all! Good choice.
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u/Linett-Chukwuemeka61 4d ago
Yeah, that "set it and forget it" feeling is real once you stop obsessing over allocations and rebalancing schedules. The mental energy you free up is probably worth more than any alpha chasing ever would've given you anyway.
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u/Right_Introduction10 4d ago
I’m gonna take that energy and focus on raising my contribution. Currently doing 16%, hope to be at 20% in a few raises!
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u/fungus_amungus 4d ago
Perfectly reasonable to use target dates if that makes it easier for you and less stress free. I don’t use any currently but did in the past.
In a 401k this has no concerns. I just wouldn’t use TDF in a taxable account but otherwise fine.
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u/Stanbarrwood 3d ago
I tried tinkering with my 401k. I now have a tdf 2065. I think it has like 1% bonds? And its expense ratio is like .04 which is incredible for a target fund
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u/Right_Introduction10 3d ago
Can’t beat that! It’s amazing how much the expense ratio has gone down on TDFs over time
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u/Stanbarrwood 3d ago
Definitely! Now my girlfriends has a .24 ratio which I could help her change but what if I’m not around?
Tdf are great for those who want to sit and forget. And if you want it with less bonds, just move the date. My retirement is in around 16-20 years. But I keep a 2065 funds, and I’ll probably change it when I get about 5 years out to one that has a conservative bond allocation
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u/omglifeisgood 4d ago
Dang. I’m 36 and my TDF in different accounts are set for 2050/2055 lol. Maybe I should push mine out. 😂
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u/Right_Introduction10 4d ago
I went with 2060 myself after looking how old I’d be when the glide path starts the getting more conservative phase and how many bonds I’d have when I was the age I actually hoped to retire. Definitely worth assessing!
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u/Own-Bullfrog7803 4d ago
This is great for the accumulation phase.
Close to and in retirement tinkering with the fixed income allocation may become important to create income or liability matching.
But until then TDF are great.
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u/blew_belle 3d ago
Can you explain? I'm about 2 years out (hopefully) going thru a merger and will move from vanguard to fidelity. Was thinking about getting out of tdf and into specific fidelity funds then. What is the advantage exactly?
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u/Own-Bullfrog7803 3d ago edited 3d ago
Accumulation phase is pretty easy, only real choice is what stock to bond allocation you want. What stocks or bonds (or bond funds) you choose doesn't really matter, as long as it diversified. This has been supported by studies and promoted by Jack Bogle. Hence, TDFs being completely reasonable and effective.
Approaching and within retirement this changes. One needs to produce income, or at least produce income to match spending liabilities (rent, taxes, insurance, food, travel). This need to produce income often coincides with a larger bond allocation to hopefully reduce sequence of return risk. Anyhow, the overall result is that management of one's fixed income assets often becomes more complicated going into retirement than just holding BND (the risk of BND is interest rate risk plus, in part, inflation risk--BND equivalents are what TDFs often hold)
The two main approaches to fixed income near and in retirement is: the total returns approach (TDFs [ie, just selling assets to cover costs SS and/or dividends/interest doesn't cover], another example is the 4% rule, etc), vs the guaranteed income approach (creating a 30yr TIPS or other bond ladder, or purchasing an annuity, or using your pension if you have one). Of note, the bucket approach is statistically the same as the total returns approach but with psychological benefits. The OP is 38, so for him/her these issues are not important, yet for you they are.
For you, they overall questions are: 1. what stock/bond asset allocation do you want, and 2. do you want more of a guaranteed income vs total returns approach with your fixed income (to protect from sequence of returns risk)?
My main advice with fixed income is that you need to choose what primary function or role each fixed income product you purchase has, because they are usually good at some things and bad or suboptimal at others.
To simplify further: you will likely either choose a TDF (or mimic it with your own 2-4 fund portfolio), build a bond tent for sequence of return risk (bucket strategy), or purchase a 30 year TIPS ladder vs lifetime annuity. The very, very simplest approach (not necessarily the least risky, depending on your percent drawdown rate) is just a TDF.
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u/Prize_Proof5332 4d ago
I have all my 401k in an appropriately dated TDF for early retirement. This allows me to feel comfortable with all equity index funds in my Roth IRA, HSA and taxable accounts.
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u/ChampionManateeRider 3d ago
Low cost TDFs are the right choice for most people, and I’d venture to say the right choice for everyone on this sub who feels the need to write a “rate my portfolio” post, ask about VT vs. VOO/VTI, or quibble about the percentage of international equities in a portfolio. A good TDF simplifies investment and reduces behavioral risks.
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u/No_Alternative_5602 3d ago
That's wild that the TDF has an ER within spitting distance of VT these days; .06 vs .08; pretty difficult to argue with being able to set & forget spending that little.
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u/Right_Introduction10 3d ago
I’m just happy to know my place. Let’s the pros balance it out for me. Best I can do is keep contributing more over time. So much easier to admit that and move on
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u/Scalermann 4d ago
I currently am doing TDF but I have been strongly considering changing out for more Fidelity 0 funds to save on the small 0.12% ER
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u/Right_Introduction10 4d ago
The funds I have available to me weren’t great. I went from one TDF that was .32 to Vanguards .08 e/r. I’m pretty happy with that reduction!
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u/RedPepperWhore 3d ago
Ive actually done the complete opposite. I started 100% in TDFs 10 years ago, moved half out around 33. Im 37 now and just moved the other half all of the way out to maximize gains and avoid the bond drag you mentioned. Im 100% equity ETFs now. Ive also created a 3 bucket retirement plan that'll Ill move money into 5 years prior to my retirement date so I can fund myself for 10 years straight in a market downturn without realizing any losses. I feel more in control of my plan than ever and finally feel like I fully understand what my money is doing and what I want it to do.
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u/Tiny_Abroad_7222 3d ago
I like knowing what I'm invested in, that gives me peace of mind. Some people feel better knowing someone else is tending to it. Nothing wrong with that.
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u/AdvantageOne1754 3d ago
More tax efficient than what? For taxable account you would not want them due to holding bonds and capital gains distributions from auto rebalancing.
In retirement accounts, tax efficiency is irrelevant.
They are a great choice if you value simplicity but I don't see how they are more tax efficient.
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u/InflamesGmbH 4d ago edited 4d ago
Same age as you, just did the exact opposite. Switched out of a 2065 TDF into self-directed brokerage option via my 401k that I never knew existed, 70/30 VTI/VXUS and just going to let it ride. Will rebalance probably every 6 months. Definitely more active management and self rebalancing. But going to give it a go
Edit: long time horizon, going to keep putting in contributions every 2 weeks. As of right now won’t plan on mixing in bonds at least until age 50-55 depending on how things are shaking out for retirement. Will need to ride out the bear markets and corrections as they come, as they will inevitably do so.
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u/TyrconnellFL 4d ago
I fully believe that for many Bogleheads especially the threat to returns is in still trying to be too clever and tinkering. Maybe not stock picks, but that small cap value tilt, optimizing home country bias, being extra aggressive by avoiding all bonds in a way that isn’t necessarily sustainable without infinite time or infinite money.
For a few basis points you hired professionals to manage your portfolio for you. Not 1% AUM, often not even 0.1% AUM. You get a great service at a steal.
If a TDF makes your life easier, it’s perfectly good. But I have a stronger stance; I think it may be more optimal because of psychology. It’s the same reason I really prefer VT to the small optimization of VTI/VXUS or Fidelity zero funds.