Hacker News Reader

Comment by wintermutestwin | Hacker News Reader

>Target day funds exist for a reason.

Yes - to make a lot of money on the expense ratio.

I guess if you really didn't want to learn a damn thing about modern portfolio construction a taget date fund is your best bet. However, it is incredibly easy to buy 4-6 ETFs that give you the same thing at a lower cost. Yes, you have to do a little work to re-balance these funds, but that is also an advantage to this approach as you have control over the re-balancing and can do it in a way that is more tailored to your specific situation.

I highly recommend the Risk Parity Radio podcast.

View on HN

Vanguard target retirement funds have expense rations of 0.08%

They are cheaper than most for sure, but still more than buying individual ETFs.

Here are 4 common funds that are used in risk parity portfolios:

VTI = .03% VXUS = .06% VGLT = .03% GLDM = .1%

(edit) I am not arguing that that investing in TDFs is inferior solely due to expense ratio cost - the biggest issue is that they lock you in to a specific allocation and re-balancing strategy that might not align with your specific situation.

Yeah you can definitely optimize better, but depending on your allocation you're still going to be fairly close to that 0.08% ratio on the average.

For most people, it probably makes more sense to recommend something like a vanguard target fund, so that they don't have to think too much about it or remember to rebalance as they near retirement (or actively choose not to rebalance b/c the market is currently good and then get walloped by a crash).

> They are cheaper than most for sure, but still more than buying individual ETFs.

At some point you are being penny-wise, pound-foolish: saving even 10bps (0.10%) on a $1e6 portfolio is saving $1000 dollars per year on management fees. If that kind of difference makes or breaks your retirement plans you have bigger problems (and most regular folks don't have that kind of portfolio, so the savings would be even smaller).

Certainly fees are important:

* http://larrybates.ca/t-rex-score/

but once you're <50bps, there are probably more important factors (like behaviour stuff: not panicking, actually putting money away monthly/regularly (especially in an automated fashion)).

Just saving the time-cost / hassling of rebalancing is worth something, and probably worth the fees you pay for an all-in-one / asset allocation solution.

TBH that last 0.05% doesn't matter much. Over a generous 40 year time it would be a <2% difference. It's not like moving from a 2% mutual fund to a 0.1% ETF.

Reply on news.ycombinator.com