Dumb question that I found the answer on google for, but wouldn't mind some feedback to verify that I understand correctly. All my Roth IRA money is in a Vanguard Target Date fund right now and always has been. I would like to sell that within the IRA and make a lazy 3 or 4 fund portfolio myself, is there any consequence to doing that? Like, current or future tax-wise? From what I've read, sounds like there shouldn't be a problem with it.

A Target Date Fund and any lazy portfolio is essentially the same thing. There's no point in doing that. I wouldn't touch anything and max contrib to that as is every year if possible.

Nope, there is no consequence.

Yes, but Target Date is .15% in fees vs the .04%-.05% I can get if I switch to Admiral Shares and tweak things myself. Switching might not be worth a ton now, but it will be something if I keep maxing my Roth every year. Not like it'd be high maintenance anyway. The target date at my age keeps it 90 stock/10 bonds for the next like 20 years.

Yeah target dates usually have higher fees. I'm honestly surprised so many people recommend them when all it takes is 15 minutes of work per year or so to cut your fees down significantly.

To be fair, .15% is really still pretty low in the scheme of things and not bad at all. When I worked for Caesars, our 401k had target dates that were like 1.30% per year. Vanguard has said they can't offer them at .04% because of some regulatory stuff. But yeah, if you wanna do a little work, you can save a lot if your account gets large.

Yeah, no, that's not true. The target date fund fees are the sum of its components, there aren't any extra tack-on fees.

You can read more in the prospectus of Vanguard's target date funds, look at and compare the 'acquired fund fees and expenses' versus the 'total annual operating fund expenses'; they're the same for all target date funds.

https://www.vanguard.com/pub/Pdf/p308.pdf

Also from the prospectus:

According to an agreement applicable to the Target Retirement Funds and Vanguard,
the Funds’ direct expenses will be offset by Vanguard for (1) the Funds’ contributions
to the costs of operating the underlying Vanguard funds in which the Target
Retirement Funds invest and (2) certain savings in administrative and marketing costs
that Vanguard expects to derive from the Funds’ operation.

The Funds’ trustees believe that the offsets should be sufficient to cover most, if not
all, of the direct expenses incurred by the Funds. As a result, each Fund is expected to
operate at a very low or zero direct expense ratio. Since their inceptions, the Funds, in
fact, have incurred no direct net expenses. Although the Target Retirement Funds are
not expected to incur any net expenses directly, the Funds’ shareholders indirectly
bear the expenses of the underlying Vanguard funds.

But I should have added that admiral shares are cheaper than investor class shares (everyone already mentioned that), so mea culpa.

Comparing with admiral shares take the 2065 fund, 0.15% fee

53.9% VTSMX
36.1% VGTSX

VTSAX and VTIAX have fees of 0.04% and 0.11% respectively. Thats 90% of the portfolio paying more than double fees, I didnt bother looking up the bond difference. Of course if you don't have the minimum 10k for either fund then whatever, but as soon as you have that amount you would be stupid and lazy to keep a large amount in any vanguard target fund. Extra fees for potentially 40 years add up to an amount that isn't insignificant. So technically they are correct in that there aren't any extra fees, but it also doesn't say that admiral shares are the same thing with lower fees, and target funds all have the more expensive options.

You can still buy the ETF versions too, giving you the expense ratio/fees of admiral shares, if you don't meet the 10k minimum.

If you know what you're doing, then by all means do what you want to do.

However, the reason you let a Target Date Fund do the work for you is to save you time and effort, which is worth something (not much, but to the average person they really don't have time for that **** and/or have no clue what they're doing which can be devasting).

Also, I don't know you, but hopefully you do. In a massive bear market, hopefully your decision making does not change. Managing your own allocation can result in potential mistakes in general, and can be exacerbated by fear in a portfolio that suddenly goes -40% in a short period of time.

Also, Vanguard knows what it's doing. They won't make mistakes and the fee is as low as you'll find anywhere. To DIY to save a few tenths of a percent OI is negligible vs the next 20+ years where every year you have to correctly decide what next to do. You have to be as perfect as Vanguard, effectively.

Unless I had a fundamental disagreement with the Target Date Fund itself or where I want my money allocated, I wouldn't trust myself to be more infallible than Vanguard.

But like I said, if you know what you're doing, then by all means. I hope it works out for you regardless what you choose.

If you can graduate 5th grade math then you are more than able to reallocate every year or so and cut your fees substantially. I mean if someone is this stupid then they either have no money to begin with or they have already been sold the 1%/year scam trash funds.

Its not negligible at all when you are talking about a 30-40 year time frame. A 0.1% difference in fees adds up well into 5 figure amounts with an amount of capital that is typical for a money smart white collar individual. It takes literally 30 minutes per year.

Seems pretty easy to copy as they have it listed for every 5 years. Maybe tweaking the allocation percentages every 5 years isn't enough though?
https://investor.vanguard.com/mutual.../holdings/0696

At my age (late 20s) it is super simple, it literally stays in the same 90/10 stock/bond holdings until you're early 40s, then it slowly adds 5 or 10% bonds every 5 years from there. It does get a little more complex at retirement age with short-term securities thrown into the mix. I figure I could switch back to something more hands off then if I wanted after savings tons in fees during the growth years.

It isn't "tons" even if you have a million saved right now and will be contributing $20k/year. If you have a million, it is less than $1000 annually. Try to note how much you would worry about $1k over the next year if you had $1m. It is literally tenths of a cent on the dollar.

Minus the fact that you don't qualify for admiral shares, which costs you a ton right now. Minus the costs of keeping your allocations constant since each asset you are invested in is literally guaranteed to annoyingly not grow/shrink the right amount to keep your allocation in line. Believe it or not, but a 90/10 allocation will move away from 90/10 because 1) assets don't remain at the same prices over even short periods of time and 2) there are those pesky distributions that move your money into cash despite your best efforts to keep your allocation at 90/10.

You should be spending your time worried about things that make much more of a difference than rather than wasting your time on what amounts to a minute amount multiplied by minutia. What you buy for lunch over the next five days literally has a much larger effect on your eventual retirement account balance at retirement age than your choice of whether or not to do a DIY version of a target date fund. There are about a gazillion other things that can increase/decrease your eventual retirement 10x more than this decision.

I will grant that if this discussion and your time spent on such extremely unimportant decisions is keeping you busy enough that you save $7 on going to a matinee or getting a hobby that costs money, it could possibly end up leaving you with more in retirement.

(I mean "literally" in the above rant in the old sense of the word, when it didn't mean "figuratively.")

At almost 65 years old, and retired, my Vanguard allocation is 93% Stocks and 7% Bonds and that's only because some of the index funds have an appendix of bonds for some unfathomable reason. I also have lots guns. And lots of ammo. And cash. And property with a bunker. And a boat load of not giving a ****. And an actual boat to boot!

None of the above is absolutely necessary for retirement. It's just padding. But it does make for excellent braggadocio.

How dare you, I would not forget the value of 1k if I was a millionaire! 1k is nearly 200 meals at Mcdonald's for me (2 cheeseburgers no pickles and large fries is what I typically order). 200! I say nearly 200 because sometimes I do spring the extra buck for a large diet coke if I don't have soda at home, it's under $5 otherwise.

I do just barely qualify for admiral shares in my Roth, btw. I just made the switch yesterday/today. Sold my 2055 target date, and bought VTSAX and VTIAX, 60/40. I'll add some bonds back in the next year or two. I don't plan on re-balancing every week, probably just do it once a year and call it good.

I've read through some of the thread but didn't see this answered. In a taxable account, assuming that transaction costs were negligible, why wouldn't someone just buy 500 stocks in the S&P 500 instead of the actual SPY index and then just tax harvest every year?

I guess rebalancing would suck with that strategy but otherwise it seems to make sense.

Time

Yeah, I get the time aspect.

But even taking the tax harvesting aspect out of it, why not buy 4-600 stocks individually and then sell the neutral/small winners/losers when you want $ and you wouldn't have to pay capital gains? Whereas selling an index that appreciates is always going to trigger cap gains.

Yes, that's a fine strategy. But even better is just withdrawing on margin so you never have to sell anything.

Can you elaborate on how withdrawing on margin works?

The basic tax planning strategy is called Buy, Borrow, and Die.

You can generally margin up to 75% of your portfolio's value before getting a margin call. Interest rates are variable, not fixed like a mortgage. Interactive Brokers is the cheapest I've found, currently ranging from 2.22 to 3.42% depending on the size of your margin loan. There are no closing costs or other fees associated with the margin loan, and there's no set payment schedule - you can carry the loan indefinitely, pay it down or add to it whenever you want.

So basically you can just borrow money at 2.22-3.42% to buy stocks that hopefully appreciate at >3.42%? Do you worry about what happens during a market crash? Like if you get a margin call and have to sell off a bunch of your stocks at the bottom to pay off the loan, you'd then have less $ invested in stocks than if you had just gone plain 100% long from the beginning.

I am young, I have money to invest that I won't need for decades and I don't care about short/mid-term volatility. Since small cap stocks historically have the highest growth of all stock classes, why shouldn't I put 100% into a small cap index fund (rather than S&P 500, a target date fund, etc.)? Seems like the most +EV option.

They actually haven't.