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Remember, a typical LTCG distribution for the underlying funds in Target Retirements funds such as Total Stock Market Index Fund, Total International Stock Market Index Fund, and Total Bond Market Index Fund is 0%. Some had made the mistake of owning these funds in taxable accounts.” As big clients left, their sales caused the funds to offload some holdings, triggering capital gains-which could be distributed only to the dwindling group of investors who stuck around. Last year, assets at Vanguard’s 2035 target fund shrank to $38 billion from $46 billion at year-end 20 fund shriveled to $29 billion from $36 billion. (Clients have to sell out of one format to buy the other.) That set off an elephant stampede, as multimillion-dollar corporate retirement plans got out of the standard target funds and into the institutional equivalents. “At the end of 2020, Vanguard reduced the minimum investment in its institutional Target Retirement funds to $5 million from $100 million. The Vanguard Target Retirement Fund DisasterĪs Jason Zweig explained in the Wall Street Journal: Note that while Mike uses a single fund of funds in all of his accounts, he does not have a taxable investing account. “But it's just another bullet point under what I (and plenty of other people) have been saying for years: they're not a good fit for taxable accounts.” “Admittedly, I didn't see something like this coming,” he said. Neither did Piper when I asked whether this had given him pause at all about his strategy. However, even I never expected what happened in 2021.
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Whether bonds in taxable or stocks in taxable are right for you, one of them is going to be in the wrong “place” when you use a fund of funds.īut if you're really into simplicity (like Mike Piper at the Oblivious Investor who uses a single Vanguard Life Strategy Fund in all of his accounts), you may be willing to trade a little tax efficiency for the hassle and behavioral benefits of a fund of funds. It keeps you from eking out a little extra return using savvy asset location techniques. If you have both retirement accounts and taxable accounts, this may not be the best option for you. However, I (and just about everyone else) have long warned that Target Retirement and other “lifecycle” funds were not the most tax-efficient way to invest. You forget about it, and the fund manager keeps the various asset classes in balance and, over the years, slowly decreases the aggressiveness of the mix. You pick a date near when you want to retire and put all of your money into the fund closest to that date. Target Retirement (TR) Funds are funds of funds that provide a one-stop investing solution. Vanguard Target Retirement Funds Are Fine.
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