Vanguard Target Retirement

dunstonh

At what point have I lost control or flexibility? I'm not trying to be difficult, I'm just worried there's something important I'm not grasping.

Most people over a working life going into retirement (and remaining invested and not buying an annuity) will move down perhaps 1 notch on the risk scale. Akin to moving from VLS80 to VLS60 in vanguard terms. However, these TR funds move you down the scale much further than that.

The lower the risk, the lower the return. Lifestyling has been shown to reduce returns in most periods. You are looking at 20-30-40-50 years of potential investing time. So, lets look at a typical investor profile. First crash comes along and you are nervous at the losses. Possibly close to pulling out if you invested too high up the scale (and the TR starting point is higher risk than to begin with the typical UK consumer). However, you come through and you benefit from the gains that follow. Second crash comes along and you are nervous again but not quite as much as before and you get through it. Third crash comes along and you think "here we go again" and think nothing of it.

In each case, you have invested and come out the other end and gone on to make money. So, why would you change your views to go more defensive when you are in your 40s and 50s when there is still another 30-40 years of investing to go?

Why should your risk profile change because you are 45? What event has happened in your life that means you are being told you are going to reduce your investment risk?
Equally, there could be an event that does require a risk change. It wont be a planned event and you have spent all that time paying a bit more for a fund that planned to reduce risk but now you are not following that funds objective.

The main thing with this particular fund is the degree of the risk reduction being significant. More than is typical and the arbitrary and early nature date that it begins. The risk reduction not fitting you. It is you fitting the fund.

bostonerimus

Investing is an interactive process and requires some feedback, but not much. As people have pointed out your needs might change and you might want to have a different asset mix from a particular target date fund when you retire....if you do then buy some other funds. You should be thinking strategically and not tactically.....tactical investing often leads to market timing and wild swings in value. So monitor your asset allocation and rebalance when necessary, I rebalanced when my fund allocations deviated by +/-5% from their norms. This is not rocket science, but by keeping fees down and using index funds, while you won't be able to tell your friends about the spectacular market beating returns you also won't be hiding your staggering losses. You'll be average and that has given me an 8% average annual return for the last 30 years......for the last 12 months I've returned 12%....not spectacular, but average.

gaz77

Thanks for the replies. It's given me a few things to think about.

I don't think I'd be the sort of person to set this up and not review it for 25 years, so in my case that's probably not a risk.

I think the main argument seems to be the TRF glide path won't match people's risk profile exactly over time.

While I'm comfortable taking a lot of risk just now, as things stand this SIPP and my state pension would be my only sources of income in retirement. That could well change, but currently I would expect to de-risk a lot when I retire.

The question then is whether (1) I buy a product that does this for me gradually, (2) I create my own glide path by changing my portfolio balance gradually as I approach retirement, or (3) I just stick at an 80/20 ratio until the day I retire, and have a sudden re-balance to 50/50 (or whatever I feel is right at that time).

I'm guessing most people on here will recommend option (2), but you've probably got a lot more experience than me. I'll think on this for a few more days before making a decision.

As an aside, it says on their site that Vanguard won't be offering their SIPP until 2018, so I'll go with a different platform initially.

dunstonh

I think the main argument seems to be the TRF glide path won't match people's risk profile exactly over time.

Yes. Or to put it a but more bluntly, it will be unlikely to be anywhere near the actual risk profile at some points.

While I'm comfortable taking a lot of risk just now, as things stand this SIPP and my state pension would be my only sources of income in retirement. That could well change, but currently I would expect to de-risk a lot when I retire.

derisking a lot would make you unusual. Derisking to the scale of the TRF is unusual. If you are unusual then fair enough. Most people dont start as high risk as the TRF and dont finish as low risk as the TRF.

The question then is whether (1) I buy a product that does this for me gradually, (2) I create my own glide path by changing my portfolio balance gradually as I approach retirement, or (3) I just stick at an 80/20 ratio until the day I retire, and have a sudden re-balance to 50/50 (or whatever I feel is right at that time).

A product that does it for you will never fit you properly. Doing your own risk reduction will fit you better. You will almost certainly not de-risk as early or move around as much on the risk scale as the TRF.

gaz77

Thanks dunstonh

Are there any good drawdown calculators I can use to run a few scenarios?

If I'm going to manage my own risk profile over time, I'd like to understand better how different risk profiles in retirement are likely to perform

bostonerimus

gaz77 wrote: »

Thanks dunstonh

Are there any good drawdown calculators I can use to run a few scenarios?

If I'm going to manage my own risk profile over time, I'd like to understand better how different risk profiles in retirement are likely to perform

Here are a couple

http://www.cfiresim.com/

and I like this one

http://firecalc.com/