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T Rowe Price Vs. Vanguard Tr Funds

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Hi everyone. I'm still researching vanguard target date retirement funds and T. Rowe Price Retirement Funds. Vanguard invests in 4 major index funds, and they are mostly domestic. Their overall expense ratio is .23.

 

The Target Retirement Funds at T. Rowe Price, on the other hand, invest in 11 different funds. The overall expense ratio is .83. One of the funds has a 5 star rating right now according to morningstar and three of the funds have a 4 star rating. Most of these funds are not index funds. It seems that there is much more variety (small cap and international) and more managed accounts at TRP and this is why the expense ratio costs more. It also is a more aggressive account, I think. These funds seems to be doing very well with their annual returns in recent years. Is this why it is so high?

 

What else should I be looking at in making my choice? Are these reasons good enough reasons to offset the difference in costs?

 

My husband has been leaning toward TRP. The website is much more user friendly re: 403(b)'s at TRP and he got a better feeling with them when he talked to them on the phone. But we wanted to investigate further before making a decision.

 

Thanks.

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Hi newinvestor,

 

Good for you for looking at this approach (target date retirement funds), and good for you for looking at these two companies. One other thing to look at is stock/fixed investment allocation. Vanguard tends to take a more conservative approach (i.e. more weighted toward fixed investments). This means their 2035 fund will be a little more conservative than T. Rowe Price's 2035 fund (see below). Check each company's website for details. I have read that with increased life expectancy, some (not all!), believe T. Rowe's Price may make more sense. If you haven't read our piece on these funds you might want to read this story. Good luck and stay in touch.

 

The following information is from year 2006:

 

T. Rowe Price Retirement 2035: stocks 90% - fixed income 10%

 

Fidelity Freedom Fund 2035: stocks 84% - fixed income 16%

 

Vanguard Target Retirement Fund 2035: stocks 76% - fixed income 24%

 

For complete information on asset allocation consult each company's website.

 

Dan Otter

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Hello a .83 expense is still much lower than the industry average. The TR funds sounds better to me too..small cap and international are very important...Part of the decision might depend on when you will need this money. For starting out this is great (with more than 15 years to invest). Congratulations on making this decision together...Dan

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I switched my target retirement fund from TRP to Vanguard for three reasons:

 

1) TRP was too aggressive for my risk tolerance.

2) I preferred Vanguard's index fund approach.

3) Vanguard fees were considerably lower.

 

However, if the risk is within an investor's tolerance level, and the investor does not mind actively-managed funds, it would be difficult to come up with a target retirement fund better than one offered by TRP. The service provided (esp. phone conversations) was also excellent.

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I like Vanguard, but TRP sounds really good too. I agree, .83 is not bad compared to alot of others out there. I believe there's normally a 3 day investment seminar. I went to one at the Staples Center a few years back - it was great - alot of great information on other retirement plans, types of mutual funds etc.... Not sure if the one in Vegas is the same type of deal.

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Hello new invester:

 

If you're still reading this forum.

 

I strongly suggest you educate more about investing principles before making your decision. Learn about the principles of asset allocation. You are definitely on the right track with either Vanguard or T Rowe Price. They are both excellent fund companies with reasonable fees. My personal recommendation would be to go with Vanguard because their index funds have even lower fees than T Rowe and I am skeptical of the long-term benefits of actively managed funds. Everything I've read says that over the long term you are probably better off with a low fee suite of index funds with an asset allocation that is appropriate for your age and objectives. But some of my wife's IRAs are with T Rowe so obviously I think they are a good company and probably your best pick if you are looking for actively managed funds where highly paid managers pick which stocks to buy and sell.

 

An excellent place to start would be a book like the The Boglehead's Guide to Investing which was written by several followers of John Bogle who was the founder of Vanguard Funds and perhaps the man who has done more for small investers in this country than any other single person. They have a slant towards low fee index funds such as Vanguard. But it's an excellent book to cover the basics of investing.

 

Bottom line? Your success in investing will be governed primarily by:

 

1. Your asset allocation plan (i.e. what percentage large cap, small cap, international, and fixed income investments to have),

 

2. Starting early and investing regularly, and

 

3. Fees and expenses.

 

 

Many beginning investors make the mistake of trying to pick the est funds and end up chasing performance rather than setting up a basic investment strategy and sticking with it.

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Chasing funds can make them tank. Weitz funds were very until 6 years ago, 30+% for nearly 10 years. Then flooded with 10 times the money AND the market tanked. Well, they had three negative years along with the rest of the market, followed by 40+, 20, and a zero last year in the main fund I was in. Net of 2% average for 6 years. I move out a bit more than I moved in. But I've done well with $3200 becoming $32,000. Not much, but something.

 

TRP's Capital Appreciation Fund has not gone negative in 15 years. I just moved 60% of a ROTH IRA there. Avoiding poor performance goes a long way to offset spikes up and down. I'm now watching for more of a smooth sail, with good results when others have trouble.

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Yes, TRowe is a little more aggressive and costs a tad more but IF you have a teachers retirement plan you already have a good portion of your retirement income already in a conservative predictable investment. This gives teachers an edge and (depending on years to retirement) might be considered in part of this decision. Best of Fortunes, Dan

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Remember that Vanguard is chaning their line up with their target retirement accounts around June 30, 2006. They are adding another 4-5 funds, such as 2010, 2020, 2030, and 2040 to complement the 2005, 2015, 2025, and 2035. In addition, they are making the funds slightly more aggressive with a different asset allocation.

 

From Vanguard's web site:

 

VANGUARD TO EXPAND TARGET RETIREMENT FUNDS

 

Allocation Path to Be Modified on Existing Funds

 

VALLEY FORGE, PA, March 20, 2006 – Vanguard filed a registration statement today with the U.S. Securities and Exchange Commission to expand its Target Retirement Fund series by adding five funds. The new funds will feature target retirement dates at 10-year intervals (2010, 2020, 2030, 2040, and 2050), and will complement Vanguard’s six existing offerings (2005, 2015, 2025, 2035, 2045, and Income).

 

“Vanguard® Target Retirement Funds have become increasingly popular among individual investors and retirement plan participants. Shareholders are attracted to the simplicity and convenience of having a professionally managed, diversified portfolio of stocks and bonds in a single fund,” said Vanguard CEO John J. Brennan. “The introduction of five new funds will enable investors to select a fund that more closely matches their investment time horizon.”

 

With the new funds, Vanguard’s line-up of Target Retirement Funds will include 11 no-load, low-cost offerings in a range of asset mixes developed for investors in their 20s through 70s-plus. The funds are a series of broadly diversified “fund-of-funds” that gradually reduce stock exposure and increase bond exposure as the targeted retirement date approaches.

 

Vanguard is also changing the asset allocation models of the Target Retirement Funds:

 

The existing funds’ current asset allocation path will be modified to provide increased exposure to equities over a longer period of time. The result will be a larger equity allocation of roughly 10 to 20 percentage points, depending on the fund. For example, the Target Retirement 2035 Fund will change its equity allocation to 90% from its current 80%.

Vanguard Emerging Markets Stock Index Fund will be added to each of the funds (representing roughly 1% to 2.5% of assets), further diversifying their exposure to international markets.

Vanguard European Stock Index Fund and Vanguard Pacific Stock Index Fund will be added to the Target Retirement 2005 and Income Funds. In aggregate, international stocks will represent 10% of the 2005 Fund and 6% of the Income Fund.

 

“While the changes in the portfolio construction will result in modestly higher risk profiles for the funds, we believe that shareholders will benefit from broader equity diversification and higher return potential.”

 

Using methodology developed by Vanguard’s Investment Counseling and Research Group, assets in Vanguard Target Retirement Funds are invested in a combination of the following Vanguard mutual funds: Vanguard Total Stock Market Index Fund, Vanguard European Stock Index Fund, Vanguard Pacific Stock Index Fund, Vanguard Emerging Market Stock Index Fund, Vanguard Total Bond Market Index Fund, Vanguard Inflation-Protected Securities Fund, and Vanguard Prime Money Market Fund.

 

The funds, which have grown to more than $10 billion in assets since their introduction in 2003, offer a distinctive approach that reflects Vanguard’s investment philosophy. In particular, the funds are distinguished by:

 

An emphasis on indexed investing, which brings the advantages of minimal turnover, broad diversification, and reduced manager risk.

The use of a combination of stocks and inflation-protected securities to preserve purchasing power during retirement.

Costs that are well below average, with the funds featuring weighted expense ratios ranging from 0.21% to 0.22% versus the 1.18% expense ratio of the average balanced fund (Lipper, 2006).

 

The five new Target Retirement Funds, which will require a minimum initial investment of $3,000 for taxable and IRA accounts, are expected to have similarly low expense ratios

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Hi John,

You are always welcomed back, my benefits personnel hero.

Wish you were with my school district. Take a look, if you get a chance at my "Open letter to LAUSD" benefits department. My district personnel is soooooooooooo dense and secretive about the entire process of starting a new 403b and 457 plan. Its going to be the same old stuff.

Thanks for the information about Vanguard.

Steve

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