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Anne

Target-date Funds Vs. Vanguard Index Funds

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Hi,

 

I recently wrote to the 403(b) discussion forum, under the subject "My 403(b) vendor list". My school district also offers a 457, which I had already signed up for in July. (I was checking out 403(b)s , in case of saving even more.) For the 457, I signed up with Ohio Deferred Compensation, the states non-profit program. Because I'm not savy about stocks, I signed up for the Barclay's LifePath Target-Date Portfolio. It's the index-version of the Barclay's LifePath with an annual expense of .25%. I'm learning more about index funds on this website and through reading more. I read discussions about Vanguard index funds and have since noticed that Ohio Deferred Compensation offers these Vanguard index funds:

 

Vanguard Total International Stock Index - expense = .34

Vanguard Small-Cap Index - expense = .09

Vanguard Institutional Index - expense =.05

Vanguard Total Bond Market Index - expense = .08

 

I wondered if it was wiser to invest in the index funds vs. the Life Path Target-Date Funds. Is more information needed about year to date returns, or past returns before giving an opinion? I'm 52 years old with 8 more years until I retire.

 

Thanks for any advice!

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Anne

 

If the target fund is low cost and based on index funds than it might be a good choice but it would be helpful if you showed us the percentages of where they are investing your money in. Also double check the fees. Sometimes the expense ratio is NOT the only fees you will pay under these plans so do your due diligence and check things out. As with most things financial the devil is in the details. Read the prospectus.

 

 

Tony

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Anne

 

If the target fund is low cost and based on index funds than it might be a good choice but it would be helpful if you showed us the percentages of where they are investing your money in. Also double check the fees. Sometimes the expense ratio is NOT the only fees you will pay under these plans so do your due diligence and check things out. As with most things financial the devil is in the details. Read the prospectus.

 

 

Tony

 

 

Tony,

I double checked the fees. I called Ohio Deferred and asked what other fees there were beyond the .25 % fee. I was told there was no other fees because it's a non-profit organization, with salaried employees. No matter how I tried to reframe the question, I was told my invested money minus .25 was all I'd pay. There's also no fee to redeem LifePath shares. The new prospectus will be on the website in a few weeks, because they just switched from the actively managed strategy to an index strategy. But fees went from .45 with the active managed to .25 with the index switch.

 

The percentages of where they invest the money is:

 

2020 fund

 

large cap stocks 30.8

small and mid cap stocks 8.9

international stocks 16.6

real estate 5.2

inflation-linked bond(TIPS) 5.2

nominal bond 33.4

cash 0.0

 

 

2015 fund

 

large cap stocks 26.0

small and mid cap stocks 8.2

international stocks 14.2

real estate 3.9

inflation-linked bond (TIPS) 6.5

nominal bonds 41.2

cash 0.0

 

I hope this is the information you were asking me to show. I have an appointment on Friday with a retirement planning specialist with Ohio Deferred Compensation. If there's any other questions you think I should ask regarding target date or index funds, please feel free to point it out to me!! I will ask once more about other fees.

 

Thank you,

Anne

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Anne

 

 

If the fees are right it looks good. I would make an suggestion and this is purely me speaking. I would add

The Vanguard Total International Index fund to whatever target fund you chose and add some money to it maybe an additional 5%.

 

A good bit of growth occurs outside the US and your target fund is a little too conservative in the international area for the times.

 

I think you did a good job learning and taking advice. I wish more folks were like you.

 

 

 

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