Target Dating

Kyle McIntosh

IN JULY 2020, I rolled over my old 401(k) to an IRA. Between maxing out my 401(k) contributions for many years and strong investment performance, the balance was significant.

I initially invested half the money in a combination of stock market index funds and a bond market ETF. For the remaining balance, I set up an automatic investment plan that invested a modest amount in stock index funds every two weeks. While long-run market returns argued for investing all the money in stocks right away, I slept better using this gradual approach.

After about a year, I calculated that it would take another few years to put the remaining cash to work. This seemed too slow to me. After some research, I invested the rest of the account balance in Vanguard Group’s 2050 target-date index fund. This was the first time I’d put money in a target-date fund, but I don’t think it’ll be the last.

Why select a target-date fund? First, I like that the 2050 fund has a similar investment mix to my other IRA investments. The 2050 fund’s current allocation is set at 90% stock index funds—a U.S. index fund and an international one—and 10% bond index funds. Another feature I like: The stock market exposure decreases over time. The allocation will drop from 90% today to 80% by 2030, 65% by 2040 and 45% by 2050. I’d probably be doing something similar anyway, so why not let Vanguard do it for me?

The Vanguard 2050 fund’s annual expense ratio is 0.15%, or 15 cents a year for every $100 invested, which is about 0.1 percentage point higher than Vanguard’s S&P 500 index fund. I see this premium as acceptable, given the 2050 fund’s broader diversification and its gradually shifting investment mix, plus the fund’s expenses are set to drop next February. A heads-up: Vanguard will direct you to a target-date fund based on an assumed retirement age of 65. But I see myself working fulltime until 65 and part-time into my 70s, so I selected the 2050 fund, which assumes a retirement age for me of 75.

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