VTIVX FOF FTW?

June 30, 2008 7:24 AM

What, if anything, is a "Target Retirement" fund like VTIVX missing?

I am about to roll my 401k from a previous employer into an IRA at Vanguard. (The previous employer's plan doesn't have great plan options and the webacccess/customer service is crap).

I'm currently 29 years old, so I was thinking of putting a large portion of this rollover into VTIVX, which is a bundle of different Vanguard Index funds. It seems like a cost effective way of buying into funds that I would probably just have purchased separately otherwise.

My question is, should I be looking to add anything else from Vanguard's offerings to diversify or enhance my overall selection? For example, this fund of funds does not include REITs... would it make sense to invest in something like VGSIX in addition to it? Or am I overthinking this?

I realize that there probably isn't a scientific answer to this question. Any thoughts are appreciated.

posted by selfnoise to work & money (4 comments total)

You're leaving out a lot of variables here -- primarily:

* What's your intended purpose of your IRA?
* Does your current investment level and risk profile satisfy that purpose?
* If not, and you require higher returns, to what degree are you willing to increase your exposure to risk?
* Do you understand the correlation between risk and reward in financial markets?
* Do you have special understanding of, e.g., REITs, that you believe you could use to beat the market?

Given the phrasing of your question, my guess is that you haven't sat down and really thought about these points. Financial advisors can help you understand each of these and can help put together a plan to optimize towards your purpose.

Disclaimer: I work in the financial services industry, although I am neither a CFA nor your financial advisor.
posted by felix at 8:05 AM on June 30

It doesn't have any emerging markets bonds. My emerging market bond fund has been a pretty decent performer over the last three years. It's mostly sovereign debt of various nations like Russia and Brazil, with some bonds from large state-run monopolies thrown in as well.

Total stock-market indexes that are cap weighted, as the ones in VTIVX are, tend to minimize your exposure to small caps. Equal weighting is a fairly new idea where every stock in the index is weighted equally. So instead of GE making up 4% of your S+P 500 index fund, it makes up 1/500th of it, just like every other stock in the index.
posted by ikkyu2 at 8:12 AM on June 30

A small position in a REIT fund (say 5-10% of the total) would not be a bad idea. However, I recommend small, regular contributions to build that position over the next few years. You can't catch the bottom, but you can cost-average into a decently low price.
posted by kindall at 8:29 AM on June 30

There's an online forum called Bogleheads that specifically discusses investing through Vanguard. You can get very detailed and knowledgeable answers to your questions, especially if you make a lengthly portfolio post there.
posted by Durin's Bane at 10:23 AM on June 30 [1 favorite]