Target Date Funds, Balanced Funds or Your Own ETF/Index Fund Portfolios
06/23/2011 0 comments
Vanguard recently released a annual report titled as :How America Saves in 2011". It stated "At year-end 2010, 29% of all Vanguard participants were solely invested in an automatic investment program— compared with just 9% 5 years ago. Twenty percent of all participants were invested in a single target-date fund; another 6% held one traditional balanced fund; and 3% used a managed account program. These diversified, professionally managed investment portfolios have the potential to dramatically improve portfolio diversification for these participants. "
It is thus interesting to compare these target date (or sometimes called lifecycle) funds with balanced funds. It also raised a question how well one can manage her portfolio, compared with these single fund approaches.
We take Vanguard Target Retirement 2015 Fund (VTXVX) that has roughly 58% in stocks, a comparable Vanguard Balanced Fund Index (60% in stocks).
The following is VTXVX holdings (as of 5/31/2011)
| Rank | Fund Name | Percentage |
|---|---|---|
| 1 | Vanguard Total Stock Market Index Fund Investor Shares (VTI) |
40.7% |
| 2 | Vanguard Total Bond Market II Index Fund Investor Shares* (BND) |
39.9% |
| 3 | Vanguard Total International Stock Index Fund Investor Shares (VEU) |
17.5% |
| 4 | Vanguard Inflation-Protected Securities Fund Investor Shares (TIP) |
1.9% |
| Total |
100.0% |
|
We put the corresponding ETFs in paratheses in the above table. The following is the comparison among VTXVX, VBINX, Six Core Asset ETFs Strategic Asset Allocation Moderate and Six Core Asset ETFs Tactical Asset Allocation Moderate. The last two portfolios are based on MyPlanIQ's Six Core Asset ETFs plan. They are moderate risk with 60% in risk assets, thus very comparable.
Portfolio Performance Comparison
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Six Core Asset ETFs Tactical Asset Allocation Moderate | 13% | 96% | 9% | 70% | 15% | 108% |
| VBINX | 14% | 139% | 4% | 20% | 5% | 25% |
| VTXVX | 15% | 146% | 4% | 17% | 5% | 25% |
| Six Core Asset ETFs Strategic Asset Allocation Moderate | 16% | 141% | 4% | 14% | 8% | 39% |
For longer time performance, refer here.
It does seem that it is worth investors' efforts to manage your own portfolios. Even the buy and hold Six Core Asset ETFs Strategic Asset Allocation Moderate beats the Vanguard funds by a big margin (3% annually).
Symbols: VTI, VEU, VWO, VNQ, DBC, BND, TIP, Taget Date Funds, Portfolio Strategy, Retirement Investing
Exchange Tickers: (VTI), (VEU), (VWO), (VNQ), (DBC), (BND), (TIP)
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