What is your take on Vanguard Target retirement fund, example target 2030 fund? The asset allocation in this fund seems to be very conservative and worried about returns!
Are there any DIY ideas that could potentially outperform target funds?
The funds are risk based; with the 2030 fund it would be unwise to be in 100% equities with retirement in 8 years.
If you have ten years plus to retirement explore the life strategy range or ETFs available on Freetrade.
Everyone’s risk appetite is different.
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I currently hold the 2040 retirement fund on Vanguards website and after the shot in the arm from the mini budget is down on previous highs. Luckily I am in it for the long haul but would be a shock to someone looking at the figures now.
Thanks, do you think 2040 will be ok in long haul? How about switching to 100% equity than these target funds irrespective of when one retires!
A typical retirement portfolio reduces risk as retirement approaches because the consequences of a 10% loss the year before you’re due to retire are significantly different from the consequences of a 10% loss when you’re 30 years from retirement. A key principle to remember is that the market trends upwards over the long term but can be very rocky in the short term. If you’re approaching retirement, you’re likely to be making plans about how to spend your retirement, and the value of your retirement funds will be influential in that planning.
For example, imagine you were due to retire this year and during the pandemic, you saw excellent market growth, so you decided to go all in on equities and planned to buy a house and retire to Spain using the money you expected to have. Today, you’d be facing pretty substantial losses that could break your retirement plans!
For some people, an extra couple of years working isn’t an issue, or perhaps they’re wealthy independent of their retirement funds and can afford to retire without accessing their retirement investments until the market is in a better position. For some people, working a day longer than their target date is a nightmare scenario and must be avoided at all costs. For some people, planning their perfect retirement is important, for some people, they’re happy to roll with the punches.
The question you should ask yourself, in the context of retirement planning, is how you’re able to handle a downturn when it’s time to retire. If you’ve made use of a target fund (e.g: Vanguard 2030) then you’d be insulated from the downturn (as best possible) because the fund would have long left the growth stage and instead be focused on capital preservation. If you were all in on the Vanguard 2030 fund, and in 2028 you started to plan your retirement, you’d be able to do so with high degrees of confidence that when 2030 comes around, you’d have the same capital available to you.
If you look at the Vanguard 2020 fund, it was ~$30 in early 2015, and then at the start of 2020 it was ~$32. That’s some variance (in a good direction) but even if it had gone in the opposite direction (down to $28) it would be unlikely to compromise any retirement planning that started in 2015. If you look at the Vanguard 2040 fund, it was also at $30 in 2015 but reached $40 in 2020 and then hit $50 by the end of 2021, and today is worth close to $30 again. That’s quite a substantial variance: if you had bought the 2040 fund in 2015, intending to retire in 2020, you’d have done okay, but if you’d bought the 2040 fund in 2021 intending to retire in 2022, you’d be in a very bad position.
If you want to retire in 2040, and you’d trade security over growth, so that you can confidently plan for your retirement, then a 2040 target fund is a good idea. If you want to retire in 2040 with the most amount of money, and you’re willing to risk ending up with a lot less money, then a 2040 target fund would probably not be a good fit. If you want the risk, you don’t need to craft your own mix of assets, rather, just pick a growth fund instead of a target fund.
So, in conclusion, what’s your goal? What’s your appetite for risk?
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agree with the above. It’s definitely down to the individual and ultimate goal you wish for. If you are still unsure, go for the paid advice with a reputable company. No harm is losing a few pounds now rather than losing thousands later on in life.
I chose the 2040 due to my own personal circumstances and its an additional source of funds should I need them at that time.
Good luck with whatever you do decide on though. Always plan for the unexpected as they say.
nice sum up, thansk