Reply to Vanguard Target Date funds (in taxable accounts) --- WHAT IS GOING ON?

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Reply to "Vanguard Target Date funds (in taxable accounts) --- WHAT IS GOING ON?"

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]I am confused - [b]so should we not invest in Vanguard TDFs anymore[/b] (for taxable accounts)?

What are "institutional funds" - should we invest in those instead or are they only if you have $5 million to invest?

Should I move all the money I have in VTSAX to the VTI instead?  Will that trigger a massive tax hit?[/quote]

Regarding #1:  It's actually bigger than just Target Date Funds.  ANY MUTUAL FUND (from Vanguard or any other trading house) could do this to you IF there is another identical fund for institutional investors (i.e. usually employers who have A LOT of money to invest).  If there are two funds (one for little investors and one for institutional investors), it's possible that the investment firm (in this case Vanguard, but next time it could be TRPrice or Fidelity or Schwab) could stick a huge tax bill to investors in the "regular" fund by luring many of the investors into the "institutional" fund by drastically lowering the minimum investment.

This completely unexpected situation was caused by Vanguard and is unlikely to happen in other funds or in other investment firms -- but it could.

Vanguard could have lowered the minimum investment in the institutional Target Date Funds from $100mil to $90mil.  And then moved slowly (over a period of YEARS) to reduce the entry ticket for the institutional funds.  But dropping the minimum investment from $100mil to $5mil all at once, it created a stampede of investors with portfolios of $5mil-$100mil LEAVING the regular fund in 12 months time.  That's why this happened.

[/quote]

How do we know if there is an equivalent institutional fund??  I am also invested in the life strategy fund.

I'm just another regular investor looking to "set it and forget it" with my small amount of funds.  I don't know how to keep up with all of this!  I don't even have a tax accountant.[/quote]

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