Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Oh, and if you are using a target fund, just put everything in ONE fund. Don’t buy some 2030 and some 2040 for example and think that you are “diversifying.” I’m shocked by the people that think this is the case.

Well, I don’t think it’s diversifying but after I hit a certain target amount in the say, 2030 fund, I add to the 2040 and so on. I think of when I will need the funds. So I will use the 2050 funds in 2050, not when I retire years earlier.

Well there's a novel approach. Just make sure your 401(k) administrator will permit you to make withdrawals in that manner. For example, TSP withdrawals are distributed pro rata from all TSP core funds in which the participant's account is invested. You can't call them and say, "I'd like to withdraw $5,000 from my 2030 fund."

I honestly think you are over-thinking it. The fund managers are determining an asset allocation over time that assumes that some money will be needed sooner and some will be needed later. Otherwise, the 2025 fund wouldn't still be around 40% equities.

Ok, PP here. Is that true about TSP withdrawals? You can’t specify where withdrawals come from? I admit that I didn’t research this but I assumed it was like any brokerage account where I decide what to withdraw. Are other 401ks like that also?

I have what I think I will actually need to live on for retirement in a target age fund. The rest, which is for emergencies/splurges/inheritance is invested more aggressively since I don't think I'll need the money. Some of that is in a Roth IRA.

Anonymous wrote:

Anonymous wrote:Oh, and if you are using a target fund, just put everything in ONE fund. Don’t buy some 2030 and some 2040 for example and think that you are “diversifying.” I’m shocked by the people that think this is the case.

Well, I don’t think it’s diversifying but after I hit a certain target amount in the say, 2030 fund, I add to the 2040 and so on. I think of when I will need the funds. So I will use the 2050 funds in 2050, not when I retire years earlier.

Well there's a novel approach. Just make sure your 401(k) administrator will permit you to make withdrawals in that manner. For example, TSP withdrawals are distributed pro rata from all TSP core funds in which the participant's account is invested. You can't call them and say, "I'd like to withdraw $5,000 from my 2030 fund."

I honestly think you are over-thinking it. The fund managers are determining an asset allocation over time that assumes that some money will be needed sooner and some will be needed later. Otherwise, the 2025 fund wouldn't still be around 40% equities.

There’s good studies showing 60/40% is one of the more optimal allocations for maximizing the amount of money you’ll have over the course of a 30+ year retirement. It may be hard to swallow to move to that, but it’s not crazy.

Anonymous wrote:Oh, and if you are using a target fund, just put everything in ONE fund. Don’t buy some 2030 and some 2040 for example and think that you are “diversifying.” I’m shocked by the people that think this is the case.

Well, I don’t think it’s diversifying but after I hit a certain target amount in the say, 2030 fund, I add to the 2040 and so on. I think of when I will need the funds. So I will use the 2050 funds in 2050, not when I retire years earlier.

Anonymous wrote:To PP, do you mean the L2030 fund is too conservative or too risky?

Way too conservative, especially given that a TSP investor typically has a pension coming, equal to a significant fixed income portfolio.

Anonymous wrote:

Anonymous wrote:I think it's important to understand your risk tolerance and to match it to the right target date fund but just deciding that all target date funds are too conservative is kind of silly. For example, the TSP L funds underwent an overhaul recently so they have a lot more equities in them than they used to.

The L2030 fund is currently nearly 40% fixed income. There's not an advisor on the planet that would advise that kind of allocation for someone retiring in eight years.

That is pure hyperbole. 60/40 for someone 8 years away from retirement is certainly within reason (although as noted they are freezing that allocation while the fund becomes overall more aggressive).

To PP, do you mean the L2030 fund is too conservative or too risky?

Anonymous wrote:I think it's important to understand your risk tolerance and to match it to the right target date fund but just deciding that all target date funds are too conservative is kind of silly. For example, the TSP L funds underwent an overhaul recently so they have a lot more equities in them than they used to.

The L2030 fund is currently nearly 40% fixed income. There's not an advisor on the planet that would advise that kind of allocation for someone retiring in eight years.

Anonymous wrote:Generally no. The dividends from each of the funds in your account are reinvested in the same funds.

Don’t overthink it though. The target funds are amalgams of the other funds available to you, not separate funds themselves. If you favor a target fund approach, you would be well served by just moving the entire account into the target fund which is made up of the same investments.

As an aside, most target funds are way too conservative unless you go way out on the time horizon. Be sure to look at the composition of the target funds. If I were retiring in 2030 for example, I would probably buy a 2040 or 2045 fund to avoid being overly conservative.

Came to say this.

The target date funds from vanguard are usually just made up of three to five index funds from vanguard. No need to choose more than one target date fund.

There is no difference for tax purposes whether you move dividends into a new fund or just sell part of your existing holdings. If you want to move gradually over you can sign on once a month and move 5% of your holdings over.

I think it's important to understand your risk tolerance and to match it to the right target date fund but just deciding that all target date funds are too conservative is kind of silly. For example, the TSP L funds underwent an overhaul recently so they have a lot more equities in them than they used to.

Likewise, if you can decide between two target date funds it's perfectly reasonable to split the difference by putting half your money in each. You are not diversifying by doing that but you are getting a portfolio that is in between the two options. Again the TSP L funds used to only be offered in 10 year increments so some people did this, but now they are offered in 5 year increments so it is less of an issue.

Oh, and if you are using a target fund, just put everything in ONE fund. Don’t buy some 2030 and some 2040 for example and think that you are “diversifying.” I’m shocked by the people that think this is the case.

Generally no. The dividends from each of the funds in your account are reinvested in the same funds.

Don’t overthink it though. The target funds are amalgams of the other funds available to you, not separate funds themselves. If you favor a target fund approach, you would be well served by just moving the entire account into the target fund which is made up of the same investments.

As an aside, most target funds are way too conservative unless you go way out on the time horizon. Be sure to look at the composition of the target funds. If I were retiring in 2030 for example, I would probably buy a 2040 or 2045 fund to avoid being overly conservative.

I am moving more of my balance to target funds gradually. I have some other funds now that I no longer buy with new contributions. However, the dividends are used to buy more of the same fund. I would like instead to invest the dividends in the target fund. I looked but could not find a way to turn auto reinvest off (like you can in a taxable account). Is this something you think I can do? I know I can just sell/buy within my 401k, but I was curious about this.