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Vanguard to Lower Target Retirement Fund Costs

"The firm will consolidate its lineup with the planned mergers of Vanguard Institutional Target Retirement Funds into Vanguard Target Retirement Funds (TRFs), which is expected to result in a lower expense ratio of 0.08% (8 basis points) for each TRF following completion of the mergers."

"In addition, Vanguard will launch a new retirement income solution, Vanguard Target Retirement Income and Growth Trust for each of its Target Retirement Trust programs. The new trust’s higher (50%) equity allocation in retirement is intended for participants whose wealth, risk tolerance, and/or additional sources of income allow for higher discretionary spending in retirement."


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  • A more conservative glide path is used in the second new series.
  • For most investors, the main news of significance is the merger and lowering of ERs for the retail Target Retirement Funds. The Institutional Target Retirement Funds really are for institutions only. And the Target Retirement Income and Growth Trust is structured as a collective investment trust (CIT) "available to eligible defined contribution plans."

    Here's the Vanguard page for VITRX (including the glide path for the institutional series). The Vanguard page for the corresponding acquiring fund, VTINX, can be found here.

    A recent M* writeup of the Vanguard retail series TDFs.
    https://www.morningstar.com/articles/1027981/vanguards-fine-target-date-retirement-series

    Generally speaking, the institutional series use institutional (or admiral) class shares of underlying funds, while the retail series use the investor class* shares of funds.

    [* Though Vanguard closed investor class shares of index funds to retail investors when it lowered the admiral class min to $3K, it continues using the more expensive investor class shares in its funds of funds.]

    By switching investor share classes of some of the retail series' underlying funds to institutional/admiral shares, retail investors will see a reduction in cost. But that won't have any effect on the 0.09% ER of the institutional series. I don't know what magic Vanguard has in mind to reduce this down to 0.08%.
    The merger is expected to reduce the overall expense ratio to 8 basis points. The investor share-priced expense ratio has been 12 basis points, while the institutional expense ratio has been 9 basis points, [a Vanguard spokeswoman] wrote.
    https://www.pionline.com/defined-contribution/vanguard-merges-target-date-series-lowers-fees
  • Thanks for clarifying the matter. So there is a net saving of 3 basis point from 12 basis point.
  • Basically, yes, it just amounts to a savings of a few basis points for retail investors.

    I'm not sure why the cited article implies that all the retail target date fund ERs are the same 12 basis points when according to Vanguard they range from 12 to 15 basis points.

    Here's Vanguard's list of retail target date funds (with ERs), followed by institutional target date funds (with ERs), followed by collective investment trust target date vehicles (no ERs).
    https://institutional.vanguard.com/fund-list/?filters=trgDt,&sortBy=assetClass&viewType=quarterEndReturnsNAV
  • Tangent: MARMX has better metrics across the board than VTINX. Anybody know where/how to buy it?
  • In my TIAA retirement account, VTHRX, for example, costs me .14%.
  • I'd be inclined to pass on MARMX. If you really want to purchase it, it's available through some annuities, e.g. Mutual of America's individual retirement annuity (IRA).

    More completely:
    The Investment Company offers shares in the Funds to the Insurance Companies, without sales charge, for allocation to their Separate Accounts. See your variable annuity or variable life insurance prospectus ... Shares of the Funds are also offered through retirement plans. See your Summary Plan Description or consult with your plan sponsor for information on how to purchase shares of the Funds through your retirement plan
    https://connect.rightprospectus.com/MutualofAmerica/TADF/62824C842/FS?site=NAV#
    (click on statutory prospectus)

    Here's MARMX's legacy risk/reward page. One can enter VTINX to compare the funds on these metrics.
    http://performance.morningstar.com/fund/ratings-risk.action?t=MARMX

    Over the past three years, VTINX has produced better returns (Average vs. Below Average) albeit with higher risk (Average vs. Below Average), leading to a three year 4 star rating (vs. 2 stars for MARMX).

    VTINX has superior 3 year returns (7.53% vs. 6.27%) albeit with more volatility (6.25 vs 5.18) leading to nearly identical Sharpe and Sortino ratios.

    All of which is about what one would expect when comparing a fund with a 30% target equity allocation (VTINX) to a a fund with a target 25% equity allocation (MARMX).
  • More analysis:
    MARMX Max Drawdown 2008 -13.90% vs VTINX -17.77%. 10/09/07-3/09/09
    MARMX Max Drawdown 2020 -9.54% vs VTINX -12.48%. 2/19/20-3/23/20
    Since inception 12/2007 - 9/2021:
    MARMX CAGR 5.34% vs VTINX 5.25%. With less equity (according to you).
    MARMX Sharpe 1.05 vs VTINX 0.83%
    MARMX SD 4.48% vs VTINX 5.66%

    5 and 10 year star rating identical although frequently meaningless IMO.
    Substantial difference in 3 yr SD MARMX 5.12% vs VTINX 6.18%.

    I would need it in a brokerage not direct. I like them both.
  • Are you sure about the drawdown dates? Unless you were using incubator figures, the MARMX drawdown couldn't have begun Oct 2007, because the fund's inception date was after that, on 11/5/2007 (from SAI).

    The 2008-ish maximum drawdowns I see for each fund respectively (along with sources) are:
    MARMX (12/7/07 - 3/9/09): 17.47% (see M* chart)
    VTINX (5/18/08 - 3/9/09): 19.97% (see Yahoo adjusted close data for period)

    If you're looking at performance since MARMX's inception, you might want to include Nov 2007, rather than starting in December. MARMX gained 0.16% to VTINX's 0.71%. That's from M*'s Interactive Chart on the fund's quote page, setting the time period as 11/05/2007 - 11/30/2007.

    With less equity (according to you).
    I gave the target allocations from the prospectuses. What was actually in the portfolios could have been different from their targets. And the MARMX target allocations have changed over time. Looking far back comes with a variety of interpretation issues.

    Substantial difference in 3 yr SD MARMX 5.12% vs VTINX 6.18%.
    As I had written: "VTINX has superior 3 year returns (7.53% vs. 6.27%) albeit with more volatility (6.25 vs 5.18) leading to nearly identical Sharpe and Sortino ratios."

    5 and 10 year star rating ... frequently meaningless IMO
    How about other 5 and 10 year figures, including returns and volatility? Do you find these time frames uninformative or is it the star ratings that trouble you?

    Star rating, Sharpe ratio, Sortino ratio, they're all just risk-adjusted metrics. The Sharpe ratio makes no distinction between upside and downside volatility, the Sortino ratio ignores the upside volatility, and the star rating falls somewhat between the two - discounting but not totally ignoring upside volatility. Do you have a metric of choice, or do you feel that risk adjusted metrics in general are frequently meaningless? Personally I'm closer to the camp that one can't eat risk adjusted returns, but I still find a bit of meaning in these roll up figures.


  • edited October 9
    MARMX -13.90% from 11/5/2007 to 3/9/2009
    VTINX -18.06%

    MARMX -14.86% from 5/19/2008 to 3/9/2009
    VTINX -19.96%

    MARMX -17.47% from 12/28/2007 to 3/9/2009
    VTINX -19.97% from 5/19/2008 to 3/9/2009

    MARMX -13.97% from 12/31/2007 to 3/9/2009 (one trading day later)
    VTINX -19.97% from 5/19/2008 to 3/9/2009

    All of them tell the same story.
    You failed to mention MARMX had a suspicious one day huge spike +>3% from 12/27 to 12/28 that fell an equal amount the next trading day (12/31) as shown above.
  • edited October 11
    msf, to answer your question...IMHO risk tolerance is a very personal thing. There should be no right or wrong. My personal belief is each investor should find their maximum pain point and invest in funds with risk tolerance somewhat less than that pain point which usually means a proper balance between equities/bonds/cash/PM skill/culture/hard assets/time frame/age/health/goals/tax. My 2c.
  • msf
    edited October 10
    Each metric has different meaning and value to each investor

    Yes, though my question was what the metrics mean to you. Certainly the approach you described (for the maximum acceptable pain, maximize return) makes sense. That's essentially what the efficient frontier is designed to do.

    However, the fact remains that you're focusing on just a few metrics. This matters because you said that "MARMX has better metrics across the board than VTINX."

    For example, you have focused on maximum drawdown. A typical definition is: "The peak to trough decline during a specific record period".

    The SEC recognized the danger in funds selecting their own periods for comparison. It issued a rule for fund advertising designed specifically to preclude cherry picking. Performance figures given must span the preceding one, five, and ten year periods current to the most recent calendar quarter (here, Sept 30th). 17 CFR §230.482(d)(3).

    Using these SEC-sanctioned metrics, one sees that MARMX has worse annualized returns over all standardized periods, one year (-1.97%), five years (-0.65%), and ten years (-0.15%).

    This shows that MARMX does not have better metrics across the board. Though perhaps it does for every metric you care about (as you wrote, each metric matters differently for different people).

    As to why I didn't mention the spike on 12/28/07 - you gave the answer. With or without it, the story doesn't change. There was an even larger one in the 2007-2009 period. That didn't matter either.

    Finally, what's the big deal about a fund of just four funds and cash with static allocations? Given that there are just a few underlying funds, this is something easily reproduced on your own. It would be different if you were talking about a target date retirement fund (the subject of this thread), where a glide path were being followed.

    For example one could substitute VFIAX (or VOO) for the more expensive MAEIX, and IJH (iShares S&P 400) for the more expensive MAMEX. Then one would just need to find a couple of solid bond funds to sub for the fairly vanilla Mutual of America bond funds in MARMX and then rebalance annually.

    I tried BIMIX and MWTRX. Since they're slightly more volatile than the Mutual of America funds they're replacing, I took 2% off the S&P 400 index fund.

    Works fine as a replacement. Slightly lower std dev (4.80 vs 4.88) and a slightly higher max drawdown (13.88% vs. 12.88%) all while returning a tad more (5.51% annualized vs 5.34%). All figures are monthly (so take drawdowns with a grain of salt) and this only spans 12/07 through 9/21. Looks even better over SEC standard periods. Data from PortfolioVisualizer.
  • I have great respect for Vanguard's balanced fund offerings but I am always in search for similars. The majority of your PV replacement portfolio is MWTRX. Unfortunately Tad Rivelle is retiring from managing the portfolio. He was one of my favs. (TSI).

    Why don't you give us your opinion of the future of VWINX given the recent equity portfolio manager change?
  • If the 32% allocation I suggested for MWTRX as a substitute for MABDX doesn't work for you, just find another. For example, I chose not to suggest BCOIX because I preferr to diversify managers. You might feel differently. There is variety of good alternatives.

    Thinking about substitutions, VWINX would not be a good substitute for MABDX or VTINX based on volatility (apparently an important metric). VWINX is in a different category (30%-50% allocation) from the other funds. Though it is less volatile than its category peers, its three year standard deviation (7.67) is significantly higher than VTINX's (6.25) let alone that of MARMX (5.18).

    I don't expect its volatility to go down as a result of the change in management.
  • edited October 10
    I am asking your opinion on expectations of future VWINX performance given the manager change... not if VWINX is a good substitute for VTINX. Different topic. (Think about Windsor after Neff retired). Wellington Management.
  • A different topic, not related to the Vanguard Target Retirement funds (such as VTINX). You might start a new thread to get a variety of opinions.

    FWIW, Windor was mediocre through Neff's last decade, barely pacing its peers and falling significantly behind the LCV portion of the market. Not a fund where the successor faced a high bar.
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