If you’re a beginner or a passive investor, you want a diversified portfolio so you can passively invest and not have to worry about it. If you’re not keeping your eye out on the market, you probably want to be a passive investor. If you’re in a low tax bracket, it might not be worth it for you to do tax loss harvesting manually. If you’re putting your money in Vanguard, you’d have to do your tax loss harvesting manually, vs having a robo-advisor do it for you.
There are two kinds of Vanguard funds, Admiral shares and Investor shares. Admiral shares are cheaper but require a $10,000 minimum for funds that try to match an benchmark (SP 500, money market funds, TIPs funds, etc). For actively managed funds where the portfolio manger picks out shares of stocks or bonds to invest in, Vanguard requires a minimum of $50,000, and $100,000 for sector specific funds (tech, healthcare, etc).
Admiral shares are around 40 percent lower than their Investor shares. The funds are exactly the same, with Admiral shares having lower expense fees. Think of Admiral shares like Costco, where you buy things at wholesale prices. Same exact item, just in bulk.
The reason why I’m explaining this is because Vanguard has target retirement funds, which allow you to pick the date you’re retiring and invest that way. Let’s say you’re planning on retiring in 2035, so you’d pick the Retirement 2035 fund. However, Vanguard only allows for Investor shares in the retirement funds, even if you have $10,000 invested — this is due to regulatory/fund structure reasons.
You could build the exact same retirement fund out of Admiral shares if you had the minimums for each portion of your fund. Below is a table showing the minimum fund amounts for each year of the target retirement account Vanguard offers, if you want to build your own retirement fund out of Admiral shares. Most Vanguard funds include 2 bond funds of international and domestic bonds and 2 equity classes, also domestic and international. I’ve included minimums if you buy into both the international and domestic bond funds, and also if if you just buy into the domestic bond fund with the total overall percentage of bond funds.
If you’re looking to match Vanguard’s allocation exactly the minimum amount you’d need to invest is close to $100,000. The Vanguard domestic and international bond funds have a correlation of .89, which is pretty decent, so if you’re looking to reduce your minimum investment to get Admiral shares and save expenses, I’d consider grouping the bond funds together and just investing in domestic bonds. There’s a cool little tool on this website that allows you to see the correlation between two Vanguard funds. This lowers the minimum you need to invest. If you’re retiring in a decade or less, you’d just have to invest $30,000 and below.
For simplicity, I recommend rebalancing twice a year to make sure your percentages match Vanguard’s if you want to go the manual route of a DIY Admiral share fund.
Even if you have the minimum required to make your own retirement fund out of Admiral shares, it might not be worth your time to do so. Below is how much Vanguard will charge per retirement year fund per $100,000 in investments if it were in Admiral funds, or if you just bought the retirement fund in Investor shares. The expense fees range from .14 percent to .16 percent for the Target Retirement Fund in Investor shares, which translates to $140 to $160 per $100,000. The fees range from .06 to .07 percent for DIY Admiral shares, which translates to $60 to $70 per $100,000 per year. If you have Admiral shares, the expense fees are roughly 60 percent cheaper, which is a significant percentage of savings, but considering the absolute value of savings, it might not be worth it to some people.
If you have $100,000 in investments, it will save you close to $65 per $100,000 per year in fees. Is this worth it to you to rebalance twice a year? I’m going to say no, no matter how much it costs because I don’t want to be buying and selling things for a few minutes — Vanguard can do it automatically without slippage. It’s better to have a program rebalancing all portions of your retirement fund concurrently than doing it yourself over the course of a few minutes.
Do you put your money in a DIY or the normal Retirement fund for Vanguard? Do you use another provider to balance your portfolio?