Is Your Vanguard Target Date Fund Really Worth It? Terrible Performance, Again!

Another year (2024), and your Vanguard “Balanced” Target Retirement Fund just got smoked (by the S&P 500), again!

Now I know what you’re going to say… it’s not an “apples to apples” comparison; the S&P 500 is 100% US stocks, and the Vanguard fund is a balanced mix of US stocks, international stocks, US bonds and international bonds (in the weights included in the image above)

But so what!?…

Was the tiny reduction in volatility (see chart below) really worth the $625K you threw away on your $400,000 nest egg over the last decade!? Because that’s what you sacrificed (i.e. your $400,000 ten years ago, would be worth over $1.5 million (if you just stuck it in an S&P 500 index fund), but instead you’ve only got $932K because you chose the balanced-target-date-fund approach.

We could go on-and-on, and back-and-forth, about:

• Hindsight is 20/20; the past won’t predict the future.

• Bonds used to yield much higher.

• You can’t eat Sharpe ratio (basically, why wouldn’t you take higher short-term volatility in exchange for dramatically better long-term returns).

• Even Vanguard founder, Jack Bogle, knew a US home-country-bias was a good idea.

But the reality is, if you want to make a lot of money over the long-term, US stocks still look A LOT better than:

• Bonds: yields are terrible.

• International stocks: US dominates the world economy, especially large cap technology innovation.

• Equal weighted stock portfolios: small cap still has an uphill battle (many aren’t even profitable these days).

And if you look at US stocks (e.g. the S&P 500) versus all the other categories included in these Target-Date-Retirement funds, US stocks still look pretty good.

Bottom Line:

But at the end of the day, it’s up to you. You decide what is right for you, based on your own personal situation.