Target date index fund AND s&p500?

Brittany5577 · August 12, 2020, 5:58pm

Hi! I opened up a target date index fund 2055 with findelity fund (FDEWX) with vanguard

I see so many posts about the s&p 500. Would it make sense to put half into my target date index fund and the other half into s&p to diversify? Why or why not?
I heard that at times the s & p 500 is already Incldued in target date index funds. How do I look this up? I tried on vanguard and didn’t have any luck

Thanks!

Jeremy · August 12, 2020, 6:50pm

Not really… the S&P 500 is actually inside of a target date index fund. So you’re not getting more diversified by buying both, rather just doubling up on large US stocks. Here’s a video that explains it:

Where did you hear THAT?! Ok… so let’s break it down. The vanguard 2060 target date index fund is VTTSX. If you go to the Vanguard page and click “Portfolio & Management” you see this:

You can see that currently, 54.6% of VTTSX is made up of a “Total (US) Stock Market Index Fund”. The S&P 500 makes up about 80% of the “Total” stock market, so therefore, about 44% of a target date index fund is invested in the S&P 500 companies.

diwhitman · August 13, 2020, 12:21am

Any idea why the Vanguard target date funds have investor shares instead of admiral shares?

Jeremy · August 13, 2020, 12:48am

I think it’s just a matter of bulk discount for big investors. Individual investors get in for a minimum investment of $1,000 and pay a 0.12% expense ratio (for the investor shares).

Institutions (for example, buying for an entire 401k plan) get a slight discount to 0.09% expense ratio, but have a minimum investment of $100 million.