TDIF vs 3 fund portfolio big fee difference?

I have a TDIF in my vanguard brokerage but am wondering if I should do a 3 fund portfolio. Is the fee difference and soldo rebalancing worth it? Or should I keep a TDIF?

Let’s first look at the two expense ratios for someone who was born in 1990 and uses a 2055 target date:

  • 100% VFFVX: 0.15%

vs a three fund portfolio with the same asset allocation:

  • 54% VTSAX: 0.04%
  • 36% VTIAX: 0.11%
  • 10% VBTLX: 0.05%
  • Portfolio expense ratio: 0.0662%

So the benefit is the difference between 0.15% and 0.0662% or about 0.08%. What impact does that have over the course of an investing career? Let’s take a look:

$500/month for 40 years at 10% - 0.0662% (9.9338% net return) = $2,722,079
$500/month for 40 years at 10% - 0.15% (9.85% net return) = $2,662,698

So over the course of 40 years it makes a 2.2% TOTAL difference… or about as much as a kinda volatile day of the stock market. Still in nominal terms, it’s $59,000 difference which is nothing to sneeze at. But for that fee, you are getting automatic asset allocations, rebalancing, reallocation, etc. Preventing emotional decision making and human error could certainly be worth that 2.2% and plenty more.

For me, I like the TDIF route, but a three fund portfolio also is a fantastic options! :slight_smile:


Wow Jeremy thank you so much for such a thorough answer! I am still debating which to choose, but I like the automatic nature of a TDIF. I feel like I would be a lot more nervous doing a 3 fund portfolio myself. I think the difference in fees that you have pointed out even if compounded would not make a huge difference. I gave myself a deadline this week to make a decision tdif vs 3 fund portfolio. Thank you again.

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