There are four funds in the Vanguard LifeStrategy group of funds:
- LifeStrategy Income Fund: 20% stocks, 80% bonds
- LifeStrategy Conservative Growth Fund: 40% stocks, 60% bonds
- LifeStrategy Moderate Growth Fund: 60% stocks, 40% bonds
- LifeStrategy Growth Fund: 80% stocks, 20% bonds
Or you could be investing for a shorter-term goal than retirement, and want to hold a conservative stock/bond ratio of 20/80; the LifeStrategy Income Fund fits the bill.
Finally, there is some evidence that holding a constant stock/bond ratio throughout your investing lifetime is a superior strategy compared to decreasing your stock allocation over time. I'm not convinced, but if it makes sense to you, the LifeStrategy Moderate Growth fund might be a good choice.
If you like the idea of using a single all-in-one fund, you should decide which strategy is appropriate for you, and pick either a LifeStrategy fund or a Target Retirement fund; there is no need to own both types of funds. If you're not sure which approach makes more sense for you, just pick one; you can always change your mind later and exchange from one type of fund to the other, especially if this is in an IRA account, where there are no tax consequences of selling. If you have less than $3,000 to invest, the choice is easy: use a Target Retirement fund, since the minimum investment is only $1,000.
As with Target Retirement funds, LifeStrategy funds are best held in a tax-advantaged account, like an IRA (Roth or traditional) or 401k/403b (if you are lucky enough to have one of these funds in your plan). This is because the bonds held in the funds distribute dividends that are taxable at regular income tax rates. To learn more about tax-efficient placement of assets (also called asset location), read the excellent Bogleheads Wiki article Principles of Tax-Efficient Fund Placement.
Investing can be simple. One of the hardest parts is figuring out how much risk and what types of risk are appropriate for you to take. Once you've done that, it can be as simple as investing in a single Vanguard LifeStrategy or Target Retirement fund.
Nice Article!!
ReplyDeleteThanks for explaining LifeStrategy and Target Funds in simple terms.
ReplyDeleteNice piece
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