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Are Target Retirement Funds index funds?


please don't get mad at this question :)

I want to do a Roth IRA at Vanguard with a Target Retirment and a Total Stock Market Fund. I was told the index fund is the way to go for me.....am i getting it with the TSM fund?

A target retirement fund is not an index fund. Rather it is a fund that consists of a collection of other funds in the family that changes as you become older. A TSM is a type of index fund. There is something that you need to be aware of with a TSM fund. It is capitalization weighted. That means that the the top 10 holdings in the fund make up a very large portion of the total assets of the fund. One of the precepts of investing is diversification. Most index funds do not follow that rule too well, this one included.

A target retirement fund on the other hand is generally a little more diversified. Unfortunately, Vanguard Target funds are not all that well diversified. In my opinion they are weighted too heavily toward the TSM, which as I mentioned is cap weighted. The 2025 fund is 63% TSM.

The Target Retirement Fund is not an index Fund - it is one fund that invests in several index funds. Since all of the funds it invests within are indexed, you are getting a similar approach to index investing.

Vanguard has several Target Retirement Funds depending on when you are looking to retire. The longer you have to retirement, the more heavily weighted the portfolio will be in stocks. As you reach retirement age, the fund will automatically rebalance for you to become more conservative.

"I was told the index fund is the way to go for me..." If you don't have any other investments (bonds, international stocks, etc), it may NOT be right for you. A better diversified Target Retirement fund which includes international stocks & bonds may be better.
As the other responders have said, Vanguard Target Retirement invests in their index funds, some with a lot in TSM fund. Maybe a Target Retirement fund from another fund family (T. Rowe Price for example) that invest in managed funds maybe better for you. I have heard that during their short history, T. Rowe Price's funds have done better than Vanguard's. If they will do so in the future....nobody knows.

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