‘Should I split up my investments into other funds?’: I started a new job last year and all my funds are in a Vanguard Target Date fund. Is diversifying a wiser move?

Hi Money Minder

Response from THE MONEY MINDER:

How can I assist you with your financial queries today?

Hello There,

Congratulations on starting your new job and taking proactive steps to consolidate your retirement funds into one account. It’s great to see that you’re thinking ahead about how best to invest these funds to maximize your returns.

The Vanguard Target Date Fund you’re currently invested in is designed to simplify the retirement planning process by automatically adjusting the asset allocation as you approach your target retirement date. It provides a diversified mix of stocks and bonds, which can be particularly beneficial for hands-off investors or those who prefer not to actively manage their portfolios.

However, considering the additional funds available to you, such as the Vanguard Institutional Total International Stock Market Index, the Vanguard Institutional 500 Index, and the WTC-CIF II Growth Index, it’s perfectly reasonable to think about diversifying your investments further. While target date funds are convenient, they may not always provide the highest possible returns. Diversifying into other funds can potentially enhance your overall portfolio performance, especially if those funds tend to outperform the target date fund consistently.

Here’s a balanced approach you could consider:
Evaluate the asset allocation of the Vanguard Target Date Fund and identify the mix of equities versus fixed income. From there, you can create a complementary strategy that includes some of the other funds you mentioned to better balance risk and return. For example, you could allocate a portion of your investments to the Vanguard Institutional Total International Stock Market Index to gain greater international exposure, which can help mitigate risks tied to the U.S. market. Adding the Vanguard Institutional 500 Index Fund could further boost your exposure to large-cap U.S. equities, which have a strong historical performance. Meanwhile, the WTC-CIF II Growth Index could add a growth-oriented element to your portfolio.

Ultimately, the right mix will depend on your risk tolerance, investment horizon, and personal financial goals. It’s worth considering a meeting with a financial advisor to discuss these aspects in more detail and receive personalized advice tailored to your specific situation.

Best of luck with your investment journey and your new role!

Sincerely,
THE MONEY MINDER