I'm interested in investing in the Vanguard Target Retirement Income Fund in my IRA. That fund is made up of 5 funds:
- Total Bond Market II Index Fund Investor Shares (very similar to the Total Bond Market Index Fund)
- Total Stock Market Index Fund Investor Shares
- Short-Term Inflation-Protected Securities Index Fund
- Total International Bond Index Fund
- Total International Stock Index Fund Investor Shares
I have enough money in this account that I could invest in all the Admiral share fund equivalents of these investor shares funds (higher minimum investment but lower expenses) and still keep the same allocation as the income fund. What are the pros/cons of doing this? This is what I see:
The expense ratio of the original fund is 0.16% which amounts to about $200/year for me. Replicating the fund with Admiral shares gives me a weighted expense ratio of 0.0993% which would save me about $79/year in fees. The expense ratio of the income fund is just a passthrough expense (from here: Does the expense ratio of a fund-of-funds include the expense ratios of its holdings?) so I'm not saving an extra level of fees by doing this.
If I wanted to change the allocation a bit, I could (although I doubt I'll realy want to.)
Every quarter, six months, whatever I'd have to rebalance my IRA, while Vanguard would do this for the fund of funds without me needing to.
The US bond fund in the target income portfolio is different from the bond fund available to retail investors but it's still mostly the same so this wouldn't be a PERFECT replication technically.
What else? My question is similar to this one (Do I need to own all the funds my target-date funds owns to mimic it?) but it's a little different because I'm not asking if I need all of the funds, just the pros and cons of doing this replication.