Vanguard created big tax bills for target-date fund investors, lawsuit claims (2024)

FAQs

Vanguard created big tax bills for target-date fund investors, lawsuit claims? ›

Three target-date fund investors claim Vanguard violated its legal duties by triggering thousands of dollars in surprise tax bills. The plaintiffs claim the investment manager costs investors across the nation hundreds of millions of dollars in damages. The investors owned TDFs in taxable accounts.

The plaintiffs sued in March 2022, saying Vanguard's changing its fee-schedule for institutional priced shares for a target-date fund to $5 million from $100 million could harm retail investors in taxable accounts.

First, target-date holdings are sometimes too conservative for many younger investors. Consider that Vanguard and Fidelity's version of a 2060 target-date fund is relatively bond-heavy — 9.7% and 13.32%, respectively — given they are intended for investors now in their 20s.

In response to its China investments, the Financial Times reported that the nonprofit group Coalition for a Prosperous America criticized Vanguard for "acting as a pipeline through which US investment dollars are being funneled into Chinese military companies and corporations sanctioned over human rights abuses."

Yes, you can sue your broker if you have had losses in your financial account.

The securities that underlie the funds are held by a custodian, not by Vanguard. Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.

According to Vanguard, target-date fund investors are four to five times less likely to engage in trading and active account management than other investors. 3 Financial situations differ by individual and some investors do not have an employer plan that defaults to a target-date fund.

Can I move my money from my target date fund even if it has not reached its stated retirement date? Yes, you can move your money to any other investment option within your retirement plan at any time.

While target-date funds aim to reduce risk overtime, they—like any investment—are not risk free, even when the target date has reached. Target-date funds do not provide guaranteed income in retirement and can lose money if the stocks and bonds owned by the fund drop in value.

Why are investors pulling money from Vanguard? ›

When the market cratered, investors withdrew $16.4 billion from Vanguard's index mutual funds. What accounts for remaining index mutual fund outflows? Johnson says it could be clients pulling out money because they're retiring, or because they're negatively affected by the pandemic.

Three target-date fund investors claim Vanguard violated its legal duties by triggering thousands of dollars in surprise tax bills. The plaintiffs claim the investment manager costs investors across the nation hundreds of millions of dollars in damages. The investors owned TDFs in taxable accounts.

Vanguard is the king of low-cost investing, making it ideal for buy-and-hold investors and retirement savers. But beginner investors and active traders will find the broker falls short despite its $0 stock trading commission, due to the lack of a strong trading platform and accessible educational resources.

Rest easy knowing the cash in your Vanguard Cash Plus bank sweep is eligible for FDIC coverage up to $1.25 million for individual accounts and $2.5 million for joint accounts.

About Vanguard

Vanguard's mission is to "take a stand for all investors, to treat them fairly, and to give them the best chance for investment success."6 It prides itself on its stability, transparency, low costs, and risk management.

They accused Vanguard, the trust comprising the target-date funds, and the trust's trustees of negligence and breach of fiduciary duty over changes made to the target-date funds that resulted in tax liabilities for some investors. The plaintiffs are seeking monetary damages and other relief.

Vanguard Target Retirement 2015 Fund merged into Vanguard Target Retirement Income Fund. Vanguard has notified Nationwide of the merger of the Vanguard Target Retirement 2015 Fund (Ticker: VTXVX) into the Vanguard Target Retirement Income Fund (Ticker: VTINX). The effective date of this merger was July 8, 2022.

Don't be fooled by the booming popularity of target-date funds. Poor performance, improper asset allocation and high fees have marred many of these mutual funds. They're more likely to bring you headaches than outsized investment returns.

While you're not required to have a balance in your settlement fund at all times, keeping some money in the settlement fund has these advantages: You're more likely to have money to pay for purchases on the settlement date, when your account will be debited for the amount you owe.

No earnings are guaranteed

Target-date funds are investments, and all investments have the potential to lose value. It's a simple reality of saving for retirement: You need to accept some degree of risk when investing for retirement.