Once upon a time, if you wanted an all-in-one diversified investment retirement fund, you’d invest in a target date mutual fund. Each Vanguard Target Retirement Trust mutual fund invests in a few low-cost stock and bond index funds. The balance of stocks vs. bonds invested in changes as the fund’s retirement “target date” approaches. So, if you’re retiring in 2020, you’ll have a large percentage of your investments in fixed assets today.

The target date fund is a set it and forget it investment approach.

Today, you can invest in the Vanguard Personal Advisor Services robo-advisor and customize your investments to correspond with retirement and other goals along the way. The robo-advisor adds choice and a financial professional to your investment planning for a reasonable price.

So, I’m going to explore which investment approach is best for you, the target date fund or the robo-advisor.

The Vanguard Target Retirement 2045 Inv (VTIVX) — For the 35-Year-Old

If you’re 35 years old and looking to access your investments at age 62, the 2045 target date fund is for you. With a low expense ratio of roughly 0.15%, you get a diversified investment portfolio that includes U.S. stocks from the large-cap growth, value and blend categories and mid to small caps from the growth, value and blend styles. Plus, for added diversification there’s real estate investing. The target date fund also includes international stocks and REITs.

For the fixed portion of the fund, there are allocations to a variety of types of bonds, including U.S. treasuries, corporate and foreign.

The allocations to the various assets are initially aggressive, with a greater proportion of stock investments and a lesser amount of fixed investments. As the 2045 retirement date approaches, your portfolio will shift to greater percentages of bonds and lesser allocations of stocks.

With 25 years until retirement, your asset allocation would look similar to 50% U.S. stocks, 35% international stocks, 10% U.S. bonds and 5% international bonds.

At your 2045 retirement year approaches, the asset allocation would shift to approximately 30% U.S. stocks, 20% international stocks, 30% U.S. bonds, 10% international bonds and 10% short-term treasury inflation protected securities (TIPS).

Finally, the 1.96% current yield adds stability to the ups and downs of the principal value of the Vanguard Target Retirement 2045 Inv fund. And there are 12 target-date funds from with retirement dates from 2015 through 2065.

This seems like an easy, diversified and sensible way to invest for retirement, unless you want more control over your investments. If so, then you might opt for the Vanguard robo-advisor.

The Vanguard Personal Advisor Services Robo-Advisor Competitor

If size is any indicator, the Vanguard robo-advisor is the largest of all the automated investment platforms is the winner with $112 billion assets under management as of August 2018. What you get with a robo-advisor is customization, a human financial advisor and 0.30% management fee (for portfolios below $5 million with lower fees for larger portfolios).

If you have the $50,000 entry minimum, then you’re eligible to invest with the Vanguard Personal Advisor Services robo-advisor.

It’s actually unfair to compare the target date fund with the robo-advisor, as the target-date fund offers no human financial advisor. It might be better to match up the Vanguard robo-advisor with a human financial planner. Yet, financial advisor issue aside, there are many similarities between the target date mutual fund and the digital investment advisor.

With Vanguard’s robo-advisor, a computer algorithm creates your portfolio, based your goals and risk tolerance. But here’s where Vanguard is distinct from many competitors.  Vanguard’s robo-advisor adds direct human financial advisors to the process. Your contact with the service is handled by an individual financial advisor, who acts as the point person in establishing your account and portfolio.

The greatest advantage of the Vanguard robo-advisor is the ready availability of a financial consultant, for a lower fee than you’d pay for a typical financial advisor. Your advisor is a phone call away, for quick financial questions. Yet, when choosing a robo-advisor, there are others that also offer financial advisors and low fees — such as Wealthsimple and Betterment.

Vanguard’s robo offers an array of both ETFs and mutual funds — many are like those in the target date fund. In addition to passively managed funds, the platform also offers actively managed options.

Unlike the target date fund, your asset allocation is reviewed by your financial advisor and can be changed at any time.

The final differentiating feature between the target date fund and the Vanguard robo-advisor is the availability of tax-loss harvesting. Vanguard Personal Advisor Services will use tax-loss harvesting on a case-by-case basis to reduce your tax obligation, along with smart asset location. Meanwhile, tax-loss harvesting is not available in the target date fund.

The Bottom Line on Vanguard’s Target Date Mutual Fund vs Vanguard Personal R0bo-Advisor Services

If you are seeking low-fee investment management with a hands-off approach, then the target date funds are a sound choice. If you have more than one goal, you might even invest in several target date funds, with distinct maturity dates.

On the other hand, if you want a financial advisor to speak with, and the opportunity to adjust your investment funds and asset allocation, along with tax-loss harvesting, then you’re better off investing with the Vanguard robo-advisor.

Finally, if your investable assets are less than $50,000, then there is no choice, the target date fund is for you. Or, you could choose a robo-advisor with a lower investment minimum such as M1 Finance or Betterment.