Comments on: The Downside of Target Date Mutual Funds

By: A Personal Finance » Blog Archive » Schwab Mutual Funds: Ideal for Investors With Limited Means?

Mon, 02 Nov 2009 04:38:22 +0000

[...] Mutual Funds vs. Exchange Traded Funds (ETFs)» U.S. Treasury Insurance for Money Market Funds» The Downside of Target Date Mutual Funds» Vanguard Changes Transaction Rules» Mutual Fund Sales Loads: Just Say [...]

By: tony evans » Test Post

tony evans » Test Post — Thu, 13 Aug 2009 05:45:27 +0000

[...] understandable that you want to lose your money, but failing to invest is also costing you money. Target date mutual funds aren’t perfect, but they’re quick and easy. If you have a bit more money and want more control, [...]

By: Investment Performance: Stocks vs. Bonds | USA Best Credit Report

Investment Performance: Stocks vs. Bonds | USA Best Credit Report — Fri, 17 Jul 2009 16:31:06 +0000

[...] Ignore the Noise» Investment Insights: Past Performance» Stocks and Bonds vs. Mutual Funds» The Downside of Target Date Mutual Funds» Investigating Mutual Fund Correlations» The High Cost of Low Risk Investing» Market Turmoil, [...]

By: BrokeLoser

BrokeLoser — Sat, 18 Apr 2009 15:24:42 +0000

I’ve been feeling the same way about the Vanguard 2035 fund too. I think it’s too heavy on equities. Whatever happened to John Bogle’s personal recommendation that one should only have an equity position equal to 100-age?

Unfortunately, all the non Vanguard target funds offered in my 401k are highly loaded with fees, so I don’t have the option to just switch to low-cost index funds. So, I guess I’ll keep sticking with the 2035 fund for now.

By: MITBeta @ Don't Feed the Alligators

MITBeta @ Don't Feed the Alligators — Sat, 18 Apr 2009 14:27:22 +0000

Target retirement funds are a great option for most investors who don’t have the time or inclination to inform themselves about investments. They’re also a great option for people who have too little money to buy 5 or more index funds (Total Stock Market, Total Bond Market, Emerging Markets Index, European Markets Index, REIT Index, etc.) and allocate them into their own mix. It takes several 10s of thousands of dollars to be able to tweak what you can get in a target fund for as little as $3,000 with Vanguard.

I wrote a post about how I would allocate funds if investing outside of a target retirement fund here: http://www.dontfeedthealligato.....___-market

By: LR

LR — Wed, 15 Apr 2009 19:17:23 +0000

Good points! What this downturn has shown is that even target-dated funds are not immune to drops.

By: Steve @ Start-Up

Steve @ Start-Up — Tue, 14 Apr 2009 04:24:32 +0000

I’m currently invested in Vanguard’s Target Retirement 2050, mostly because up until this month I didn’t have enough money in my retirement accounts to do my own asset allocation. I will be doing my own asset allocation using low cost index funds because I’m looking to add a little more risk with small value funds and micro funds.

It’s hard to speculate too much about why Vanguard changed the asset allocation in 2006, but isn’t performance chasing completely against the ideas of Vanguard? I would think it’s more due to the fact that if your retirement is 25+ years away, you don’t need more than 10% in bonds. It’s all speculation though.

@Pinyo, with regards to your SEP IRA, why don’t you spread your asset allocation across all of your accounts? You don’t have to diversify each individual account. Or is it too much work?

By: GM

GM — Mon, 13 Apr 2009 16:08:06 +0000

I guess the biggest problem of the target date funds is the stock market highs coinciding with an investor’s asset reallocation dates. It is too much to leave to chance and one is better of manually re-balancing considering things other than age (risk etc).

By: Clair Schwan of Frugal Living Freedom

Clair Schwan of Frugal Living Freedom — Mon, 13 Apr 2009 14:58:43 +0000

Good post, clear and to the point. It speaks well to some of the basics of investing – know what you’re investing in, understand the game being played, and be capable of managing your investments. My experience is that many in the investment sector don’t really know all that much, they’re often just sales people, so being a knowledgeable do-it-yourselfer is essential.

Clair

By: OblivousInvestor

OblivousInvestor — Mon, 13 Apr 2009 13:30:10 +0000

From Vanguard’s Target Retirement 2050 prospectus:

“Although the Fund is not expected to incur any net expenses directly, the Fund’s shareholders indirectly bear the expenses of the underlying Vanguard funds (the Acquired Funds) in which the Fund invests.”

By: Nickel

Nickel — Mon, 13 Apr 2009 13:25:14 +0000

Cap: Yeah, that’s another possible problem, though the apparently higher expense ratio may be caused by the inclusion of more expensive underlying funds. I don’t think you really pay a premium over the composite expense ratio with Vanguard, though I might be wrong. The Vanguard Target Retirement funds include things like an Emerging Markets funds which has a higher expense ratio than their domestic stock funds. If you want an Emerging Markets fund as part of your portfolio, you’ll pay a bit more whether you get it through a Target Retirement fund or by purchasing it straightaway.

By: Cap

Cap — Mon, 13 Apr 2009 06:29:16 +0000

I think another disadvantage (albeit minor) is that expense ratio on targeted funds are sometimes higher… for example, for fidelity’s freedom funds.. the expense ratio is around 0.8% compare with other low-cost fidelity index mutual funds running at about 0.23%. It’s not a deal breaker or anything, but I think it really depends on the type of fund you’ll be buying in the type of retirement account. As Pinyo mentioned, you can opt to use these targeted funds in an IRA instead of a 401k simply because of the contribution limit and funding differences.

By: » » The Downside of Target Date Mutual Funds | The Best Mutual Funds

» » The Downside of Target Date Mutual Funds | The Best Mutual Funds — Mon, 13 Apr 2009 06:11:02 +0000

[...] story here Nickel Top Philippine Mutual Funds, 1st Quarter 2009 : PinoyMoneyTalk.com [...]

By: Pinyo

Pinyo — Mon, 13 Apr 2009 03:23:24 +0000

Good post Nickel. For my 401k, I opt for normal funds instead of a target retirement fund as well for the same reasons. However, I do use Vanguard Target Fund for my SEP IRA which is too small to effectively diversify with normal funds.

By: Nickel

Nickel — Mon, 13 Apr 2009 02:36:56 +0000

I agree that you don’t want to ride things too long, but there’s a lot of data out there in support of periodic vs. continuous rebalancing. Just look at this past fall. Everyone with equity exposure took a beating, but if you had continuously reblanced from bonds into stocks it would’ve been worse. In our case, we’ve just let things ride and focused getting back to our target allocation with new money (still not there yet, but getting closer). Of course, this was sort of a perverse market in which our “winners” were the things that fell the least.

By: OblivousInvestor

OblivousInvestor — Mon, 13 Apr 2009 02:35:46 +0000

Personally, my IRA is 100% in Vanguard’s 2050. But that’s only because it matches my ideal allocation precisely.

I’m a big fan of target retirement funds for most people. But you’re right. They’re not perfect.

And if you are somebody who actually a) would take the time to rebalance, and b) knows what your ideal asset allocation is…then doing it on your own makes at least as much sense.

By: the weakonomist

the weakonomist — Mon, 13 Apr 2009 02:27:18 +0000

I’m not big on letting the winners run. Once they win they are outpacing the market, this sets up the possibility of a big loss. Instead I support selling a winner to reinvest in a loser.

But you make a good point about the asset allocation in the target retirement funds. Though they are close to “set it and forget it” they aren’t perfect. If a fund isn’t in line with your investment goals then you need to send a message to the fund by pulling your money out. For now I do have holdings in a 2050 because it’s the best fund offered in my 401(k). I’m also quite young and so have no problem being heavy in equities. I like your thoughts though Nickel.