Why Do People BASH Target Date Funds?
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- Опубліковано 2 чер 2024
- Target date funds, also known as age based funds, lifecycle funds or dynamic-risk funds, get their name from the regular investment rebalancing that occurs as the investor gets closer and closer to retirement. Target date funds are a main staple of the retirement community with over 60 million people participating in these investment vehicles. So why is it that there are reports, articles and videos out there that suggest these are far from perfect investments? This video will discuss the key reasons.
It also discusses why many/most people should still consider age based funds despite their limitations.
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Disclaimer: this video is for educational and entertainment purposes only and is not meant to be a substitute for legal, accounting, tax, or professional advice. If you have any specific questions about any legal, accounting, tax or other professional service matter you should consult the appropriate professional services provider.
The fee portion of this video is critical - fees can eat you alive
You forgot to warn people against using target date funds outside a 401k or IRA. In a regular brokerage account there will be a lot of taxable events as they sell stocks to buy bonds as they rebalance to become more conservative.
I am against actively managed funds, target dates funds.
Put your money in a S&P 500 fund with low costs.
My 2 cents.
Exactly!!
Consider a strategy of dividing your retirement money into five years segments, investing in multiple funds that will "mature" as you go through retirement. The first fund matures as you head into retirement, the second matures five years later, the third as you hit ten years into retirement, and so on. That way, you have certainty on the first chunk of money being at a lower risk, while the remaining chunks are poised to continue growing for a while until they get closer to the maturity date. It's a similar concept to laddering CD's.
Good point
It’s a life fund ladder instead of a bond ladder😂
The problem with Target date funds, as you stated early on, is that everyone is different. SS benefits are different. Some people have a pension. Some have assets outside their retirement funds. So many things that could impact how you invest. For most people, Target date funds are far too conservative!
You can always push the target date out. I'm 7 year s retired and have an effective 70/30 split, and plan to keep it that way. However Soc Sec plus FERS provides an adequate base income, and I'm planning to live another 25 years, so there's room for a couple of crash and recovery cycles. If the Planet burns up, all our money becomes useless anyway.
I have the age based fund within my 401k allocations. But for me its a set it and forget it.
Index funds are THE way to go.
Are you going to have 100% of your investments in index funds?
They are way too conservative in their investments, especially for investors less than 50 years old.
I'm certainly not against them especially the lower cost index target date funds.
I run my own portfolio because I know what I am doing but there are so many people out there that don't have this sort of knowledge that picking a good target date fund is a very good idea.
On top of that most people really just want to get on with life and are not even vaguely interested in the "market".
There is a reason target date funds are generally the default fund in 401k's.
i’ve used the L target date funds in my Tsp for many years. way too conservative. for several years i had it split 50/50 with C (s&p 500) and L2020 and L 2025. in hindsight i should’ve been 100% in the C fund starting 30 years ago. no doubt my TSP account would be at least 200k higher than it is now.
I am retiring in 2027, my TSP is in L2040, it is at the 70/30 stock bond allocation with international exposure in line with my IPS. I plan to roll it over to the Vanguard 60/40 static allocation fund in retirement. No rebalancing, low expenses, set and forget for my IRA portion of retirement investments.
I researched the TF offered to us by Fidelity and no one outperformed in the last 5, 10 or even 20 years the S&P500, Index funds for the win.
I lost over $70k when everything started to tank. Not because I was in an exchange that went belly up. I was just stupid to hold and because that's what everyone said. I'm still responsible. It just taught me to be a better investor now that I understand more of what could go wrong. It took me over two years of being in the market, I'm really grateful I found one source to recover my money, at least $10k profits weekly. Thanks Kathleen Chandler
Wow. I'm a bit perplexed seeing her been mentioned here also Didn’t know she has been good to so many people too this is wonderful, i'm in my fifth trade with her and it has been super.
You trade with Kathleen Chandler too? Wow that woman has been a blessing to me and my family.
I just withdrew my profits a week ago, To be honest it was an amazing feeling when the profits hits my wallet I wish I could reinvest but, too much bills
I'm new at this, please how can I reach her?
Most people are retiring this year and has nothing to show for. But I assure you it’s never late to get your financial life together again.. All thanks to Kathleen Chandler for I and my family
I think the majority of people have recency bias because of 2022 and Bond performance. We can’t say in the long run having a balanced portfolio doesn’t work.
Not a gamble, but I can bet that sentiment will change after the first major extended market downturn. Investing since 1989.
I like the observation!
Always good info 😊
Thanks Jeff
Target date to me makes no sense! It’s not like all your investments are cashed in on the day you retire. Retirement like investing is an ongoing process!
Over-pay for under-performance, thats my reason.
My big issue with target date funds that we had for our 401k is that they were overly conservative, which is typically a bad thing in the accumulation phase. Specifically, they were overly invested in bonds well before the nominal retirement year; since you really can't touch the funds until retirement, there's no need to be heavily invested in bonds from the get-go.
Of course, the downside of a 100% stock index fund is something like the 2008 debacle, which resulted in a setback in my 401k for something like 8 years.
$VOO and $BND based on your individual situation (risk, age, etc) work for me
When I was working I had my 401k in a target based fund. It always underperformed the market. As soon as I turned 59 1/2 I took the money out of the 401k and put it in a self directed IRA. I'm much happier with my returns now.
For those who are anxious, feel ignorant orare paralyzed by indecision and therefore keep too much in the bank, they're a good way to enter the market.
Have you looked at the expense ratio’s on those funds? They are ridiculously high.
Some are…many are not…
@@darbyheavey406 when compared to .02 index funds?
Target date funds suck. Say, for example, you were close to retirement - your target date fund went down as much in 2022 as an S&P index fund. But the bonds are a drag on the upside. Lose/lose.
Not a fan of target date funds or managed funds. Fees will kill you overtime.
I agree about managed funds. Fees are too high. If you look at Target Date funds, though, the fees are much lower than for managed funds. They made a decadent compromise for those who don’t want to hold both bond funds and equities and balance themselves.
These funds took a real hit when interest rates went from 0% to 5%, as the stock market went down. It seems like bonds are no longer as stable as they once were, while the stock market seems to be somewhat more stable than it used to be.
Interesting point
Target date funds suck because you can't properly allocate the different asset classes across different types of retirement accounts..
Having bonds in a Roth IRA is just idiocy, I also feel like they just do to high of a percentage of bonds which just hurts it significantly.
Learn to take care of your own future. It isn't 1980 anymore, everything is at your fingertips. Educate yourself, keep an eye on the macro view. Nobody will care about your finances more than you.
Hope is not a strategy.
Jeff, for my money you can lose all the B-roll footage - it's extremely distracting and not particularly useful in helping to understand your presentation.