Okay, I keep hearing about these things and reading about them and I just don't like them.
They sound so diversified and aggressive 90& stocks 10% bonds but what stocks are we talking about? If it is mostly safe, big US company stocks then are you really being aggressive? What if I said I had a portfolio of 70% large cap and 20% mid cap and 10% bonds would you even begin to think I was being an aggressive investor?
I think they give the people who buy them a false sense of security. I actually think alot of people, probably not on this board, think that if they invest in these funds they will have enough to retire on in 2040 or whenever. Put the money in and kaching without any other effort on your part you will have what you need.
I realize that I am still relatively new to handling my retirement investments and I even had a financial planner say I was too aggressive with too much in international funds (20%) I have a high risk tolerance because I have a fallback provision, a pension that pays 70% of my ending salary, so anything I make will be additional to that.
It bothers me though the way these 'lifecycle funds' are marketed. My personal experience is that if you let someone else manage it and don't get educated you lose.
END OF RANT
Target Retirement Funds
January 7th, 2007 at 02:56 pm
January 7th, 2007 at 03:29 pm 1168183798
January 7th, 2007 at 05:17 pm 1168190250
January 7th, 2007 at 07:14 pm 1168197248
I'm not quite sure what your objection to these funds is. For someone who doesn't have the knowledge, time or inclination to research and manage all their own investments, I don't see anything wrong with these types of funds. They give instant diversification and automatically rebalance and become gradually more conservative as you get older. Whether or not you would have enough to retire obviously depends on how the funds perform and how much you invest.
I'm also curious why your financial planner thought 20% in foreign funds was too high. That's a pretty common recommended allocation for a young investor. Though I don't know how old you are. Also, keep in mind how many pension funds have gotten frozen or been completely eliminated in recent years. You are smart to be investing on your own and not being totally dependent on that pension. You can't be sure that you will actually get what is promised (unless it is a government pension - I think those are safe).
January 8th, 2007 at 03:59 pm 1168271942
Looking at your example, It is not as bad as some I have seen but why would anyone planning to retire in 28 years want 10% in bonds? 70% in US equities is okay if there is a mix of small, mid and large cap stocks but when I look into the specific stocks that is not usually what I find.
It isn't that they are bad investments, necessarily, but that they are marketed as a 'set it and forget it' I actually had someone say they were putting x amt in and then would have enough to retire on. That's how some people see these funds, like my pension with guaranteed benefits, not an investment with unpredictable results.
January 16th, 2007 at 02:14 am 1168913679
Personally I will be invested mostly in stocks even after retirement, but then again I hope to retire early 55. I don't bother worrying about my retirement accounts because they are for retirement.
Target retirement funds are superb for the average investor. Most people have no idea what a MF is, how to invest properly, they are better off in something that is low cost and directed like the Vanguard target funds. People love to chase returns which is the worse way to invest. This offers them a low cost, no emotion investing strategy. I think if you don't know what you are doing, and have no inclination they are great. If you do, then you could tailor your funds, otherwise, they are good.
I personally manage my mom's 401k and she's retiring this year, but not drawing on her money. Thus she's invested 75% stocks and 25% bonds. We'll probably move her to 70/30 soon enough, but she's only 55. She can't draw until 59.5 unless she takes equitable distributions which she isn't going to. Soo...it's fine. And she doesn't need the money she gets a 70% pension. That's another reason to invest more aggressively if you know you'll get a defined benefit for the rest of your life.
February 2nd, 2007 at 11:22 pm 1170458546
I agree, they aren't "the best" investments around. I personally choose my own asset allocations and investments but then I know a little bit about investing. For others who don't and don't want to pay a financial advisor, they can do quite well investing in them. And to reiterate what Steve said, why does your financial advisor think you're "too aggressive" with 20% int'l funds? If anything, that's normal and actually kind of low for an "aggressive" investor. That is as long as it's not in an emerging markets fund.