Comments on: The Trouble With Target Date Funds http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/ A premier personal finance blog, established 2003. Within, Flexo discusses his own experiences with money, and he and other authors comment on a wide range of personal finance topics. Mon, 13 Feb 2012 01:22:47 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: J.J. http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-200013 J.J. Fri, 13 Nov 2009 16:04:14 +0000 http://www.consumerismcommentary.com/?p=7540#comment-200013 Thanks VCMcGuire. As you mentioned these funds can be handy for limiting the amount of time you spend on investing. If you pay a little attention and tweak your investment mix the way you want it, you can let target date funds do most of the hard work and still have a decent portfolio. FYI I enjoyed your article on lifestyle creep. Thanks VCMcGuire. As you mentioned these funds can be handy for limiting the amount of time you spend on investing. If you pay a little attention and tweak your investment mix the way you want it, you can let target date funds do most of the hard work and still have a decent portfolio.

FYI I enjoyed your article on lifestyle creep.

]]> By: Anonymous http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-199966 Anonymous Thu, 12 Nov 2009 03:02:56 +0000 http://www.consumerismcommentary.com/?p=7540#comment-199966 Another thing to watch out for is "overdiversification" which actually results in under-diversification. Meaning, many people will choose a target date fund as just one of the many funds they invest in, not realizing that many of the fund's holdings overlap with their other funds. This can result in actually being concentrated in a few popular stocks or bond asset classes. Using a tool like Morningstar or working with a financial advisor, you can have them run a review of your holdings to check the actual diversification of your holdings. Another thing to watch out for is “overdiversification” which actually results in under-diversification. Meaning, many people will choose a target date fund as just one of the many funds they invest in, not realizing that many of the fund’s holdings overlap with their other funds. This can result in actually being concentrated in a few popular stocks or bond asset classes. Using a tool like Morningstar or working with a financial advisor, you can have them run a review of your holdings to check the actual diversification of your holdings.

]]> By: VCMcGuire http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-199953 VCMcGuire Wed, 11 Nov 2009 20:55:30 +0000 http://www.consumerismcommentary.com/?p=7540#comment-199953 This is a great overview. I use target date funds in a couple of places--a 529 college savings account, and my workplace retirement plan. This is pure laziness on my part. It means I have to manage investments in fewer accounts. I have access to a wider variety of funds in my ROTH IRA, so I use the ROTH investments to spice up my overall investment mix. Every six months I use Morningstar's X-ray tool to analyze all my investments at once. I notice the target date funds are a little bit too weighted toward domestic stocks and large caps, so I tend to buy foreign stocks and small caps with the money in my ROTH in order to get the balance I want. Eventually I'd like to get rid of the target date funds so I'll have a little more control, but right now it's working for me because it makes it easier to manage multiple accounts. This is a great overview. I use target date funds in a couple of places–a 529 college savings account, and my workplace retirement plan. This is pure laziness on my part. It means I have to manage investments in fewer accounts. I have access to a wider variety of funds in my ROTH IRA, so I use the ROTH investments to spice up my overall investment mix. Every six months I use Morningstar’s X-ray tool to analyze all my investments at once. I notice the target date funds are a little bit too weighted toward domestic stocks and large caps, so I tend to buy foreign stocks and small caps with the money in my ROTH in order to get the balance I want.

Eventually I’d like to get rid of the target date funds so I’ll have a little more control, but right now it’s working for me because it makes it easier to manage multiple accounts.

]]> By: J.J. http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-199927 J.J. Wed, 11 Nov 2009 01:20:52 +0000 http://www.consumerismcommentary.com/?p=7540#comment-199927 Good point Steve. The higher numbers just mean you’ll wait longer to begin the glide path.<br><br>If you can’t get what you want by changing years, another option is to add different funds to your portfolio. <br><br>For some investors the 2050 fund isn’t risky enough (too much in fixed-income let’s say), but they like the idea of using a target date fund for diversification. They might keep 70% in the target date fund and put the other 30% into riskier options like stock funds. This adds a little spice to the overall mix.<br><br>On the other hand, a conservative investor might not be comfortable with a high level of stocks in the 2010 fund. That person can leave some in the target date fund (again, assuming the fund is worth it for diversification and ease-of-use), and put the rest in safer investments like fixed-income or money markets. Good point Steve. The higher numbers just mean you’ll wait longer to begin the glide path.

If you can’t get what you want by changing years, another option is to add different funds to your portfolio.

For some investors the 2050 fund isn’t risky enough (too much in fixed-income let’s say), but they like the idea of using a target date fund for diversification. They might keep 70% in the target date fund and put the other 30% into riskier options like stock funds. This adds a little spice to the overall mix.

On the other hand, a conservative investor might not be comfortable with a high level of stocks in the 2010 fund. That person can leave some in the target date fund (again, assuming the fund is worth it for diversification and ease-of-use), and put the rest in safer investments like fixed-income or money markets.

]]> By: J.J. http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-208762 J.J. Wed, 11 Nov 2009 01:20:00 +0000 http://www.consumerismcommentary.com/?p=7540#comment-208762 Good point Steve. The higher numbers just mean you’ll wait longer to begin the glide path. If you can’t get what you want by changing years, another option is to add different funds to your portfolio. For some investors the 2050 fund isn’t risky enough (too much in fixed-income let’s say), but they like the idea of using a target date fund for diversification. They might keep 70% in the target date fund and put the other 30% into riskier options like stock funds. This adds a little spice to the overall mix. On the other hand, a conservative investor might not be comfortable with a high level of stocks in the 2010 fund. That person can leave some in the target date fund (again, assuming the fund is worth it for diversification and ease-of-use), and put the rest in safer investments like fixed-income or money markets. Good point Steve. The higher numbers just mean you’ll wait longer to begin the glide path.

If you can’t get what you want by changing years, another option is to add different funds to your portfolio.

For some investors the 2050 fund isn’t risky enough (too much in fixed-income let’s say), but they like the idea of using a target date fund for diversification. They might keep 70% in the target date fund and put the other 30% into riskier options like stock funds. This adds a little spice to the overall mix.

On the other hand, a conservative investor might not be comfortable with a high level of stocks in the 2010 fund. That person can leave some in the target date fund (again, assuming the fund is worth it for diversification and ease-of-use), and put the rest in safer investments like fixed-income or money markets.

]]> By: J.J. http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-208763 J.J. Wed, 11 Nov 2009 01:20:00 +0000 http://www.consumerismcommentary.com/?p=7540#comment-208763 Good point Steve. The higher numbers just mean you’ll wait longer to begin the glide path. If you can’t get what you want by changing years, another option is to add different funds to your portfolio. For some investors the 2050 fund isn’t risky enough (too much in fixed-income let’s say), but they like the idea of using a target date fund for diversification. They might keep 70% in the target date fund and put the other 30% into riskier options like stock funds. This adds a little spice to the overall mix. On the other hand, a conservative investor might not be comfortable with a high level of stocks in the 2010 fund. That person can leave some in the target date fund (again, assuming the fund is worth it for diversification and ease-of-use), and put the rest in safer investments like fixed-income or money markets. Good point Steve. The higher numbers just mean you’ll wait longer to begin the glide path.

If you can’t get what you want by changing years, another option is to add different funds to your portfolio.

For some investors the 2050 fund isn’t risky enough (too much in fixed-income let’s say), but they like the idea of using a target date fund for diversification. They might keep 70% in the target date fund and put the other 30% into riskier options like stock funds. This adds a little spice to the overall mix.

On the other hand, a conservative investor might not be comfortable with a high level of stocks in the 2010 fund. That person can leave some in the target date fund (again, assuming the fund is worth it for diversification and ease-of-use), and put the rest in safer investments like fixed-income or money markets.

]]> By: Steve http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-199912 Steve Tue, 10 Nov 2009 22:05:49 +0000 http://www.consumerismcommentary.com/?p=7540#comment-199912 Changing the year usually only helps if you're changing to or from a fund with a target in the next, say, 10 years. For instance a 2045 fund and a 2050 fund are identically invested this year. It's only once the closer targeted fund enters its "glide path" that there is any difference. Changing the year usually only helps if you're changing to or from a fund with a target in the next, say, 10 years. For instance a 2045 fund and a 2050 fund are identically invested this year. It's only once the closer targeted fund enters its “glide path” that there is any difference.

]]> By: Steve http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-208764 Steve Tue, 10 Nov 2009 22:05:00 +0000 http://www.consumerismcommentary.com/?p=7540#comment-208764 Changing the year usually only helps if you're changing to or from a fund with a target in the next, say, 10 years. For instance a 2045 fund and a 2050 fund are identically invested this year. It's only once the closer targeted fund enters its "glide path" that there is any difference. Changing the year usually only helps if you’re changing to or from a fund with a target in the next, say, 10 years. For instance a 2045 fund and a 2050 fund are identically invested this year. It’s only once the closer targeted fund enters its “glide path” that there is any difference.

]]> By: Steve http://www.consumerismcommentary.com/the-trouble-with-target-date-funds/comment-page-1/#comment-208765 Steve Tue, 10 Nov 2009 22:05:00 +0000 http://www.consumerismcommentary.com/?p=7540#comment-208765 Changing the year usually only helps if you're changing to or from a fund with a target in the next, say, 10 years. For instance a 2045 fund and a 2050 fund are identically invested this year. It's only once the closer targeted fund enters its "glide path" that there is any difference. Changing the year usually only helps if you’re changing to or from a fund with a target in the next, say, 10 years. For instance a 2045 fund and a 2050 fund are identically invested this year. It’s only once the closer targeted fund enters its “glide path” that there is any difference.

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