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Target Funds....are they a good idea?
Old 05-09-2011, 08:04 PM   #1
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Target Funds....are they a good idea?

My future SIL asked my opinion on target funds. He just got a job and has to pick his investments for his 401k. On the surface, they seem like a good idea. Especially if the rebalancing is done automatically as you get older, which many don't get around to doing as often as they should.

What do you guys think of these funds?
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Old 05-09-2011, 08:32 PM   #2
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When in doubt...they are a good selection. When he feels more comfortable and knowledgeable he can always select individual funds. And if he never feels comfortable, he'll end up having picked a reasonable (wise?) choice.
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Old 05-09-2011, 09:53 PM   #3
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Yes.

VG Target Retirement 2015 - pssst I lied about my age.

1966-2006. After forty years of incredibly brilliant study/investing - not, I fessed up and admitted the indexers were right.

heh heh heh - now I still have a few good stocks -cause I'm male and hormones is hormones. In my case resistance is futile,. BUT real money is indexed in Target Retirement and play money is well for medicinal purposes to keep the 'animal spirits' happy to paraphrase Mr Bogle.
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Old 05-09-2011, 09:56 PM   #4
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Yes.

VG Target Retirement 2015 - pssst I lied about my age.

1966-2006. After forty years of incredibly brilliant study/investing - not, I fessed up and admitted the indexers were right.

heh heh heh - now I still have a few good stocks -cause I'm male and hormones is hormones. In my case resistance is futile,. BUT real money is indexed in Target Retirement and play money is well for medicinal purposes to keep the 'animal spirits' happy to paraphrase Mr Bogle.

Uncle Mick,

I'm curious. Apart from your 'stock money", is everything else invested in Target Retirement 2015 or ?

omni
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Old 05-09-2011, 09:59 PM   #5
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It's the easiest choice for people who don't want to learn about investing. DS just stated working last year. He didn't want to spend time (with me) looking at his 401k fund options. So I told him to pick the highest date target retirement fund and put all his contributions in it. It can be a little expensive, but it's better than doing nothing.
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Old 05-09-2011, 10:08 PM   #6
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Uncle Mick,

I'm curious. Apart from your 'stock money", is everything else invested in Target Retirement 2015 or ?

omni
No. I inherited some VG Lifestrategy conservative(sort of an indexyish pssst Wellesley) about 13% of total portfolio. A non relative inheritance I am receiving mandatory RMD payouts since 2005.

heh heh heh - I haven't gotten around to investigating whether to change or even if I can.
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Old 05-09-2011, 10:10 PM   #7
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Some folks like them and some don't. One of the things about TR funds is that a 2020 fund from Fido can have a very different allocation than say Vanguard. So you need to look at the equity/fixed income allocation to see if you like it, just cuz one family has a 50/50 for a 2020 fund another may be 65/35. Also they may not shift to fixed income fast enough for you or too fast as the fund ages, maybe you'd want 30/70 not 40/60 at say age 65 or vise versa. Also I'd look at the funds they hold, they may or may not have TIPS, REITS, SC etc. Typically there would be a total domestic stock market and foreign index and a bond fund. Some don't like MBS bonds in their fixed income, some do. Also be aware that Vanguard has TR funds and Life Strategy funds. While they may look the same the LS funds use a set allocation and it does not change with time.

TR funds are not perfect but for many people that lack the time or knowledge to pick their own funds, which I think is pretty easy to do, they could be OK. The BH folks generally don't care for TR funds.
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Old 05-09-2011, 10:21 PM   #8
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My 2 cents... Even though I don't have any experience with them, I think they could be just fine. Be sure to check the expense ratio and performance history on the funds.
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Old 05-09-2011, 10:49 PM   #9
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I am curious if the expense ratio listed on the target fund includes the expense ratios of the various funds inside that may constitute the fund? My 401K has Blackrock 2020, 2030, 2040 funds with 0.18% expense ratios but I see inside the fund it holds other index funds as assets.
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Old 05-09-2011, 10:59 PM   #10
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Originally Posted by LightningDawg View Post
My future SIL asked my opinion on target funds. He just got a job and has to pick his investments for his 401k. On the surface, they seem like a good idea. Especially if the rebalancing is done automatically as you get older, which many don't get around to doing as often as they should.
What do you guys think of these funds?
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My 2 cents... Even though I don't have any experience with them, I think they could be just fine. Be sure to check the expense ratio and performance history on the funds.
Like Bbbami says, check to see that the target fund isn't just four other funds glued together with an additional expense ratio. This is one situation where he could calculate how much he's paying the fund manager to rebalance and then decide whether it's worth the expense.
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Old 05-09-2011, 11:05 PM   #11
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Be sure to check the expense ratio and performance history on the funds.
Now how many times have you seen "past performance is not ....." rounded off to the nearest thousand?
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Old 05-09-2011, 11:08 PM   #12
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LightningDawg, your future SIL might not have a ton of choices within his 401k so the target funds might offer the best mix. Do you know what else he has available to him?
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Old 05-09-2011, 11:58 PM   #13
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Now how many times have you seen "past performance is not ....." rounded off to the nearest thousand?
Many, many times...

I suppose I like to know as much about a fund as I can before I invest in it. I draw the line when my eyes start to bleed....
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Old 05-10-2011, 12:45 AM   #14
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I've got a Roth IRA and a Roll-over IRA in T. Rowe-Price's Target 2020 and 2030. At this time of the night morning I don't remember which IRA is in which Target. I've been content with them. They may not be the greatest, but they've done respectfully well....IMHO.
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Old 05-10-2011, 07:47 AM   #15
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Your question was about investments in a 401(k), and a Target Fund can be much better than a random assortment of funds that did well last quarter other choices, but watch the expense ratio. Also if SIL starts to invest in a taxable account, realize that the bond portion of a Target Fund would better kept in a tax deferred account.
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Old 05-10-2011, 09:00 AM   #16
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LightningDawg, your future SIL might not have a ton of choices within his 401k so the target funds might offer the best mix. Do you know what else he has available to him?

His 401k deals only with Vanguard funds, so the target fund in question has an incredibly low expense ratio of 0.19%. The other option was to pick individual Vanguard funds and create your own asset allocation plan. He has zero experience in investing and I just didn't see a way for him to pick one fund over another fund intelligently. I'm not sure I could have done so confidently.
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Old 05-10-2011, 09:21 AM   #17
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When in doubt...they are a good selection. When he feels more comfortable and knowledgeable he can always select individual funds. And if he never feels comfortable, he'll end up having picked a reasonable (wise?) choice.
+1

FWIW, it would have been easier in my early investment years to have such a product. At least I would have had a "default" to invest in (while I learned more) rather than make total investment decisions from the get-go.
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Old 05-10-2011, 09:38 AM   #18
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The VG target fund 2045 (e.g.) holds 63% total stock market, 27% total world stock, and 10% total bond market, with an ER of 0.19%.

Set, forget, and go have a life...
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Old 05-10-2011, 10:28 AM   #19
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My TSP (401k) is all in the L-2040 fund, which is a target type fund for federal employees. My wife's 401k is in something similar, but the name escapes me at the moment. Our Roth IRA's are in Vanguard's Target Retirement 2015, same as unclemick. However, I'm thinking I need to bump that (IRA's) out a little, maybe to the 2020 or so.
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Old 05-10-2011, 12:35 PM   #20
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I like target funds as I never had much time/interest to figure out where to park the $$ for a very long time. Over the last few years, I've added tilts to small caps and REITs with new money (bonus $$ and part time consulting $$, my version of mad money).

I use Vanguard and Fidelity from current/previous employers. Just watch fees and asset allocation (they can be very different between companies even tho with the same target year).
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