NY Times article about Target-Date Funds

[Lusitan]

True, but al_bundy is saying that the risk/return in the time period where they are shifting away from equities and into fixed income will be the time where equities' risk should be met with incredible returns.

Well, yeah ... if you think you can time the market, then the best strategy is, of course, keep everything in equities until the peak of the next bull market, then move everything to fixed income just before the bear market hits, then at the bottom of the bear move everything back into equities. Then repeat.

But for those of us who aren't confident we can time the market like that, TR funds fit the bill.

 

[summer2007]

I bought the T rowe price 2040 fund last year and I'm down like 12% now.

One of my biggest questions is how likely it is for the stock market to greatly out pace bonds and CD's in the future.

I missed out on the 90's bull market and I wonder if I will ever see another one like that in my lifetime.

In the last 10 years Vanguards S&P500 is only up by like 2-3%.....money market beat it.

So with the retirement funds being heavy on stocks in the beginning and then heavy on bonds at the end might be a horrible idea if the stock market does poorly for a long time.

Jim

 

[mathjak107]

alot of target funds invest in other mutual funds. keep in mind trading fees for these funds for their own internal trading are totally seperate expenses than just the expense ratio a fund posts. sooooo while lots of funds advertise that you dont pay any additional fees for the underlying funds the trading fees are not inclusive in that statement.... one fund family holds 19 other funds in its target series of funds. thats 19 trading fees subtracted off the bottom line and not reflected in the fund expense number.

 

[al_bundy]

I bought the T rowe price 2040 fund last year and I'm down like 12% now.

One of my biggest questions is how likely it is for the stock market to greatly out pace bonds and CD's in the future.

I missed out on the 90's bull market and I wonder if I will ever see another one like that in my lifetime.

In the last 10 years Vanguards S&P500 is only up by like 2-3%.....money market beat it.

So with the retirement funds being heavy on stocks in the beginning and then heavy on bonds at the end might be a horrible idea if the stock market does poorly for a long time.

Jim

if you look at the history of the Dow it has bull/bear cycles that average around 20 years each going back to the 1800's. before there was a Dow index the stock market still had bull/bear cycles and that is what got Charles Dow interested in it.

we are in a bear cycle that started in 2000, only 12 more years to go

 

[cute fuzzy bunny]

I bought the T rowe price 2040 fund last year and I'm down like 12% now.

One of my biggest questions is how likely it is for the stock market to greatly out pace bonds and CD's in the future.

I missed out on the 90's bull market and I wonder if I will ever see another one like that in my lifetime.

In the last 10 years Vanguards S&P500 is only up by like 2-3%.....money market beat it.

So with the retirement funds being heavy on stocks in the beginning and then heavy on bonds at the end might be a horrible idea if the stock market does poorly for a long time.

Jim

Technically the stock market only did poorly for a year and a half back around 01/02 and for a few months a couple of times since.

Its a little pessimistic to take a number from the peak period after a 6 year run-up of biblical proportions, and go from there.

Try taking the 15 year s&p 500 period and annualize it. Or take the 5 year period.

 

[summer2007]

Thanks mathjak107 al_bundy and cutefuzzybunny

I liked that bear market comment!

I have looked over long term charts of the stock market like the dow jones industrials since 1900 and it really seems that for the long run stocks are good performers. But so far I just lost money.

I was trying to figure out the best that I could what the difference would be if you just bought CD's over the last 30 years or so vs being in stocks.

And although I'm totally new at figuring this stuff out I used vanguards s&p500 fund since 1976 and the 6 month CD values from the same time.

I gave the CD's one percentage point because you can get better than the listed rate with brokered CD's and a 1 year CD usually has a higher yield.

Since 1976 I got this...

One year CD's (my estimation) 7.5% to 8.0% if you compound the interest.

S&P500 11% to 12% based on vanguards website.

Now the difference in money over 32 years would be HUGE but my big question is will the next 30 years see stocks go up like the last 30 years?

And also do you increase your lifespan by worrying less not being in stocks!!!?

Jim

 

[CitricAcid]

I think inflation on the average (not short-term like the next year or so) will be lower than the past 30 years, but you never know... the past fifteen years have had incredible growth with very low inflation, but this came after a period of 20th century highs in inflation in the U.S., which is what made CDs do so well. I think that I would put average CD rates around 5% moving forward and stock markets (with reinvested dividends) at 9%. With the lower inflation I predicted (probably irresponsibly), this leads to about the same real return. What makes you think companies (large, mid, small, international) still can't produce earnings growth?

 

[al_bundy]

one of the reasons for low inflation is that post WW2 the US was the only game in town. Europe was in ruins and nobody trusted them because Europe had a history of a continental war every 50 years or so going back to the 1600's if not longer.

Asia was in ruins. The middle east was recovering from European imperialism. Eastern Europe and Russia were communists which is more of a joke than an economic system. South America was also a joke as it was recovering from Spanish imperialism.

The US was the only country capable of providing a reserve currency, even though we have had a spotty history in the past as well. It was the lesser of all evils.

This allowed the dollar to be strong against other currencies. Now that everyone else has learned their lesson it's going to be like that dude from A Beautiful Mind said. It's better to have a smaller piece of a larger pie than a larger piece of a smaller pie.