RL080 - Should You Use a Target Date Fund?
Today on the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson talk about Target-Date Funds. They dissect the pros and cons of investing in target-date funds, what to look out for when choosing a fund, and glide paths.
[02:40] What Are Target Date Funds?
[06:00] Characteristics of Target-Date Funds
[11:15] Industry Highs Versus Lows on Retirement Day
[17:47] Cons of Investing in Target-Date Funds
[25:00] The Home Product Bias and Sticky Assets
[28:10] Performance and Asset Allocation for Target Date Funds
[29:40] Morningstar's Target-Fund Ratings
[35:01] When and When Not to Invest in Target-Date Funds
[41:30] Target-Date Funds Glide Paths
[55:40] Advice to Potential Target-Date Funds Investors
For more links and the full show notes keep scrolling down!
Roshan Loungani can be reached at roshan.loungani@aretewealth.com or at 202-536-4468.
Erik Olson can be reached at erik.olson@aretewealth.com or 815-940-4652.
Adrian Nicholson can be reached at adrian.nicholson@aretewealth.com or at 703-915-8905.
For links to your favorite platform like Spotify, iTunes and so on go here:
Select episodes, like this one, can be found on YouTube:
Follow Us At:
https://www.retirementlifestyleshow.com https://www.retirewithroshan.com https://youtu.be/hKVzI87v0tA https://twitter.com/RoshanLoungani https://www.linkedin.com/in/roshanloungani/ https://www.facebook.com/retirewithroshan/ https://www.linkedin.com/in/financialerik/ https://www.linkedin.com/in/adrian-nicholson-74b82b13b/ #retirementlifestylepodcast #fire #podcast #FI #Retire #retirewithroshan
Full Show Notes:
What are Target Date Funds?
Target-date funds are mutual funds structured such that investors can optimize and grow assets in a specific time frame. For instance, if you plan to retire in 2030, you would pick a fund with 2030 in its name. The funds are carefully designed to addresses an investor's financial needs at some future date. So, for example, most investors use these types of funds to fund their retirement. Other people use target funds to prepare for a future expense, say, a child's college tuition.
Although target funds seem to guarantee some form of security to a person's retirement plan, most people don't care about the minor yet essential details of the funds. They just pick a fund, consistently deposit money into the fund, and forget about it until they reach retirement age. As an investor, it would be best to keep track of the fees, asset allocation, and potential risks.
Performance and Asset Allocation for Target-Date Funds
The primary thing you need to know about target-date funds is that not all funds are created equal. Different funds are tailored with unique strategies in mind, which can lead to varying desired outcomes. For example, if you look at the 5-year returns on 2025 funds, some funds had a compounding return of 10% per year. You'll also notice that others boast compounding returns of less than 4% per year. So, if you primarily look at performance, the system will automatically promote the funds with the highest equity concentration in the aftermath of a bull market. Therefore, your selection criteria should not be overly dependent on the performance question without considering the glide path philosophy and fund composition.
Target-Date Funds Glide Paths
Target-date fund providers create glide paths that gradually decrease investment risk as retirement age approaches. However, the acceptable risk is usually subjective and dependent on other factors such as age or investment goals. A great example is how most funds are heavily weighted stocks and real estate when the target date is more than a decade away. In contrast, most people in or closer to retirement prefer minimizing risks and allocate a small portion of their portfolio to stocks. Glide Paths are classified into three philosophies: To Retirement, Through Retirement, and To & Through Retirement.
All opinions expressed by podcast hosts and guests are solely their own. While based on information that they believe is reliable, neither Arete Wealth nor its affiliates warrant its completeness or accuracy, nor do their opinions reflect the opinion of Arete Wealth. This podcast is for general informational purposes only, and should not be regarded as specific advice or recommendations for any individual. Before making any decisions, consult a professional.