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re: Should I change my Roth IRA fund?
Posted on 7/18/18 at 3:33 pm to atom1505
Posted on 7/18/18 at 3:33 pm to atom1505
I’d argue that these funds are too simplistic.
Again, they’re great if you don’t want to put any effort at all but I feel like that’s a pretty lazy approach to investing considering this is your retirement money we’re talking about.
Take the tgt retirement fund 2055 for example: VFFVX
2055 is over 35 years away so why allocate 3% to an international bond fund and 7% to the total bond mkt index? Seems like a wasted opportunity for growth if you ask me.
Also, compare any vanguard tgt retirement fund’s asset allocation from 2045 to 2065.
2045, 2050, 2055, 2060 and 2065 have almost identical asset allocation!
Oh and 90% of your holdings are in TWO mutual funds. One is a broad market US equity index fund (VTSMX with +3,600 stocks) and one is a broad market international index fund (VGTSX with +6,000)!!! Whoop dee doo.
Cookie cutter.
Again, they’re great if you don’t want to put any effort at all but I feel like that’s a pretty lazy approach to investing considering this is your retirement money we’re talking about.
Take the tgt retirement fund 2055 for example: VFFVX
2055 is over 35 years away so why allocate 3% to an international bond fund and 7% to the total bond mkt index? Seems like a wasted opportunity for growth if you ask me.
Also, compare any vanguard tgt retirement fund’s asset allocation from 2045 to 2065.
2045, 2050, 2055, 2060 and 2065 have almost identical asset allocation!
Oh and 90% of your holdings are in TWO mutual funds. One is a broad market US equity index fund (VTSMX with +3,600 stocks) and one is a broad market international index fund (VGTSX with +6,000)!!! Whoop dee doo.
Cookie cutter.
1
Posted on 7/18/18 at 4:16 pm to tigerfan337
quote:
Also, compare any vanguard tgt retirement fund’s asset allocation from 2045 to 2065.
2045, 2050, 2055, 2060 and 2065 have almost identical asset allocation!
Well yea, none of those are within 25 years of retirement yet. The Vanguard target date funds keep you at around 90/10 until you're 25 years out of retirement, then the equity % starts to drop.
ETA: And to the OP, there is nothing wrong with target date funds. Just like anything, they have pros and cons. If you think you can mitigate the cons and achieve the same pros without investing in one, then absolutely do that. Investing is not a one size fits all strategy. What one person is comfortable with and works for them, isn't going to fit another person. Do what you're comfortable with, that is what is most important to making sure you stay in the market.
This post was edited on 7/18/18 at 4:26 pm
Posted on 7/18/18 at 4:26 pm to GoCrazyAuburn
Someone retiring in 2045 should not have the same asset allocation as someone retiring in 2065, that’s just asinine.
Posted on 7/18/18 at 4:32 pm to tigerfan337
quote:
Someone retiring in 2045 should not have the same asset allocation as someone retiring in 2065, that’s just asinine.
Why? Both are 25+ years away from retirement. What should the allocations of both be?
ETA: Unless you are arguing that one should start backing down their equity % earlier than 25 years out, I'm not really sure what your argument is right now.
This post was edited on 7/18/18 at 4:36 pm
Posted on 7/18/18 at 5:35 pm to atom1505
This. They aren’t for the lazy. They are for people seeking diversification based on their age. One option (if you want to be more aggressive) is to invest in these and then either buy VOO or VTI to increase your stock holdings. They are slightly conservative in some aspects (depending on who you ask), but they are damn good funds. Anyone would be fine to park all of their money there if they want.
Posted on 7/18/18 at 5:52 pm to GoCrazyAuburn
I think the fund allocation is too simplistic and it should be more sophisticated as your nest egg grows and you get closer and closer to retirement. It also assumes your risk tolerance based only on your age.
The only asset allocation Vangurd does with these tgt retirement funds is they merely adjust the % of the funds as time goes on.
Simply owning 4 funds within the tgt retirement fund:
2 equity funds
- US broad mkt index equity index fund
- Intl. broad mkt equity index fund
2 bonds funds
- US bond mkt index fund
- Intl. bond fund index fund
Is a lackadaisical way to invest for retirement in my opinion.
The only asset allocation Vangurd does with these tgt retirement funds is they merely adjust the % of the funds as time goes on.
Simply owning 4 funds within the tgt retirement fund:
2 equity funds
- US broad mkt index equity index fund
- Intl. broad mkt equity index fund
2 bonds funds
- US bond mkt index fund
- Intl. bond fund index fund
Is a lackadaisical way to invest for retirement in my opinion.
Posted on 7/18/18 at 8:04 pm to Simon Gruber
quote:
I’m not gonna dump my target fund for some penny stocks.
Didn't think you would, your post was clear on that point. But one thing that grabbed my eye was this:
quote:
I have 3 other funds in my 401k that are outperforming my target fund by a good bit.
There are many important things you left out. What are the expense ratios? What are the funds and what do they focus on? When you say "outperform" what exactly do you mean and over what time frame? Most people just think of annual return but there's also volatility to consider.
What's the chance you will need to tap that Roth next year? In five years? Ten years? Thirty years? What other assets do you have and how correlated are returns likely to be with your Roth investments?
These (and others) are all important questions to consider before anyone can offer you advice that is worth anything.
Another thing to consider is that when the stock market is booming, stock funds will outgain target funds. That's perfectly okay. When the stock market tanks (as it eventually will) the target date fund will lose less.
Posted on 7/18/18 at 8:12 pm to LSUShock
quote:
What's the most aggressive fund I can get into with ~$14k.
Bitcoin probably. Not saying that being aggressive is necessarily a good thing though.
Here's the thing - the point of diversification is not to lower risk, it's to lower the price you pay to assume risk. Sure, you can invest in a hyper-aggressive fund, but your risk can be lowered by investing in a basket of funds with uncorrelated returns and leveraging to your risk level of choice.
That's the theory at any rate, your specific implementation is dependent on your borrowing costs.
Posted on 7/18/18 at 8:27 pm to tigerfan337
I don't get all the hate. I've got a Target date fund and then a separate account with total stock, international stock, and bonds
I'm just wanting steady growth without extreme risk of losses.
Nothing wrong with the target dates in my opinion.
If the argument is that the target dates aren't 99% stocks or whatever then I get that I guess. My target is 90% stocks right now.
I'm just wanting steady growth without extreme risk of losses.
Nothing wrong with the target dates in my opinion.
If the argument is that the target dates aren't 99% stocks or whatever then I get that I guess. My target is 90% stocks right now.
Posted on 7/18/18 at 9:26 pm to HailToTheChiz
The very well known issue of target funds being too conservative is fixed by picking a retirement date that is actually 10 or 20 years later than your actual. Easy enough.
As for their expense, yes they are more expensive than their component funds. It's very easy to just make the target fund yourself if your 401k contains the individual funds.
As for their expense, yes they are more expensive than their component funds. It's very easy to just make the target fund yourself if your 401k contains the individual funds.
This post was edited on 7/18/18 at 9:30 pm
Posted on 7/18/18 at 9:33 pm to foshizzle
Curious, if you were using Vanguard indexes, what would your allocation look like?
Posted on 7/19/18 at 8:44 am to tigerfan337
quote:
I think the fund allocation is too simplistic and it should be more sophisticated as your nest egg grows and you get closer and closer to retirement. It also assumes your risk tolerance based only on your age.
The only asset allocation Vangurd does with these tgt retirement funds is they merely adjust the % of the funds as time goes on.
That's fine, but that has nothing to do with your last post on asset allocation.
They are designed to be simplistic. They are designed to be as close to a dummy proof way to invest for retirement as you can. 4 index funds in a roth portfolio is not unreasonable. Sure, you can have more, but that isn't an unreasonable amount.
quote:
Is a lackadaisical way to invest for retirement in my opinion.
That is literally the point of them. If it is too simple for you, that is fine, but acting like that is why they are bad is just silly. The point of them is to be simple. It is a set it and forget it method for people that don't want to spend the time to learn or know they will be too impulsive.
Posted on 7/19/18 at 8:48 am to Teddy Ruxpin
quote:
The very well known issue of target funds being too conservative is fixed by picking a retirement date that is actually 10 or 20 years later than your actual. Easy enough.
Yes and no. That will just have you invested at 90/10 closer to your retirement. Which, yes, is more aggressive. just pointing that out so people don't think investing in one that is 10 years past your retirement date will make you say 95/5 or something. You'll still be 90/10.
quote:
As for their expense, yes they are more expensive than their component funds. It's very easy to just make the target fund yourself if your 401k contains the individual funds.
Yep, though the expenses really aren't that different than the components. Yes, the bond funds expenses are less, but the two equity indexes I think are actually more expensive than the .15% for the target date. Morningstar has the index fund allocations. You can always just use that to adjust your allocations as you see fit going forward. You could also have a target fund in an IRA or something, and do your own thing in your 401k or vice versa. They clearly have pros and cons, but acting like they are completely worthless is silly.
This post was edited on 7/19/18 at 9:14 am
Posted on 7/19/18 at 10:49 am to GoCrazyAuburn
quote:
That's fine, but that has nothing to do with your last post on asset allocation
You asked
quote:
What should the allocations of both be?
I answered your question explaining why I don’t think the 2045 - 2065 funds should be almost identical to each other.
quote:
but acting like that is why they are bad is just silly.
Don’t put words in my mouth. I never said they were bad. Since my first post on this topic I have stated that they are too simple and a cookie cutter fund for your retirement money. Some people might be ok with that now but in hindsight I’m sure many wish they would’ve done more throughout their career to grow their nest egg.
Sure, it’s easily better than doing nothing and “they’re not going to hurt anybody” but damn what a high bar you’re setting for yourself when this is your retirement money that you’re going to have to live on.
The entire name “Taget Retirement Fund” creates a false sense of security. Basically - if you’re putting your money in there then you’re all set for retirement. Sorry but it’s not the end-all-be-all, as convenient as it may be.
I’d bet there are millions of people that have no idea what their tgt retirement fund is even invested in. I’m not even talking about the stocks in the mutual funds, I’m talking about the underlying funds in the tgt retirement fund. That, in my opinion, is a problem and is just plain lazy.
Sure they are a good way to get started and if you’re in a time crunch situation where you need to pick a fund(s) in your 401k/IRA and you don’t know jack shite about any of the funds then go with a tgt retirement fund, but after that maybe educate yourself a little more and learn what’s more appropriate for you.
You may want to be more aggressive or more conservative than what the fund indicates - they’re solely basing your risk tolerance on your age.
Or you may want to be more diverse, especially as your assets grow and you don’t want to have all of your money allocated in just 4 extremely broad funds.
Posted on 7/19/18 at 11:07 am to tigerfan337
quote:
I answered your question explaining why I don’t think the 2045 - 2065 funds should be almost identical to each other.
You've yet to answer why 2045 and 2065 shouldn't both be 90/10 right now. Unless you and I just have a completely different opinion on what asset allocation means.
quote:
Don’t put words in my mouth. I never said they were bad
My apologies, I took you calling them too simplistic and lackadaisical as being condemnations of them.
quote:
Sure, it’s easily better than doing nothing and “they’re not going to hurt anybody” but damn what a high bar you’re setting for yourself when this is your retirement money that you’re going to have to live on.
The entire name “Taget Retirement Fund” creates a false sense of security. Basically - if you’re putting your money in there then you’re all set for retirement. Sorry but it’s not the end-all-be-all, as convenient as it may be.
I’d bet there are millions of people that have no idea what their tgt retirement fund is even invested in. I’m not even talking about the stocks in the mutual funds, I’m talking about the underlying funds in the tgt retirement fund. That, in my opinion, is a problem and is just plain lazy.
For someone that doesn't think they are bad, you're doing a lot of work showing why you think they are bad. You don't like that they are invested in just four index funds. I get it. That isn't an absurd split though. I mean there is an entire investing method based around a 3 fund portfolio. Yes you can do it your own and re-allocate on your own. 90% of the population doesn't know what the hell they are doing though. These funds are designed for that exact purpose.
Look, I get you think the are too simplistic for you personally. That is fine, but your criticisms of them are criticizing what they are designed to be. If that isn't for you, great.
quote:
I’d bet there are millions of people that have no idea what their tgt retirement fund is even invested in. I’m not even talking about the stocks in the mutual funds, I’m talking about the underlying funds in the tgt retirement fund. That, in my opinion, is a problem and is just plain lazy.
So, why wouldn't a target date fund be perfect for these people? You argue that these funds are cookie cutter and simple. Don't think anyone will disagree. Yet then go on about investors being lazy and not knowing everything they are investing in. How would that change if they were having to pick the funds themselves? How are these type of funds not perfect for an investor like that?
quote:
You may want to be more aggressive or more conservative than what the fund indicates - they’re solely basing your risk tolerance on your age. Or you may want to be more diverse, especially as your assets grow and you don’t want to have all of your money allocated in just 4 extremely broad funds.
Awesome. Nobody is forcing anyone to invest in these funds.
This post was edited on 7/19/18 at 11:12 am
Posted on 7/19/18 at 11:56 am to GoCrazyAuburn
My Ernst & Young financial advisor is invested in a target fund if that means anything.
EY recommends all or nothing for target funds, mainly due to portfolio rebalancing.
EY recommends all or nothing for target funds, mainly due to portfolio rebalancing.
Posted on 7/19/18 at 12:26 pm to GoCrazyAuburn
quote:
You've yet to answer why 2045 and 2065 shouldn't both be 90/10 right now. Unless you and I just have a completely different opinion on what asset allocation means.
My fault, I should have clarified that. The 90/10 allocation is fine. It’s the fact that the holdings are almost identical to one another.
If you recall, a poster on here stated that “the tgt date funds are fine and unless you’re going to start paying attention to daily domestic and intl. market fluctuations then you’re better off keeping your money in a tgt retirement fund.” That’s simply just not true.
You do not have to become a CFA to know how aggressive/conservative and pick appropriate investments OR pick up the phone and call the company where your investments are and ask what their recommendation is based on your preferences. It just takes a little time and effort. Which isn’t asking much considering this is your retirement money. But if you don’t want to do that, then the easy way (lazy way imo) is to just stick with the tgt retirement fund.
But I think what my main problem with the tgt retirement funds is that the name is misleading. People get into these funds because they’re able to assimilate to the name “Target Retirement Fund 20XX”
They know how old they want to be when they retire and then they pick that fund, and that’s the extent of their retirement planning.
-They know nothing else about the fund.
-They don’t know what it’s invested in, they don’t even know if it’s invested in the stock market or what mutual funds are in the fund
-They don’t know if it’s as aggressive/conservative as they are
People just pick the fund because of the name and that’s it. They’re done. No more need to worry about retirement. They can now sweep it under the rug and not think about it for a long time.
The name of the funds were named what they are to get people to invest in the funds. More money in the funds = more money for the fund company.
“Target Retirement Fund 20XX ” sounds a lot more appealing to potential investors than “Basic Investing Retirement Fund 20XX” even though Basic Investing is a more appropriate name, because that’s what it is - basic (cookie cutter imo).
Posted on 7/19/18 at 12:38 pm to tigerfan337
quote:
My fault, I should have clarified that. The 90/10 allocation is fine. It’s the fact that the holdings are almost identical to one another.
Okay. What holdings should be different between them? I mean, they are identical for a reason. Why would the 2045 fund need to be in a different index fund than the 2065 one? I'm not understanding your argument here.
quote:
But I think what my main problem with the tgt retirement funds is that the name is misleading. People get into these funds because they’re able to assimilate to the name “Target Retirement Fund 20XX”
They know how old they want to be when they retire and then they pick that fund, and that’s the extent of their retirement planning.
-They know nothing else about the fund.
-They don’t know what it’s invested in, they don’t even know if it’s invested in the stock market or what mutual funds are in the fund
-They don’t know if it’s as aggressive/conservative as they are
People just pick the fund because of the name and that’s it. They’re done. No more need to worry about retirement. They can now sweep it under the rug and not think about it for a long time.
The name of the funds were named what they are to get people to invest in the funds. More money in the funds = more money for the fund company.
“Target Retirement Fund 20XX ” sounds a lot more appealing to potential investors than “Basic Investing Retirement Fund 20XX” even though Basic Investing is a more appropriate name, because that’s what it is - basic (cookie cutter imo).
I get what you're saying, but you are basically arguing that the problem you have with the funds is that they help solve a problem that they are designed to help solve.
You can't criticize a vehicle that helps the very people that you say are too lazy are don't know much about investing, because it helps make investing easier for them. Are they perfect? Absolutely not, no investment vehicle is. You're argument is basically just criticizing it because it solves a problem for people, that you say they should solve on their own.
You keep calling it lazy. That just isn't fair to people. Not everyone is passionate about investing. I don't mean this as any slight, but I would be shocked if you've ever met with anyone about managing their money. There are just people out there that don't enjoy this stuff and know they aren't good at it. Using a tool that can help mitigate their weaknesses is not lazy.
Posted on 7/19/18 at 1:15 pm to GoCrazyAuburn
quote:
Okay. What holdings should be different between them? I mean, they are identical for a reason. Why would the 2045 fund need to be in a different index fund than the 2065 one? I'm not understanding your argument here.
This is a whole other can of worms I’d rather not open, but in short - the 2045 should have more to it than just 4 funds. Could also make the argument that 2065 only needs two, but don’t want to get into all this...
quote:
you are basically arguing that the problem you have with the funds is that they help solve a problem that they are designed to help solve.
I think it’s great that it’s helping people get started but I’m arguing that the name is misleading. People need to know what they’re getting themselves into. Calling something a Target does not have the same connotation as Basic Investing or Simple Investing which is what it truly is.
The extent of what many people know about these funds ends at the name of the fund. They don’t know anything else about it and that’s a problem whether they realize it or not.
Risk comes from not knowing what you’re doing, and Warren Buffet said that.
Posted on 7/19/18 at 1:54 pm to tigerfan337
quote:
This is a whole other can of worms I’d rather not open, but in short - the 2045 should have more to it than just 4 funds. Could also make the argument that 2065 only needs two, but don’t want to get into all this...
Please elaborate.
quote:
I think it’s great that it’s helping people get started but I’m arguing that the name is misleading. People need to know what they’re getting themselves into. Calling something a Target does not have the same connotation as Basic Investing or Simple Investing which is what it truly is.
The extent of what many people know about these funds ends at the name of the fund. They don’t know anything else about it and that’s a problem whether they realize it or not.
Well, up until your last two posts, you hadn't brought up the name being your biggest issue. If that is your problem with them, then I'm just going to bow out of continuing any other discussion than my above request. What it is, is a fund that targets your ideal retirement date, and adjusts asset allocation based on that. I'm not getting into how they market the product. That has no bearing on if they are good or bad for people.
quote:
The extent of what many people know about these funds ends at the name of the fund. They don’t know anything else about it and that’s a problem whether they realize it or not.
Cool. That won't change if they are putting their money in a target date fund or picking their own index funds. Stop using that as an argument.
This post was edited on 7/19/18 at 2:00 pm
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