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I'm under-impressed. If the buyers of these funds don't understand the risks based on a detailed "glide path" showing how the allocation changes over the life span, it's unlikely additional explanation of the perceived risk levels will help. Consider that we're looking at changes which occur slowly over a 15, 20 or 25 year horizon. (Under all but the rarest of circumstances, the glide path is one of decreasing, rather than increasing, risk.) T Rowe already provides allocation glide paths for their target date funds which seem not only adequate, quite helpful and illuminating as well. Regards
Ted, have you been drinking this morning? I never heard of a "Target-Data" fund - which is why I clicked on this link in first place.
Reply to @Charles: Good point. These animals vary greatly, as you know, in their approach. Umm ... my earlier comment perhaps overlooks the "mandated" aspect - which may argue for over-kill on the "disclosure" side. Still, I wonder whether somebody who's invested in one of these only because they were legally "defaulted" into it is going to have the inclination or aptitude to decipher all the fine print.
Next SEC PROPOSAL: Require that all fund prospectuses be written in plain English at no higher than a 5th grade reading level.
Not much attention is paid to properly managing a portfolio after retirement which, for some retirees, can be 30 years or more.
"Gliding " into retirement might be helpful to lower risk early on in a retirees distribution phase, but a bigger concern, after this glide path is achieved, is the longer term consequences of an overly conservation retirement portfolio such as out living your assets. The concept of slowly increasing a retiree's portfolio to the appropriate amount of risk over the "last" phase of life is hardly ever discussed by retirement planners. In a sense, part of the portfolio needs to return to "flight" and be exposed to risk so it can continue to grow so it's available when a retiree reaches their 80's and 90's.
Here's a thought...instead of being used as retirement dated funds these dated funds now represent the portion of a portfolio that a retiree will use for income as they glide into that date. In a sense, one would hold a portion of your portfolio earmarked for 5 year increments that stretch out over the 30 - 40 years of retirement.
A 65 year old retiring today would divided their portfolio into 6-8 target dates out into the future... 2015 fund (use for current distribution over the next 5 years), 2020 fund (glide into 70), 2025 fund (glide into 75), 2030 fund (glide into 80), 2035 fund ( glide into 85), 2040 fund (glide into 90) and 2045 fund (Slide into 95...home)
How much to allocate is another important consideration, but time would allow the longer dated funds time to grow and therefore requiring less funding than shorter dated funds which would be needed for income.
Just some thoughts on an alternative use for these target dated funds.
Comments
Ted, have you been drinking this morning? I never heard of a "Target-Data" fund - which is why I clicked on this link in first place.
Regards,
Ted
Most target date funds under-perform versus a simple balanced fund, like VBINX.
Yet, folks are being mandated to use them in their 401Ks by default.
Next SEC PROPOSAL: Require that all fund prospectuses be written in plain English at no higher than a 5th grade reading level.
"Gliding " into retirement might be helpful to lower risk early on in a retirees distribution phase, but a bigger concern, after this glide path is achieved, is the longer term consequences of an overly conservation retirement portfolio such as out living your assets. The concept of slowly increasing a retiree's portfolio to the appropriate amount of risk over the "last" phase of life is hardly ever discussed by retirement planners. In a sense, part of the portfolio needs to return to "flight" and be exposed to risk so it can continue to grow so it's available when a retiree reaches their 80's and 90's.
Here's a thought...instead of being used as retirement dated funds these dated funds now represent the portion of a portfolio that a retiree will use for income as they glide into that date. In a sense, one would hold a portion of your portfolio earmarked for 5 year increments that stretch out over the 30 - 40 years of retirement.
A 65 year old retiring today would divided their portfolio into 6-8 target dates out into the future...
2015 fund (use for current distribution over the next 5 years),
2020 fund (glide into 70),
2025 fund (glide into 75),
2030 fund (glide into 80),
2035 fund ( glide into 85),
2040 fund (glide into 90) and
2045 fund (Slide into 95...home)
How much to allocate is another important consideration, but time would allow the longer dated funds time to grow and therefore requiring less funding than shorter dated funds which would be needed for income.
Just some thoughts on an alternative use for these target dated funds.