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Implications Of Mixing Target Date And Non-Target Date Strategies
Target date funds are designed as set-and-forget investments for those who want to have nothing to do with their investments. (I doubt many people here fall into that category.)
It's rarely pointed out (as this article does in its first paragraph), that they don't work as intended if you throw in other investments: "Investors who mix target-date funds with other long-term equity or fixed income products could be inadvertently sabotaging their investment goals....This could lead to skewed asset allocations, over-diversification and potentially poor risk-adjusted returns."
For such investors, if they don't like the glide path, they can pick another fund family or a different target date. They don't have to mix and match - that defeats the autopilot objective. For most people, target date funds are best used as all-or-nothing.
I do see a couple of reasons why one might want to invest in more than a single target date fund. One is because a person might have different objectives. The standard objective is retirement. But one might also have a 529 plan. These plans often offer target date funds (also called age-date, as in these Calif. 529 funds). Obviously two different glide paths are appropriate for college and retirement.
Another reason is to do the complete opposite of what target date funds are designed for. Deconstruct them, use their components as part of your personally managed portfolio. Though I'd be more inclined to crack open funds of funds that don't have glide paths.
For example, if you want access to Vanguard Alternative Strategies Fund (VASFX), you can get by investing in Vanguard Managed Payout Fund (VPGDX). 1/8 of that fund is VASFX. You do have to like the other funds in the package as well, and build your portfolio around them to make this work.
Reminds me of PRPFX, which few talk about these days. PRPFX is almost 30% (gold/silver).
Oh, I own it alright. But I don't talk about it here. It's currently out of favor with the herd and I've never felt obligated to defend/justify my choice of investments to others.
Re Dalio - I hear he's pretty smart. But 7.5% gold? Holy cow. I like some exposure, but don't have the stomach for the 200-proof stuff. Prefer to own it through PRPFX, PRAFX, and (probably) RPGAX - which behaves as if it has some exposure through its 10% stake in a Blackstone hedge fund,
I use a small target fund position as a control on whether I know what I am doing . If the target fund significantly outperforms (most likely in my case to happen in a down market ) I may conclude my asset allocation is not appropriate.
Comments
It's rarely pointed out (as this article does in its first paragraph), that they don't work as intended if you throw in other investments: "Investors who mix target-date funds with other long-term equity or fixed income products could be inadvertently sabotaging their investment goals....This could lead to skewed asset allocations, over-diversification and potentially poor risk-adjusted returns."
For such investors, if they don't like the glide path, they can pick another fund family or a different target date. They don't have to mix and match - that defeats the autopilot objective. For most people, target date funds are best used as all-or-nothing.
I do see a couple of reasons why one might want to invest in more than a single target date fund. One is because a person might have different objectives. The standard objective is retirement. But one might also have a 529 plan. These plans often offer target date funds (also called age-date, as in these Calif. 529 funds). Obviously two different glide paths are appropriate for college and retirement.
Another reason is to do the complete opposite of what target date funds are designed for. Deconstruct them, use their components as part of your personally managed portfolio. Though I'd be more inclined to crack open funds of funds that don't have glide paths.
For example, if you want access to Vanguard Alternative Strategies Fund (VASFX), you can get by investing in Vanguard Managed Payout Fund (VPGDX). 1/8 of that fund is VASFX. You do have to like the other funds in the package as well, and build your portfolio around them to make this work.
mutualfundobserver.com/discuss/discussion/comment/87952/#Comment_87952
Ray Dalio's All Weather Portfolio:
Equities = 30%
LT treasuries = 40%
IT Treasuries = 15%
Gold = 7.5%
Commodities = 7.5%
-Rebalanced once a year.
Reminds me of PRPFX, which few talk about these days. PRPFX is almost 30% (gold/silver).
Conversation with Forbes (regarding this portfolio):
https://youtu.be/c0ARb1N-3kM
Boglehead comments on this type of risk parity portfolio:
Re: Ray Dalio's All-Weather Portfolio
Re Dalio - I hear he's pretty smart. But 7.5% gold? Holy cow. I like some exposure, but don't have the stomach for the 200-proof stuff. Prefer to own it through PRPFX, PRAFX, and (probably) RPGAX - which behaves as if it has some exposure through its 10% stake in a Blackstone hedge fund,
Nor should you!