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Despite Risks, Retirement Savers Plow into Target Date Funds
Hi Hank. Dumb article I think. The article says there is risk in retirement date funds??? There is risk in every investment. The article suggests a better option is to pick low cost index stock and bond funds and balance according to your risk tolerance. Hello!! Your average-Joe just doesn't want to deal with that and probably wouldn't know how to assess and correlate their risk tolerance to an appropriate portfolio.
I'm a proponent of Target Date funds as an option for most investors. If people don't have an interest in investing and portfolio building, and most don't, I don't think there is a better option then these retirement options.
I understand what you're saying, and you are technically correct. But don't lose sight of the fact that you, and for that matter anyone following MFO or other financially-oriented sites, are light-years away from the "average" non-investor, who knows almost nothing about these matters.
Example: a now-retired policeman and good friend who, rolling down a hill while while grappling with a medium-bad guy, suffered a painful back-injury, Being in his 60's wasn't a beneficial factor, either. My wife and I were aware that he had been awarded an injury settlement, but as we don't discuss investment matters socially, the issue never became conversational.
Some years later, after the 2008 debacle, my friend mentioned that he had "lost everything", as he had "invested in" a variable annuity, which was now "worthless". I know that he is very reticent about discussing financial issues, so I didn't feel comfortable asking any detailed questions, but I think that all of us could agree that a variable annuity was most likely not the best possible choice.
This example is also consistent with the observations of Catch, regarding his long experience with friends, relations, and co-workers. My point, in agreement with Mike and fundalarm, is simply that on the scale of financial choices, Target-date funds are really not such a bad deal, compared to some of the alternatives.
Reply to @hank: We'll have to agree to disagree. To me, moving towards fixed income as you get closer to retirement is certainly a 'sound' principle. But I guess my first point was 1) these funds are no more risky than a self guided portfolio of the same equity/FI distribution, and 2) they are perfect for the 'financially challenged', which the general population is (maybe not our MFO crowd as Joe pointed out). The caveat for these funds is that they probably should be chosen by there % equity distribution, not necessarily by their retirement date. If you are retiring in 2020 and are not comfortable holding 70% equities as the TRP 2020 fund does, pick something closer to your risk tolerance, say 2010 at a 60/40 mix. But then again, that would take some financial knowledge that most don't have.
Comments
I'm a proponent of Target Date funds as an option for most investors. If people don't have an interest in investing and portfolio building, and most don't, I don't think there is a better option then these retirement options.
I understand what you're saying, and you are technically correct. But don't lose sight of the fact that you, and for that matter anyone following MFO or other financially-oriented sites, are light-years away from the "average" non-investor, who knows almost nothing about these matters.
Example: a now-retired policeman and good friend who, rolling down a hill while while grappling with a medium-bad guy, suffered a painful back-injury, Being in his 60's wasn't a beneficial factor, either. My wife and I were aware that he had been awarded an injury settlement, but as we don't discuss investment matters socially, the issue never became conversational.
Some years later, after the 2008 debacle, my friend mentioned that he had "lost everything", as he had "invested in" a variable annuity, which was now "worthless". I know that he is very reticent about discussing financial issues, so I didn't feel comfortable asking any detailed questions, but I think that all of us could agree that a variable annuity was most likely not the best possible choice.
This example is also consistent with the observations of Catch, regarding his long experience with friends, relations, and co-workers. My point, in agreement with Mike and fundalarm, is simply that on the scale of financial choices, Target-date funds are really not such a bad deal, compared to some of the alternatives.
Take care- OJ
By the way, I also hold TRRIX. Take care.