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Fidelity Target Date Funds Draw Fire From Consulting Firm
It seems as if no one is ever pleased with target date funds. Either they're "too risky" in their portfolio allocation (i.e. T Rowe Price) or too conservative and don't perform as well as the others (i.e. Fidelity as is mentioned in the article).
I also find it amusing when the pundits tout that a certain target date fund hasn't "even beaten the S&P" for a given time. That's like comparing apples to oranges. Of course they might not have since the funds hold much more (bonds, int'l, EM's, etc...) than just one index. It's called diversification. It's like saying "why don't you just invest in the Russell 2000 since it generally does better than the S&P"?
As with any investment, you have to "look under the hood" and see what a fund is really doing and holding. And I understand the concern with people just picking a date they think they're going to retire and investing in that without any other thought about it, but to constantly bash (not that the article really did) these investment products to me is foolish.
Could you make a better portfolio than what these funds hold if you knew what you were doing and had the inclination and time to do so ? Possibly. However having helped many a people re-allocate their 401k's and IRA's and seeing what they were originallyholding, these type of products are a blessing.
Reply to @kv968: You're exactly right re the comparison to a non-valid yardstick. I also track the S&P as a general-use yardstick with my stuff, but I understand that my aggregate number will never perform as well as the S&P, nor, hopefully, will it perform as badly when the market is in one of it's down moods.
A target-date fund is essentially a modified "balanced fund", and performance should be measured against that sort of thing. This sort of nonsense is exactly why I spend my "knowledge time" here at MFO, and not listening to commercial punditry.
Comments
I also find it amusing when the pundits tout that a certain target date fund hasn't "even beaten the S&P" for a given time. That's like comparing apples to oranges. Of course they might not have since the funds hold much more (bonds, int'l, EM's, etc...) than just one index. It's called diversification. It's like saying "why don't you just invest in the Russell 2000 since it generally does better than the S&P"?
As with any investment, you have to "look under the hood" and see what a fund is really doing and holding. And I understand the concern with people just picking a date they think they're going to retire and investing in that without any other thought about it, but to constantly bash (not that the article really did) these investment products to me is foolish.
Could you make a better portfolio than what these funds hold if you knew what you were doing and had the inclination and time to do so ? Possibly. However having helped many a people re-allocate their 401k's and IRA's and seeing what they were originallyholding, these type of products are a blessing.
A target-date fund is essentially a modified "balanced fund", and performance should be measured against that sort of thing. This sort of nonsense is exactly why I spend my "knowledge time" here at MFO, and not listening to commercial punditry.