Target funds are even worse than they appear, because they are a fund of other funds. So they are required by regulations to disclose the expenses of the target fund itself, but not the expenses of the funds that it invests into in turn. So the real expenses can be even higher.
First time poster here of limited investment experience (naturally somewhat Mustaschian, I've just been somewhat lazy about the optimal investment part). I'm just trying to flesh out my thoughts here...
So, assume:
-you have $100,000 invested in a target retirement fund with an annual fee of .17 % ($170/year).
-the target fund is composed of four funds, say at an average cost each of .10% annually each ($100 total cost/year).
-Then on $100,000 invested in the target fund, you are in reality paying $270/year in fees.
-Said in another way, you save $170/year doing it yourself (or copying their allocation).
Just considering. The $170/year you pay to have the experts manage your 100k might be worth it because 1) they keep abreast (hopefully in a correct way) of changing allocation decisions (i.e. recent increases in percentage of foreign stocks, why is that?) and 2) they rebalance automatically, saving you the effort and any fees/capital gains involved in buying/selling rebalancing. (How significant is the latter? I've never actually done this before, although I bought a mix of index funds about a year ago and have them in a taxable account).
It seems to me that up to about $100,000 invested, the $170 spent, relative to the annual costs of a person just plain being alive for a year, is a minor consideration (yeah, I know, every dollar counts, but I just like to think about other things).
If a person had $500k invested ($850 saved doing it yourself), then suddenly you aren't talking chump change anymore.
To sum up, knowing myself, up to about $100,000 , I wouldn't worry about it too much. I'm just getting to the point now where I think it might be worth it for me to take a more active role in managing my own retirement accounts.
Comments?