Author Topic: What do you think about target date funds?  (Read 2874 times)

ACyclist

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What do you think about target date funds?
« on: October 31, 2017, 07:14:23 AM »
My 403b is putting money in target date funds.  It's a fidelity account.  I changed the contributions to a target date that is 5 years prior to needing it, because I figured a more conservative date is a little bit safer. 

We hope to have the money available by 59.  I am currently 49, and my husband is 47. FSNQX is the one we are using.  We also have roth accounts with several index funds. 

Investing is concerning as I see the markets at all time highs.  We are saving about 50% of our income, with eyes on the prize of an early retirement.

alexpkeaton

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Re: What do you think about target date funds?
« Reply #1 on: October 31, 2017, 07:20:46 AM »
I don't love them, but they're useful if you want to be hands-off. Since they're funds of funds, there's an extra layer of expenses, though it's fairly small so the added convenience can be worth it. I actually get joy out of managing my investments, so I prefer to do it myself.

merlin7676

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Re: What do you think about target date funds?
« Reply #2 on: October 31, 2017, 08:09:46 AM »
I like them and use 2 different target dates for part of my 401K. But they generally are higher cost/fee.

Radagast

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Re: What do you think about target date funds?
« Reply #3 on: October 31, 2017, 08:30:46 AM »
FSNQX has an 0.61% expense ratio which seems too high to me, but is ok if all the other options are 0.50% anyhow.

In general target date funds seem to become too conservative, which actually increases your odds of running out of money. Usually you want to choose a fund with a date around the time you turn 70 or say 25 years or less before you may die, erring on the high side.

Car Jack

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Re: What do you think about target date funds?
« Reply #4 on: October 31, 2017, 08:52:17 AM »
It depends what other investments you have and also what alternatives to the target date fund are available.

One of those few things I agree with Ric Edelman on is the misuse of target date funds.  An example is that in a 401k, one spouse uses just a target date fund.  In other accounts, various equity, bond, international funds are used.  No AA is chosen and no AA is kept track of with respect to the target date.  So overall, you're flying blind.  Don't do that.  Ric's solution is that if you're going to use a 2030 target date, ONLY use a 2030 target date everywhere.  That's hard to do sometimes.  A more difficult way is to use the 2030 target date in one account but account for the assets it holds every year and balance with your other funds.  But that's defeating the purpose of the target date, which makes things easy with changing AAs and auto rebalanceing.  If you're doing that, then just pick single funds.

The other reason to choose a target date is if the other choices are horrible.  This 0.61 ER is pretty bad.  Fidelity has target date INDEX funds that are cheaper but might not be in your plan.

I don't use target date funds because maintaining an AA is so easy that I can't be bothered.  I find it more difficult to tie my shoes than to rebalance my entire portfolio once a year.

simonsez

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Re: What do you think about target date funds?
« Reply #5 on: October 31, 2017, 09:27:44 AM »
My 403b is putting money in target date funds.  It's a fidelity account.  I changed the contributions to a target date that is 5 years prior to needing it, because I figured a more conservative date is a little bit safer. 

We hope to have the money available by 59.  I am currently 49, and my husband is 47. FSNQX is the one we are using. 
Whatever works with your AA while minimizing the fees.  I think target funds are a good idea in theory but I can't stomach choosing them if they are more expensive than selecting multiple components directly and rebalancing every so often.  I believe they often tend to be conservative with their allocation, at least compared to my AA and a traditional retirement date.  YMMV.

Investing is concerning as I see the markets at all time highs.
We all better hope not! :-)  I imagine it will be several times higher in 2040 than the current levels.  How concerned were you during the 2007 all time highs?  If you stayed the course from 2007 to now, you've likely more than doubled even with 2008/2009 in there.

We are saving about 50% of our income, with eyes on the prize of an early retirement.
Bully! Keep up the great work!

CanuckExpat

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Re: What do you think about target date funds?
« Reply #6 on: November 03, 2017, 09:29:06 PM »
Peek inside the Target Date fund to see what it holds.

I have a 401k from a previous employer and the Target Date funds they offer hold a component inside a mysterious hedge fund. It could be good or bad (I have no other way to access a hedge fund), but I was surprised to see it there.

moof

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Re: What do you think about target date funds?
« Reply #7 on: November 03, 2017, 10:05:13 PM »
If you look up FSNQXs performance on Morningstar it dipped the same amount as the S&P500 back in 2008, and has a net 10 year growth that is half as much.  Same risk, half the growth.  Looks like shyte.  Run.