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Our Rich Journey – Target Date Funds | Are They Good Investments?: Did you know that the majority of US companies automatically enroll their employees in target date funds in their 401(k)-type plans? If you’ve been interested in target date funds, if you’re enrolled in a target date fund, or if you want to know our thoughts on whether a target date fund is good for those pursuing financial independence and retiring early – this video is for you (HINT: We never invested in target date funds!)! In this video – we discuss the pros and cons of target date funds and we detail our reasoning as to why we never invested in target date funds on our road to financial independence and retiring early. Thanks for watching!
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How We Became Millionaires with Index Funds | Vanguard, Schwab, & Fidelity:
OUR STOCK PORTFOLIO UPDATE | We’re Rebalancing Our Portfolio (Ep. 6 – May 2019):
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Target Date Funds: Are They a Good Investment?
When it comes to investing, there are countless options available to the average individual. One such option that has gained popularity in recent years is the target date fund. This type of fund is designed to be a one-stop solution for individuals looking to invest for their retirement. But are target date funds truly a good investment?
First, let’s understand what a target date fund is. This investment vehicle is structured as a mutual fund that adjusts its asset allocation over time based on the target retirement date. For example, if an investor plans to retire in 2050, they would choose a target date fund with a target date of 2050. As the investor approaches their retirement date, the fund gradually shifts its allocation from riskier assets, such as stocks, to more conservative assets, like bonds.
One of the primary advantages of target date funds is their simplicity. They offer a hands-off approach to investing, making them particularly appealing to novice investors. With a single investment, individuals can achieve broad diversification across various asset classes, reducing the risk associated with putting all their eggs in one basket. This simplicity is especially useful for investors who lack the time or inclination to research and manage a portfolio of individual securities.
Target date funds also provide automatic rebalancing. As the investor ages, the fund automatically adjusts its asset allocation to maintain the desired risk profile. This ensures that the investor’s portfolio stays on track without requiring constant monitoring and adjustments. This feature makes target date funds suitable for investors who prefer a more passive, set-it-and-forget-it approach to investing.
However, it’s important to note that target date funds are not without their drawbacks. One concern is the lack of customization. As target date funds are designed to accommodate a broad range of investors, they may not align perfectly with an individual’s risk tolerance or personal investment goals. Additionally, the fees associated with target date funds can be higher compared to other investment options. It is crucial to carefully analyze the expense ratios and compare them with alternative investment strategies.
Furthermore, target date funds are not immune to market risks. Although they automatically adjust their asset allocation over time, they do not guarantee protection against losses or market downturns. The investor’s overall return will still be influenced by the performance of the underlying assets within the target date fund.
In conclusion, target date funds can be a good investment option for the right individual. Their simplicity, automatic rebalancing, and diversification make them attractive to novice investors or those who prefer a more hands-off approach. However, it is crucial for investors to understand the trade-offs of using target date funds, such as potential limitations on customization and higher fees. As with any investment decision, conducting thorough research and seeking professional advice tailored to one’s specific circumstances is essential.
Speaking truth
Thank you sir 3 years later still good advice
Do you have 1:1 consultation
Can l invest in Fxaix and Fiofx? Is good investment?
I first started my tax account through you guys. I have invested in 2 index funds so far…but I also bought stocks in Amazon and Apple Year before last and my money has dropped significantly. What do I do? Do I sell it now or should I keep it? Even the index funds have lost money as well…but not as bad as Amazon. so I didn’t make any profit be it index or other funds. Am I doing something different?
I was looking into target date retirement fund for my child to be able to get out at age 21. Thoughts? Best investments for children?
Now a days Target Index funds have expense ratio of 0.04 -0.06%. It is easy to manage stock/bonds ratio by keeping stock index funds in taxable accounts. The cons are not really cons.
Vanguard 2055 Target Date. 0.08% expense ratio. 90+% stocks, beating the SP500. Happy with it.
Where would you suggest holding emergency funds? Holding a years worth of expenses in cash in a safe at home makes me nervous just thinking about it lol
Almost chose to invest my retirement funds into a target date fund, the one recommended by my employer. Then I looked at the returns… It didn't seem quite right.
Lo and behold, it performed worse than the indexes during bull markets and fell more than indexes in bear markets.
I swapped things around REAL fast
Thanks for sharing. I would like to share another negative about the Target retirement fund. I started investing in my 2035 fund many years ago. I accumulated well over a million dollars. As you discussed there is rebalancing that these funds do. When I started this fund I was young and foolish. I don’t have this fund in a tax shelter. Last year I was hit with close to a 300,000 long term capital gains tax. I’m in the 20 percent bracelet. Learn from my mistake you don’t want this in a regular account. Ouch
What if this fund is provided by my employer? And there is a company match.
Excellent video. Very simple not only to understand but also to remember what they suggest because the suggestions make sense. Thank you young couple.
They are a little conservative but that’s not always a bad thing. Especially now.
Hello! My Roth IRA vanguard target date fund has a .08 expense ratio, and a 8.04% average return since inception in 2006. It’s comprised of 89% index funds. Would you still recommend switching to individually managed given this information? Thanks!
Hey guys, I'm about 10 years from retirement age and, just like you said, my company's 401k put me in a Vanguard target date fund. I started looking around and doing a bit more research and, even though I'm pretty close to retirement, I think I could be doing better by re-allocating all or most of my contributions (currently $50 a week with some company matching) into the Vanguard 500 index fund admiral shares. However I've seen this fund called something else and with a different ticker symbol (VOO). What's the difference?
i am not like everyone else! i will create my own portfolio because i am in charge of my life. thank you so much for the information very helpful! breaking generational patterns one day at a time.
THX
Not to mention, they have a high expense ratio.
Great video thank you
I can honestly say I fell prey on a target date fund. I learned this recently.
Hey brother, I have the fidelity 2045 Target date index fund FIOFX is that a good one ?
I have a 2050 TDF with my employer the expense ratio is 0.29% FOR THE FUND is that good or expensive ?
I have target date index funds in my IRA and IRA ROTH accounts through Vanguard.
Target date funds are great at EFFICIENTLY STEALING YOUR MONEY. They sell your money making equities and weigh down your porfolio with almost worthless bonds. I'm going 100% stocks till i die at 99 XD
My 2030 Vanguard fraud lost 15% today..what a scam..
What about if the company you work for is matching your contribution up to 6 percent ? Should you do the 6 with them or just handle it yourself with no match ?
Omg i been in TDF! I just moved it to S&P500 Vanguard Index at 1:30 in the morningggggg
I have a 401k with my job target and they offer the life path 2065 index fund . I plan to start with 5% and raise more and roll it over when I leave them but it’s This a good plan if I want to have this investment plan for just investments and to just grow my money …
Thank you investigating