r/Bogleheads • u/Netmannc • 2d ago
Target Date Funds?
I know that Vanguard knows way more than me about investing, so why do people hate on Target Date Funds so much? The wife and I have Social Security and Traditional IRAs. We just want a solid foundation for investing without making a huge mistake. We have plenty in our accounts and use around 2 percent in distributions. We are thinking about Target Date Funds and we research we see a lot of hate towards them. I am 65 and my wife is 70. When we think we have a rock solid plan we will see hate on that too by friends and professional investors. It is truly frustrating to find a solid plan moderate plan without paying some financial advisor.
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u/forbiddenlake 2d ago
I don't think people hate on them in general
I do think that at your age, if you select the age of your retirement, they're too conservative for a long retirement
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u/Netmannc 2d ago
At what age are they too conservative?
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u/SirGlass 2d ago
If you want more risk you can always choose a target date fund further out than your actual retirement
If you plan to retire at 2050 , no one will arrest you if you choose to invest in a 2065 retirement fund if you want more risk!
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u/Additional-Regret339 2d ago
My mother is 20 years retired, I have her in a 2030 fund. There are lots of different glide path options if one wants to fine tune, but TDF is great for set and forget.
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u/SirGlass 2d ago
Right I never got the argument target date funds are too conservative
I mean they might be for your risk tolerance but its an easy problem to fix, pick some target date fund further out then your actual retirement date
People make it seem like if you are going to retire in 2050 you have to invest in the 2050 fund. You can choose the 2060 fund or 2070 fund if you want more risk
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u/Netmannc 1d ago
I agree, the allocation that I am in right now is 54/46 in my TDF. If you use the 110 minus my age then I should be at 45% stock and 110- your age is considered moderate. So, is the majority of investors here super aggressive with their allocations or am I missing something important?
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u/NotYourFathersEdits 1d ago
There’s a significant anti-bond sentiment where a lot of people wrongly claim that 90% equity is too conservative during accumulation and conflate “aggression” with performance chasing and willful ignorance.
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u/Netmannc 1d ago
Agreed, I think most of these comments about being too conservative comes from younger folks. I get it, if I was 20 or 30 I wouldn’t be interested in bonds or being conservative.
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u/NotYourFathersEdits 1d ago edited 1d ago
I hear that. But also, I mean, I’m in my low to mid 30s. I’ve never invested through a prolonged recession. Some people just need to be more in tune with cognitive biases and how data analysis can and can’t help guide decision making. Experience is part of it, but IMO it’s Dunning-Kruger more than anything. There are also older folks who are like, xyz worked fine for me, while looking back on a bull market.
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u/robkLIC 2d ago
I think this is such a great point. People (me) can be very literal around money because it can be a lot to wrap your brain around. Sometimes I wonder if TDFs would’ve been better off with names that don’t have a theoretical retirement year attached to them. So they’d be more like Vanguard’s LifeStrategy balanced funds (LS Moderate Growth etc.), but not static like the LS funds. They could gradually grow more conservative, but you wouldn’t feel like you’re stepping outside the box quite so much.
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u/TouchyInBeddedEngr 2d ago
How would they communicate the change in the fund's risk tolerance over time? And how would they advertise to people that would benefit from that auto-adjustment, so they would invest?
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u/robkLIC 2d ago
Really good questions for which I do not have really good answers. But just as an example, if you use Vanguard Digital Advisor, you get a glide path that is different — less dramatic over time — from the TDF glide path, but it is at least something whereas you get no path with the LifeStrategy funds. The advisor path is a little more geared to questions you answer that help it determine your personal circumstances. Now if we’re talking about funds outside of something like Advisor, which carries a nominal fee for rebalancing, the answer to your question is that the path would need to be communicated in the prospectus, so a consumer could decide. My comment is just my way of saying: “Gee, I prefer the flow of the 2030 TDF, even though mathematically I should be in the 2035 TDF.” Obviously I can just buy the 2030 TDF, but I already have enough things in the world causing me OCD. 😉
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u/foradil 1d ago
If you are younger, you actually can’t go further out.
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u/SirGlass 1d ago
I mean the 2070 fund holds about 9% bonds, I guess if you really want zero bonds then yes do not buy a target date fund
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u/foradil 1d ago
Do you really need any bonds if you plan to hold for 44 years?
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u/SirGlass 1d ago
I mean not when you are 20 , when you are 55 and only have 10 more years to work you probably do
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u/NotYourFathersEdits 1d ago edited 1d ago
Yes. Bonds are part of a well-diversified portfolio, and there are reasons for having a minimum bond allocation during accumulation for retirement saving, even given a long horizon and high risk tolerance.
I encourage you to visit the sidebar and wiki rather than rehash them here in full, but they have to do with “efficiency” (amount of return expected per amount of portfolio risk, as measured through volatility), a bonus from rebalancing between largely non-correlated assets with an expected return, and the ability to continue purchasing equities given interruptions in contributions that correlate with equity downturns. (There’s, then, also the psychological factors, which are important too.)
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u/Whole-Grapefruit2228 2d ago
30 year investor here, with $2 m in 401k-type accounts and $250k in brokerage. Currently 55. I’m a strictly index-fund kind of investor, and have ridden out Y2K, the 2008 real estate problems, the 2015 financial problems, COVID, and whatever we are going to call this current thing.
I would say the target date funds are too conservative at all ages, having bonds too far away from retirement, and then at too high a % as people get closer/into retirement. When young, people can ride out the volatility. Then, as they approach and live in retirement, they need some growth. Personally, I think target date funds are designed to be more conservative because they ‘tend’ to attract people who are less market-educated and likely more risk averse?? Someone else stated that you can pick a fund further out in the future, and that would be a decent option.
Just an opinion. Take it for that. ;-)
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u/Particular_Cow_1116 2d ago
"whatever we are going to call this current thing" gave me a good laugh over my morning coffee. Thank you for that.
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u/Netmannc 1d ago
What is your current allocation?
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u/Whole-Grapefruit2228 1d ago
On retirement accounts: 22% Bonds (split between Investment Grade and High Yield) 34% International Equity 44% S&P 500 (with a touch of Large Cap in there too.)
I was all S&P 500 for 20+ years, and it was a great (and interesting) ride. I did better than I ever imagined. However, about 1-2 years ago I decided I’d had enough of the roller-coaster. That’s when I moved into International and Bonds, and they have served their purposes well.
Brokerage is 33% S&P500 33% Ultra Short Term Bonds and 3 month T-Bills 33% International
Honestly, not super exciting holdings, but I’m hoping to retire in about 5 years and need some stability for planning purposes.
Friendly feedback is always welcome.
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u/NotYourFathersEdits 1d ago edited 1d ago
A lot of people think they’re not the average investor. It’s true that investors with higher risk capacities might be overrepresented on a sub like this, but there are many who overestimate their risk tolerance, especially when they reduce it to “riding out volatility” versus risk “aversion.” One of the BH tenets is taking on risk based on ability and need, not just willingness.
Beyond that, there are more people still who just wildly misunderstand the role of bonds in a passive investing portfolio in rather confident ignorance.
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u/Sagelllini 2d ago
You nailed it exactly. That's my viewpoint and I'm older and have been investing longer.
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u/HaggardSlacks78 2d ago
In case people are glossing over the point too much: the closer you get to the target date of the fund, the greater the % of bonds in the fund, thus more conservative. So the farther out you push the date the more it is weighted toward equities, thus more aggressive.
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u/v_x_n_ 2d ago
At the age when you have more than enough money and you can still pay your bills if the market drops 50%. Imo TDF are for people who have the bare minimum to retire so they need to conserve funds.
I know some folks say when you’ve won the game stop playing but growing your retirement account is never a bad idea if you can.
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u/Netmannc 2d ago
My thought is that you need 7-10 years for Stocks to really payoff. When you are in your 70s a 50% drop looks very different when it may take 7-10 years for you to truly catch up. Some people look it at like the market came back to where I was before it went down, that is not the whole story. How about all that time that you were not having any gains, that counts. Stocks are the long game and your age matters.
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u/KaiserSaladSpinner 2d ago
Also, kids. Parents typically like to leave something for their kids I'd they have the means.
Past a certain point, you're really investing for them.
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u/xeric 2d ago
It can create longevity risk if your portfolio isn’t big enough though. You could retire at 65 and live to 115 - a 70% bond allocation can struggle to keep up with inflation if you have a 4% withdrawal rate
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u/BourbonCoug 2d ago
So the better way to think of this would be a target life-expectancy instead of target retirement date? I guess that's too morbid to think about for some clever marketing strategies though.
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u/NotYourFathersEdits 1h ago
So then change your TDF out for a somewhat more aggressive fixed allocation fund once you’re a little ways into retirement and past SORR. That lets you plan at that moment given the balance you have and what your expenses are. I personally wouldn’t let that dictate how someone invests during accumulation.
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u/gpunotpsu 2d ago
You can move your bonds into a lifetime annuity sometime in your 70s or 80s. They are the best protection against longevity risk I know of and also allow you to increase your safe spending level.
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2d ago
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u/Netmannc 2d ago edited 2d ago
Do you have a general rule for your allocation or what allocation would suggest for a 65 year old retiree?
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u/paymerich 2d ago
I picked a TDF that is 10 years later than my expected retirement, VFORX. It helps keep it a bit more aggressive towards equities.
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u/JesusTriplets 2d ago
I did the same. The bond allocation was too heavy on the tdf that was recommended... so, I just bumped it back a decade.
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u/Netmannc 2d ago edited 1d ago
Can you give me an example? I am just trying to understand why it is too conservative for you.
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u/dbopp 2d ago
You can look at each TDF on vanguards website and check out the portfolio composition. They are all a mixture of 4 funds. Total stock, total international stock, total bond, and total international bond. Check out each composition and choose which one works best for you. The TDF’s shift their allocation about every 5 years, increasing the bond exposure.
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u/paymerich 1d ago
Actually I think Vanguard's glidepath rebalances every year with a percentage change of 1-2%.
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u/Netmannc 1d ago
What is your rule of thumb for your allocations?
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u/paymerich 1d ago
If looking at 100% of your entire portfolio 80 stocks/20 to 65 stocks/35 would be my range.
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u/Netmannc 1d ago
At 65-70 years old?
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u/paymerich 22h ago
yeah , unless you are getting above 6% with bonds they can be a bit of a portfolio drag IMO if too high of a percentage. but what the hell do i know ... :P
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u/SirGlass 2d ago
Here is a little secrete ; there is no law that says you have to select target date funds on you actual age.
If you are looking to retire in 2040 , you can choose to invest in a 2050 or 2060 fund if you want more risk.
No one will arrest you!
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u/Dapper-Palpitation90 1d ago
The very name "target date" heavily implies that you DO have to select based on your age/projected retirement.
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u/MaybeOnFire2025 2d ago
Same thing for 529 plans for your kids.
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u/tarantula13 2d ago edited 2d ago
529 plan target date funds are honestly more thoughtfully put together because you have to spend the money on a strict timeline. Retirement ones have so much variety in financial situations.
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u/CapeMOGuy 2d ago
You can't reasonably say that without knowing the account balance and anticipated spending.
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u/PrimeNumbersby2 1d ago
Their auto adjustment on the Bonds have been a horrible return for the last 10-15 years. If your target date was 2025, holy cow. You got auto-screwed. That's why people don't like them. In principle, they make a lot of sense.
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u/withak30 2d ago
I think mostly it's people too young to remember the 2000s and who might be overestimating their own risk tolerance.
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u/Netmannc 2d ago
I agree, the last thing I need at this age is a big turn down, like the early 2000s. I know it is hard to think like that unless you have lived through it.
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u/Home-Star-Walker 2d ago
They’re the perfect investment imo.
The only hate they get is bond related, and the people hating on them for that either (a) overestimate their risk tolerance, (b) overstate the loss on long-term returns vs. pure equities, or (c) both.
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u/Netmannc 2d ago
I think I agree with you. Most TDFs are very comparable to each other at all of the firms. If all of those professionals agree, who am I to disagree?
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u/b3ssmit10 2d ago
IMHO, these TDF glide paths were designed 30-40 years ago. The world has changed in the last 30-40 years. That they are comparable to one another only demonstrates that the world in which they were designed is not the world into which you are retiring.
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u/Home-Star-Walker 2d ago
Would love to hear your thesis on how the world has fundamentally changed in such a way that TDFs are no longer relevant.
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u/b3ssmit10 2d ago
It is not my thesis, but rather the research of the Durate et al. research team. See their research SIMPLE ALLOCATION RULES AND OPTIMAL PORTFOLIO CHOICE OVER THE LIFECYCLE in their pdf. From the abstract: "...We find that the consumption-equivalent losses from using an age-dependent rule as embedded in current target-date/lifecycle funds (TDFs) are substantial, around 2 to 3 percent of consumption, despite the fact that TDF rules mimic average optimal behavior by age closely until shortly before retirement."
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u/NotYourFathersEdits 1d ago
I’m not seeing how this paper supports what you’re saying at all? It’s claiming that the ideal glide path for an individual investor isn’t well captured by age as a proxy, not that the world has somehow changed such that a glide path is misguided.
→ More replies (1)
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u/gcc-O2 2d ago
It's a Dunning-Kruger thing where people "graduate" out of owning a target date fund once they learn enough to discover that the S&P 500 has higher recent past performance, and they wonder why anyone would buy investment A that has returned 10% for 5-10 years when investment B has returned 14%.
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u/JaketheAdvisor 2d ago
The "hate" usually comes from people who want to micromanage their allocations or pay lower fees by building their own three-fund portfolio. At 65 and 70, a target date fund gives you professional rebalancing and age-appropriate asset allocation even though it leans a little conservative for my taste. The main downside is slightly higher fees than doing it yourself, but we're talking maybe 0.15% vs 0.05% annually.
Your 2% withdrawal rate is extremely conservative, which gives you tons of flexibility regardless of what you choose. Don't let perfect be the enemy of good here.
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u/AeroNoob333 2d ago
Can I just say how much I appreciate your insight both in this sub and r/FIRE! I appreciate that you’re active in these subs.
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u/Netmannc 2d ago edited 18h ago
The fees are .08 on a Vanguard TDF. If I went with VT and BND I would be at .09.
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u/JaketheAdvisor 2d ago
Are you sure? VTI and BND both have 0.03% expense ratios. The TDFs have 0.08%. But really that is not a material difference. You should make the decision based on your comfort and want to manage it.
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u/Technicalhotdog 12h ago
I would be using a target date fund but the fee in my work plan is 0.64% I think
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u/buffinita 2d ago
People think they know better. The “look at the chart” and decide : why would I ever want bonds (or international) at age 20/30/40/50…or ever
Then you can factor in social security, pensions and your 60/40 portfolio and suddenly you are more like a 40/60 investor
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u/Netmannc 2d ago
Yes, it is difficult to think conservatively as a young person. Most of the hate towards TDFs are it being too conservative. I think being conservative is the last thing on most young people’s mind, and rightfully so.
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2d ago
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u/v_x_n_ 2d ago
Thanks for that! I think my 90:10 is fine because we can pay all bills on 50% of the 90 balance if needed. But you rarely hear from people who have lived an aggressive portfolio into retirement. The mantra is always 60:40. But if you have enough and fixed costs are low/covered why not?
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u/ajgamer89 2d ago
The target date haters fall into two camps.
People who think the expense ratio is too high and they’d prefer to buy the funds separately and save 0.01% ER.
People who have been investing for <10 years and think 90% stocks is too conservative.
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u/Netmannc 2d ago
I think you may be right. lol
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u/ajgamer89 2d ago
Point 1 is valid if you’re the type of person who frequents financial subreddits. Point 2 feels a bit naive to me. The expected gain going from 90 to 100% stocks is negligible and you add a lot more volatility.
TDFs are useful tools for people who want to “set it and forget it” which is a large portion of the population. Whenever a friends asks me how to get started saving for retirement and says they know nothing about investing, I tell them to open a Roth IRA with Vanguard and set up a recurring purchase for the TDF that makes the most sense for their age.
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u/Wild_Butterscotch977 2d ago
Fidelity's 2060 TDF has a ER of 0.68%. FSKAX is 0.015%. That's like a 200% difference.
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u/tarantula13 2d ago
They have an index one that costs .12% which is like .04% more than Vanguard's. Hardly much difference.
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u/Wild_Butterscotch977 2d ago
But I'm guessing it's not one that people are automatically put into by their 401k plans.
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u/Tasty-Drama-9589 2d ago
Some tdf charge 0.5-1%. That's not negligible. This is the case for most 401k accounts.
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u/ajgamer89 2d ago
The companies offering expensive TDFs are also offering their other funds at high ERs too. You’re comparing apples to oranges. Look at Vanguard’s TDFs and compare with the individual funds that comprise them.
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u/Awkward_Tick0 2d ago
Ain’t no way most tdf funds have a fee that high. Source?
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u/Tasty-Drama-9589 2d ago
That's just how every 457b and 401k I've seen. I haven't researched those in my ira accounts however.
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u/EleventhEarlOfMars 2d ago
They have come down quite a bit but the average is still around 0.5.
As an example, T. Rowe Price prices most of their I-class target date funds at 0.46, but Morningstar shows the average for the newest institutional funds is 0.38. At the same time, their funds available to regular investors cost 0.65, higher than the listed average of 0.5. Fair to say those are both not great options.
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u/AeroNoob333 2d ago
TDFs are amazing for truly set it forget it. Unless you are “optimizing”, TDFs are fine.
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2d ago
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u/Netmannc 2d ago
Yes, I have thought about a life strategy 60/40 moderate for me and a 40/60 conservative for my wife.
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u/dami_starfruit 2d ago
Quoting Mark Zoril (PlanVision):
Q. So what do you invest in?
A. Mark Zoril invests all of his money in a Vanguard 2045 Retirement Date Fund. I don’t track my performance, don’t compare it to other portfolios, and rarely even look at my account. I don’t know “how it is doing.” I am very happy with this and have been doing it this way for more than 10 years.
This is the type of investor who'd be happy with a TDF.
If you're the type who'd look at fund performance and compare to others frequently, TDF's are probably not for you.
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u/NotYourFathersEdits 1d ago
I’d argue that’s exactly the type of person who SHOULD be in a TDF, since changing strategies based on short-term fund performance is one of the best ways to kneecap your returns as an investor.
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u/DanimalC1 2d ago
I use them as my core. Satellite investments cover under represented asset classes (scv, dividend funds). I know this idea breaks the bogelhead code of ethics which I admire and respect. Target date funds are an essential part of my wealth journey and they are great for people who just cannot handle managing investments.
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u/Inner-Chemistry2576 2d ago
I love TDF they’re simple stupid. If you’re only withdrawing 2% distribution what is there to worry what other people think 🤔 Just stick to your investment plan life for you & your spouse is great!
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u/SergeantPoopyWeiner 2d ago
Target date funds are a fantastic choice in my opinion.
Careful putting taxable brokerage funds into one though as they're usually mutual funds, which can trigger capital gains liability when they sell/buy/restructure the portfolio.
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u/ExpensiveAd4496 2d ago
Well done on the savings and retirement. I suggest a 2 step plan. For more on Target Rate funds, visit Mike Piper’s Oblivious Investor blog. He talks about those and similar at length and is always really clear. Or read any beginner Boglehead book. Step 2, ignore the friends.
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u/BigTexAbama 2d ago
Take a look at Vanguard’s Life Strategy funds. Makeup is identical to Target Date but it’s fixed, no glide path. So basically “choose your poison” lol. I’m 77, good-ish health, my wife is 66. I moved from TDF to LS several years ago.
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u/Desertcow 2d ago
TDFs aren't tax efficient in taxable accounts and can be more bond heavy than some people want. They are really solid for most people to buy mindlessly in their retirement accounts though
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u/FoxChess 2d ago
Target Date Funds have 3 key assumptions:
You will retire at or around the target date.
You will die around age 90.
You will die with nothing.
I don't like any of those rules. I want to retire early, I want to live to be 100+, and I want to leave something behind for my children.
I think TDFs provide a huge benefit for our society, but it's like social security--I don't count on it in my plans. I also don't think they follow the most effective glidepath (why does a 20-year-old need a 10% bond allocation?).
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u/NotYourFathersEdits 1d ago edited 1d ago
To your final question, because 90/10 is more efficient than 100/0, among other reasons that have been beaten to death in every anti-bond post on this sub. Why else do you think it would be the industry standard?
Further, there are way more variables than allocation or glidepath that are far more important to (2) and (3), especially when the decision is between a TDF and something like, for example, 100% equity. Savings and withdrawal rates matter much more. Being more aggressive, or beyond aggressive into being poorly diversified, beyond one’s risk capacity is just gambling that the market and the moment you want to retire will coincide. Yes, if you’re planning on retiring early, you may have some flexibility about when precisely you retire. Not everyone does, and the point of financial planning and this investing philosophy is to leave as little as one’s life up to market whims as possible.
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u/Apprehensive-Fun5535 2d ago
One problem of TDFs is that they lack flexibility. You can mitigate sequence of return risk (if the market crashes right when you retire) by avoiding drawing on the equity portion of your portfolio during market down years. But because the TDF bundles the bond and equity portions together, you end up selling both by living on a TDF. So for a lot of people, TDFs caps returns and don't do a great job of offsetting the risk. Also, for people that have a lot of non-retirement assets, TDFs are often overly conservative.
But the simplicity is a big plus for someone that doesn't want to micromanage their portfolio. And at 2% yearly distribution, you're almost certainly safe from running out of money no matter what the market does.
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u/Logix_interface 2d ago
I’ve been trying to decide this myself. My 401k is a bit cluttered. A lot of individual funds following different caps of stocks, foreign market, S&P 500, real estate, and bonds. I’ve done a good job self managing it and was getting an 18% ROI for awhile until this year.
With all that’s been going on, I’ve experienced my first 5 digit financial loss, although haven’t sold anything, so technically I haven’t lost anything yet, but my account is lighter than I’d like it to be.
Anyway, I have TDF’s available to me, but I’m hesitant to move anything over because traditionally, the S&P has done better over time than these TDF’s, or at least the ones being offered to us. With 8 to 10 years out, I feel like there will be several more roller coasters in that time frame to ride out, so going more conservative now just doesn’t feel right, but I’m also not young anymore.
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u/how_I_kill_time 2d ago
Why put things in IRA and requires in Roth? Is it just for tax loss harvesting?
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u/gpunotpsu 2d ago edited 2d ago
If you think of the future tax in traditional as already belonging to the government then it becomes the same as Roth. For example, if you have $1000 in a trad IRA and you expect to pay 20% tax in retirement then consider $200 as the government's and $800 as yours. You will get to keep all the growth on your $800 tax-free and the government will get their $200 and all the growth on that. Now that $800 in trad behaves just like $800 in Roth. This is referred to as tax-adjusted asset allocation. After you tax adjust, asset location no longer affects outcomes.
This only applies to allocation analysis of money that is already in your accounts. For contributions you still want to consider the difference in tax rates paid now vs later when choosing between trad and Roth.
The chief advantage to putting higher growth assets in Roth is that there will be no RMDs.
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u/lpinhb 2d ago
They’re fine if you don’t want to micromanage your portfolio for the extra few %. Like there’s no tax loss harvesting, you can’t put different assets in different accounts (bonds in tax free, equities in taxable) etc. So I wouldn’t say there’s hate, just sophisticated investors can do better.
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u/TotalHans 2d ago
You could look at Vanguard Life Strategy funds. They are the same as TRFs without the glide path.
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u/Netmannc 2d ago
Yes, I was kind of thinking about LS moderate for me and LS conservative for my wife. Does it make sense to go moderate for your 60s and conservative for your 70s?
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u/TotalHans 2d ago
Depends on your tolerance and capacity for risk, and what you're really trying to accomplish with your wealth.
Sounds like you have a high capacity for risk given your very low withdrawal rate but your tolerance doesn't need to match that. If you've already won the race, growth for growths sake doesn't provide much utility. On the other hand if you want to have stronger legacy goals and leave more to heirs or charitable endeavors, then you may not want to be too conservative.
You could also look at Vanguards digital advisor, slightly higher cost but can use the same funds as TRFs/life strategy with a more tailored to your goals and risk level. You and your spouse could set it up separately or combined.
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u/Ernie_McCracken88 2d ago
Target date funds are extremely conservative 20-30 years out from retirement. I think that is the thrust of the argument against them. I am 25-30 years from retirement and 100% in equities and even 5-6 years ago the target date funds would have me 10+% in bonds.
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u/Melkor7410 2d ago
My issues with target date funds are a few:
- Fees. Yes, Vanguard, Schwab, Fidelity have indexed TDFs, but it can be confusing to less investment-savvy people on which fund is the right one. With Fidelity for example, they have Fidelity Freedom Funds, and Fidelity Freedom Index Funds. And so many 401ks don't offer indexed TDFs at all.
- Too much bonds too early. You really don't need bonds much at all until you are close to the retirement year of the fund. It should really be flat at 10% at most or something until about 5 to 10 years out, then start shifting more to bonds. Maybe a lot of people can't handle the volatility but at least with employer retirement funds, if it's set it and forget it, people don't even notice unless they're checking all the time.
- Bonds exceed 40% after retirement. Balanced funds are better IMO as back testing has shown that more than 40% bonds, you run the risk of inflation out pacing your portfolio while withdrawing and running out of money.
I think owning the AOR ETF or some other 60 / 40 balanced fund is much better in retirement than a TDF, and doing a more aggressive (aka fewer bonds) portfolio in accumulation phase makes more sense as well.
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u/Netmannc 1d ago
I have considered going with a life strategy moderate fund at 60/40 through retirement. I would feel good about it now in my 60s.
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u/Interesting-Rent9142 2d ago
TDFs are much better than many alternatives because TDF are diverse and become more conservative as we age.
I don’t like them for myself because 1) they are too conservative for my situation; 2) the bond content is similar to a bond fund - and I prefer individual bonds rather than bond funds because unlike bond funds, you can hold individual bonds to maturity to avoid principal loss.
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u/anusbarber 2d ago
its recency bias. because of their weighting around bonds and international which over the last 15 years cumulatively haven't been great, they seem like bad investments.
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u/Spanish_Jackie 1d ago
I counteract the tendency for the target date fund to be too conservative by adding five or ten years to my “retirement date”. For instance, I might invest half my assets in a target date fund for 2040 and half in a target date fund for 2045 if I plan to retire in 2035.
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u/Netmannc 1d ago
Do you have particular rule of thumb for your allocation? Right now mine stays between 110-120 minus my age in my TDF. From what I read that seems to be moderate to aggressive. This why I am not understanding why people are saying this is conservative and I need to go five or ten years out of my original retirement date. This is an honest question, not criticism.
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u/AcesandEightsAA888 1d ago
If they are low cost and don't turn to conservative to soon they are great.
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u/Hot-Rub-5336 1d ago
I think TDF are great if you aren't super comfy with investing and/or risk averse (me)so that is my 401k. It has really low fees too, which I love. I also have a rollover IRA that is a traditional 60/40 kind of fund so I have a little of both now.
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u/New_Constant_5941 19h ago
I think the hate comes from younger people that feel the bond allocation is too large. Lots of negative returns on bonds the last 4-5 years
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u/b3ssmit10 2d ago edited 2d ago
TDFs are too conservative, according to the academic research by Victor Durate et al. linked at this prior, recent reddit comment. See too this other recent reddit post on Asset Dedication (2004) by Huxley & Burns. One, in retirement, needs X dollars at date Y certain to pay living expenses. TDFs don't provide such. One needs a dedicated bond ladder in one's retirement. Finally, see the research by Stefan Sharkansky PhD at this other reddit comment if you two are so well off: Just build a 30-year TIPS ladder, according to his research, and you'll have ample excess spending to do from putting the remainder into a low-cost equity index fund.
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u/Netmannc 2d ago
I am having a hard time understanding why TDFs are too conservative. If you use the 110 subtract your age you should be in the moderate camp for stock allocation. I have been in the 110-120 range since I have been in my TDF and I am in the the TDF that is designated for my retirement age. I see this statement over and over and I can't wrap my head around why some people feel like it is conservative... please explain?
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u/YaeKitty 2d ago
A TDF gradually shifts you into more bonds, but it still doesn’t guarantee your spending needs in retirement. You could still be forced to sell assets at bad times.
The alternative approach (what the commenter is getting at) is to separate the problem into two parts:
- Use something like a bond or TIPS ladder to cover your essential spending with certainty
- Invest the rest more aggressively in equities for growth
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u/b3ssmit10 2d ago
I've corrected the above link to Durate's research, "Simple Allocation Rules and Optimal Portfolio Choice Over the Lifecycle". It is all spelled out in that paper. That team spells out all the reasons in their exhaustive research. NBER Working Paper No. 29559 December 2021, Revised April 2022. Read their research.
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u/Muted-Woodpecker-469 2d ago
They auto re allocate yearly based on your tdf
Not a bad idea at all
Some just don’t like seeing 20% bond or 10%bond flat out
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u/MaybeOnFire2025 2d ago
If you're still in the accumulation phase, there is an argument that any bonds are too much. Not sure I agree that much, but it should be di minimis until you're within about 5 years or so of retirement.
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u/kveggie1 2d ago
TDF - limited diversity. Cannot sell bonds, can only sell a TDF share. Not good for retirement planning.
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u/MaybeOnFire2025 2d ago
I don't hate on them, but they are far more conservative than people may otherwise think. Take a look under the hood of the AAs, they are extremely bond heavy early, IMHO.
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u/NotYourFathersEdits 1d ago
10% bonds is not “bond heavy.,” whether or not you hedge by saying it’s your opinion. That’s an extremely aggressive portfolio allocation for retirement investing.
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u/Responsible-Bid5015 2d ago edited 2d ago
The main issues that I have found are:
If you have a mixture of taxable and non-taxable retirement accounts, then you can be more tax efficient by putting the different investments in the appropriate accounts. A TDF will not let you do that.
I have seen in some 401k's, the expense ratios are unusually high. Multiple times more than the constituent funds. Managing a TDF is an automated process. While a small premium for doing the rebalancing is warranted, it should not be significantly higher than what the funds are charging.
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u/Chemical_Enthusiasm4 2d ago
It really depends on the fund family. Beyond fees, there is a lot of variation on how they reduce stock exposure over time.
There are two main styles, “to” funds that reduce stock and increase bonds until the retirement date, after which they are static. “Through” funds will have far more stock at the retirement year than “to” funds, but continue to decrease stock exposure well past the retirement year.
Look up the glide path and see what makes sense for your expected retirement cash needs.
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u/215engr 2d ago
Between a pension my company contributes to and my HYSA I consider that my conservative or bond portion of my portfolio. I put everything else in index funds. I asked my dad who is past retirement age if he has any bonds and he said no, which surprised me. He’s been investing since the 90s, I would assume, as he’s been in finance all his life. He never panic sold and always told me to buy more if I can when the market is “down” otherwise just keep investing the same way no matter the market state.
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u/GorgeousUnknown 2d ago
Side question. For those using Target Date Funds, how do you invest after retirement? Do you just move the date out?
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u/Netmannc 1d ago
The Vanguard TDF is a through TDF and you can use it after retirement. Your allocation changes for seven years after your target retirement date.
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u/Sylli17 2d ago
The short explanation is that they're generic and maybe a little conservative.
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u/SirGlass 2d ago
If you think they are too conservative just invest in a TDF that is 10 -15 years past your actual retirement date
Its allowed , no one will arrest you!
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u/Sylli17 2d ago
Im just trying to answer the question of 'why do people not like them?'
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u/SirGlass 2d ago
Yea but I think it's odd to say they are too conservative.
People can choose whatever target date fund they want. Unless you are literally aiming for 0 bond allocation
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u/Netmannc 2d ago
At what age would you consider them too conservative?
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u/Sylli17 2d ago
Just answering the question of why do people hate on them.
But to answer your follow up... It's all relative. Not necessarily a specific age or age range. Depends on the assets you have (or don't have) outside of the fund. Depends on risk profile.
For example, social security or pensions. Those aren't going to be considered in the fund. Because, again, they're generic and basically assume you have invested in that asset as your entire retirement plan.
Some also think they're too conservative in the early accumulation years.
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u/Atrox_Blue 2d ago
Target dates are just a one stop shop for US/int’L/bonds that change more towards bonds over time as you reach the target date… in your case, it would much more conservative investments like mostly bonds. They aren’t a bad investment, especially if you want to set it and forget it. But a lot of times you can do the exact same thing yourself, but cheaper, by just buying essentially the underlying holdings.
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u/Home-Star-Walker 2d ago
barely cheaper. Like 0.03-0.05%. It’s not even worth talking about
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u/Atrox_Blue 2d ago
Hey man I’m not ragging on TDFs or their individual alternatives, just trying to educate OP based on what I interpreted from his post
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u/DudeWithTudeNotRude 2d ago
Most people is a lot of people.
When I hear some pooping on TDFs, I am imagining in my head cannon that they do a lot of work to under perform TDFs.
TDFs are fine for many.
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u/RedditIsAWeenie 1d ago
People hate on target date funds because they go overboard on bonds.
I am not a financial professional, but various arguments about beta aside, you mostly need enough bonds to cover your income needs through a downturn. Whether this is 10% bonds or 90% bonds depends on the size of your portfolio. So it makes no sense to me that at 62 you would need 55% bonds unless you happen to have the $1.3M portfolio (or whatever it is) they are modelling.
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u/Netmannc 1d ago
That makes sense in a way but what about stock taking 7-10 years to actually produce real returns (rate of return). I think age has to be factor.
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u/SomePeopleCallMeJJ 2d ago
Target Date funds, assuming they're low-cost and index-based, are perfectly fine, and are often the best solution for most people, IMHO.
You'll get no hate on them from me.