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Target date retirement funds aren't new? And they include bonds, so of course you're not going to beat the market with them. Most target date funds (Vanguard,

Target date retirement funds aren't new? And they include bonds, so of course you're not going to beat the market with them. Most target date funds (Vanguard, Fidelity's Zero funds, Schwab's Target Date Index) use passive index funds and are exceedingly cheap and have excellent performance. Schwab's have a net ER of just 0.08%, the lowest in the industry, beating Vanguard by 7 basis points. There are some ridiculously complicated and overpriced TDFs (T. Rowe Price comes to mind) out there, of course. Knowing what you buy is important. The reason the NASDAQ 100 is beating the S&P is because of FAANG stocks, and the trend has mostly been the last decade or so. Meanwhile, the total market index is pretty much on par with the S&P since 1992 [1]. [1] https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2020&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=VFINX&portfolioNames=true&portfolioName1=VTI&portfolioName2=QQQ&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=100&symbol2=QQQ&allocation2_2=100 https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...

gravitas 6y ago
> Target date retirement funds aren't new? Yeah I don't pretend to be a pro to know what constitutes "new", other than for example "many 2020 target date funds were created 2005-2008 at the major vendors" - is that "new"? Is 15 years "tenured"? shrug Compared to an index fund going back to 1980, I tend to think that's "new" in the long term skyline of mutual funds.
- atombender 6y ago
  Target date funds have existed since the 1990s. The age of current TDFs is skewed by the fact that they are created with a specific time horizon; Vanguard's 2065 fund was only created in 2017, for example, for obvious reasons. TDFs are just funds-of-funds, so you only need to know the characteristics of the underlying funds to understand their makeup and performance. Vanguard's TDFs, for example, are composed of some of the most highly respected index mutual funds in the business. There are other arguments for not holding target date funds, but generally speaking I think they're the best investment that your average retail investor can make.
  - gravitas 6y ago
    > There are other arguments for not holding target date funds, but generally speaking I think they're the best investment that your average retail investor can make. (I am an amateur, maybe I'm making this too simple) If I look up August 1st 2006 to 2020 for two Vanguard funds which are competing during this time frame, VFINX (S&P500) and VTWNX (TDF 2020), a person ~50yo (assuming 65 retirement target 2020) who had a choice in 2006 (the month after the TDF was created, impossible to invest before then) where to put their money: VFINX $120 - $325 (2.70x) VTWNX $ 20 - $ 35 (1.75x) That's just me doing basic math, not adding any fancy inflation calculations, etc. Can you help me understand why this 2020 TDF would have been the "best investment" for this average 50yo in 2006? They would have lost money investing in it compared to the index fund from the same vendor.
    - atombender 6y ago
      You can't compare the S&P 500 with a fund that, at age 50, would hold 25% in bonds. Of course the TDF will lose. The function of gradually transitioning to bonds is to hedge against inflation, lock in profits, and buffer against market volatility. Those are useless for someone just starting out in their 20s — which is why TDFs start out with very little bonds — but important to someone whose time horizon is just 15 years. Someone at age 50 should be extremely careful about holding just the S&P. Also, keep in mind that the equity portion of Vanguard's TDFs are 60/40 US/international, because that's what Vanguard thinks gives you best diversification [1]. Depending on the time period you measure, international does either better or worse than the US [2]. You may be interested in reading about Vanguard's target date fund philosophy. [3] [1] https://www.vanguard.com/pdf/ISGGEB.pdf https://www.vanguard.com/pdf/ISGGEB.pdf [2] https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths https://www.fidelity.com/viewpoints/investing-ideas/internat... [3] https://personal.vanguard.com/pdf/ISGTDF.pdf https://personal.vanguard.com/pdf/ISGTDF.pdf
      - atombender 6y ago
        Edit: Hedge against deflation, not inflation.
      - 6y ago

gravitas 6y ago

> Target date retirement funds aren't new? Yeah I don't pretend to be a pro to know what constitutes "new", other than for example "many 2020 target date funds were created 2005-2008 at the major vendors" - is that "new"? Is 15 years "tenured"? shrug Compared to an index fund going back to 1980, I tend to think that's "new" in the long term skyline of mutual funds.

atombender 6y ago
Target date funds have existed since the 1990s. The age of current TDFs is skewed by the fact that they are created with a specific time horizon; Vanguard's 2065 fund was only created in 2017, for example, for obvious reasons. TDFs are just funds-of-funds, so you only need to know the characteristics of the underlying funds to understand their makeup and performance. Vanguard's TDFs, for example, are composed of some of the most highly respected index mutual funds in the business. There are other arguments for not holding target date funds, but generally speaking I think they're the best investment that your average retail investor can make.
- gravitas 6y ago
  > There are other arguments for not holding target date funds, but generally speaking I think they're the best investment that your average retail investor can make. (I am an amateur, maybe I'm making this too simple) If I look up August 1st 2006 to 2020 for two Vanguard funds which are competing during this time frame, VFINX (S&P500) and VTWNX (TDF 2020), a person ~50yo (assuming 65 retirement target 2020) who had a choice in 2006 (the month after the TDF was created, impossible to invest before then) where to put their money: VFINX $120 - $325 (2.70x) VTWNX $ 20 - $ 35 (1.75x) That's just me doing basic math, not adding any fancy inflation calculations, etc. Can you help me understand why this 2020 TDF would have been the "best investment" for this average 50yo in 2006? They would have lost money investing in it compared to the index fund from the same vendor.
  - atombender 6y ago
    You can't compare the S&P 500 with a fund that, at age 50, would hold 25% in bonds. Of course the TDF will lose. The function of gradually transitioning to bonds is to hedge against inflation, lock in profits, and buffer against market volatility. Those are useless for someone just starting out in their 20s — which is why TDFs start out with very little bonds — but important to someone whose time horizon is just 15 years. Someone at age 50 should be extremely careful about holding just the S&P. Also, keep in mind that the equity portion of Vanguard's TDFs are 60/40 US/international, because that's what Vanguard thinks gives you best diversification [1]. Depending on the time period you measure, international does either better or worse than the US [2]. You may be interested in reading about Vanguard's target date fund philosophy. [3] [1] https://www.vanguard.com/pdf/ISGGEB.pdf https://www.vanguard.com/pdf/ISGGEB.pdf [2] https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths https://www.fidelity.com/viewpoints/investing-ideas/internat... [3] https://personal.vanguard.com/pdf/ISGTDF.pdf https://personal.vanguard.com/pdf/ISGTDF.pdf
    - atombender 6y ago
      Edit: Hedge against deflation, not inflation.
    - 6y ago