Fidelity target date funds pile on stocks

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matjen
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Fidelity target date funds pile on stocks

Post by matjen »

Hmmm...

http://www.investmentnews.com/article/2 ... /130929921#

"Fidelity Investments is increasing the stock allocation across its target date funds after research found that investors are OK with more risk in retirement accounts and the outlook for bonds dims.

The biggest reason for the change was new research Fidelity conducted on how 401(k) plan participants reacted to the stock market plunge in 2008, the worst decline since the Great Depression. The firm's research uncovered no discernible change in the 401(k) participation rate or in fund turnover across the 12 million participants in its record-keeping platform."
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Re: Fidelity target date funds pile on stocks

Post by gerrym51 »

they are all matching each other.

TRPrice originally had a higher percentage of stocks. they are introducing a series of funds matching the originals of fidelity and vanguard.
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Re: Fidelity target date funds pile on stocks

Post by mhc »

One more reason to not use TR funds. Too bad.
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Re: Fidelity target date funds pile on stocks

Post by YDNAL »

matjen wrote:Hmmm...

http://www.investmentnews.com/article/2 ... /130929921#

"Fidelity Investments is increasing the stock allocation across its target date funds after research found that investors are OK with more risk in retirement accounts and the outlook for bonds dims.
The reason why IF you seek reasonable control over the Equity/Fixed split for your money, in one balanced fund, use something like
Vanguard LifeStrategy® Funds.
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umfundi
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Re: Fidelity target date funds pile on stocks

Post by umfundi »

research found that investors are OK with more risk in retirement accounts
Silly me. I would have hoped that research showed it was more advantageous for investors.

I have become very cynical about target portfolios, including those touted for 529 plans.

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Re: Fidelity target date funds pile on stocks

Post by WendyW »

Jason Kephart wrote:
Fidelity's outlook for the bond market played a role in the increased stock holdings.

Fidelity's capital market assumption team looks at 20 years of historical returns and current valuations to forecast asset class returns. The team's outlook for stocks is largely in line with historical averages but with the today's interest rates, it's not expecting bonds to perform the way they have.

“We think it's unrealistic the next 20 years will have the same returns of the last 20 years,” Mr. Herring said.
I agree with their thinking. I think that there's a very good chance that bonds will return nearly nothing over the next 20 years.

Consider a typical 55-year-old investor, who can expect to live another 25+ years. If this outlook for bonds comes true, to have nearly 50% of the investor's portfolio invested in bonds will have a massive drag on their much-needed return.
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Re: Fidelity target date funds pile on stocks

Post by umfundi »

If I wanted a tactical allocation fund, I would have bought one.

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Re: Fidelity target date funds pile on stocks

Post by nisiprius »

1) "They didn't panic in 2008-2009, so let's increase the risk until they do."

2) Notice the typical dismissive "the worst decline since the Great Depression." That is to say, in their planning, they choose to ignore the Great Depression because, uh, because... uh... why, exactly? The silly statistics do go back to 1926, why not use all of them?

3) This is exactly the same rationale Vanguard has given for increasing their stock allocations--sharply--in 2006. But that was before 2008-2009. It will be interesting to see whether Vanguard follows Fidelity's lead and assumes that the lesson to draw from 2008-2009 is to have more stocks.
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Re: Fidelity target date funds pile on stocks

Post by gerrym51 »

i have had TRRBX for 10 years. i like it.
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Re: Fidelity target date funds pile on stocks

Post by neurosphere »

nisiprius wrote:1) "They didn't panic in 2008-2009, so let's increase the risk until they do."
Exac-ta-ly.

The next major correct will come, and they might find they raised it too high, and have contributed to panic selling. Oops. So we'll end up with a generation of Target Date investors who prefer to keep their money in a mattress, because they "learned their lesson" in the "Great Depression of 2017".
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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matjen
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Re: Fidelity target date funds pile on stocks

Post by matjen »

YDNAL wrote:
matjen wrote:Hmmm...

http://www.investmentnews.com/article/2 ... /130929921#

"Fidelity Investments is increasing the stock allocation across its target date funds after research found that investors are OK with more risk in retirement accounts and the outlook for bonds dims.
The reason why IF you seek reasonable control over the Equity/Fixed split for your money, in one balanced fund, use something like
Vanguard LifeStrategy® Funds.
Completely agree with this. These are what I suggest to friends who aren't super interested in investing.
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Re: Fidelity target date funds pile on stocks

Post by neurosphere »

The most change will be in Fidelity's longer-dated target date funds. Freedom Fund investors will now hold a 90% allocation to stocks until they are about 20 years away from their retirement date. Currently, they invest in less than 75% equities at the same point.
Wait, what? So a target fund will be invested in NINETY percent stocks up until 20 years prior to retirement? That is, when the average likely owner of this mutual fund is 45 (20 years from a target retirement age of 65). Am I the only one who thinks that's a very aggressive portfolio? Yikes.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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Re: Fidelity target date funds pile on stocks

Post by gwrvmd »

Vanguard, Fidelity, T Rowe Price and TIAA/CREF are the largest provider of Target Date Funds
T Rowe Price has the highest stock/bond ratio, it has the best 5 year return, people notice that and they advertise that, its funds are selling very well, Fidelity noticed that too, Vanguard may notice that too but Vanguard is conservative and may not change.....Gordon
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Re: Fidelity target date funds pile on stocks

Post by JW-Retired »

matjen wrote:Hmmm...

http://www.investmentnews.com/article/2 ... /130929921#

"Fidelity Investments is increasing the stock allocation across its target date funds after research found that investors are OK with more risk in retirement accounts and the outlook for bonds dims.

The biggest reason for the change was new research Fidelity conducted on how 401(k) plan participants reacted to the stock market plunge in 2008, the worst decline since the Great Depression. The firm's research uncovered no discernible change in the 401(k) participation rate or in fund turnover across the 12 million participants in its record-keeping platform."
What???..... "no discernible change in the 401(k) participation rate or in fund turnover across the 12 million participants ". So this says that the major cited reason for a financial advisor's existance, i.e. to keep investors from panic selling, doesn't happen enough to statistically notice in a sample of 12 million!

If true, this ought to be major good news for DIY investors. Does anyone know of better refs. to this or similar studies?
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Re: Fidelity target date funds pile on stocks

Post by joe8d »

The biggest reason for the change was new research Fidelity conducted on how 401(k) plan participants reacted to the stock market plunge in 2008, the worst decline since the Great Depression. The firm's research uncovered no discernible change in the 401(k) participation rate or in fund turnover across the 12 million participants in its record-keeping platform."
I believe that's true.It's not because they are comfortable with risk, but due to fact most participants don't even know what's going on.They sign up for the default TD fund and that's it.I doubt they even look at any reports.
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Re: Fidelity target date funds pile on stocks

Post by peppers »

neurosphere wrote:
The most change will be in Fidelity's longer-dated target date funds. Freedom Fund investors will now hold a 90% allocation to stocks until they are about 20 years away from their retirement date. Currently, they invest in less than 75% equities at the same point.
Wait, what? So a target fund will be invested in NINETY percent stocks up until 20 years prior to retirement? That is, when the average likely owner of this mutual fund is 45 (20 years from a target retirement age of 65). Am I the only one who thinks that's a very aggressive portfolio? Yikes.
Depends.
Being one of the older (I prefer more mature) in the organization, I somehow became Mr. Google when it came to questions about the 401k plan for the 20/30 something crowd. "Go ask the old guy, he knows all about it."
After some time, I took an informal and very unscientific poll about the younger employee's % in equity holdings, 90-100% in particular. I simply asked why so much? The replies:

1) I don't have/will not qualify for any type of pension
2) Social Security will not be there for me
3) Stocks do well in the long run
4) Fixed Income: Dude, are you for real? <actual response>

And as I posted awhile back in one of Rick's threads, one of my sons', late 30's, investing ~13 years, never sold, 100% equity, no fixed income, all international.
"..the cavalry ain't comin' kid, you're on your own..."
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Re: Fidelity target date funds pile on stocks

Post by gerrym51 »

until i turned 40 i was always 100 percent equities. it does not surprise me.
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Re: Fidelity target date funds pile on stocks

Post by mhc »

Until I found this site a few years ago, I was 100% equities. My thinking was to invest in whatever had the highest long term returns. I stayed 100% equities through the dot com bust and drop of 2008/2009.
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Re: Fidelity target date funds pile on stocks

Post by BrandonBogle »

My biggest gripe is they are changing TR funds that are available pretty much anywhere you can buy Fidelity funds, but they basing their decision on a sampling of 401k accounts. This won't apply to everyone, but 401ks likely have a larger participation rate of people who are in the accumulation phase than those in the distribution phase. This likely skews that sample to more risk taking. Now if they included IRAs and Taxable in their calculation, then they would have a more representative sample. I say this because many like the simplicity consolidated funds provide, especially in the older age where one may not want to worry about the particulars as much.
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Re: Fidelity target date funds pile on stocks

Post by Spirit Rider »

gwrvmd wrote:Vanguard, Fidelity, T Rowe Price and TIAA/CREF are the largest provider of Target Date Funds
T Rowe Price has the highest stock/bond ratio, it has the best 5 year return, people notice that and they advertise that, its funds are selling very well, Fidelity noticed that too, Vanguard may notice that too but Vanguard is conservative and may not change.....Gordon
Vanguard may be "the house that Jack built", but it isn't Jack's house anymore (and hasn't been for some time). He was forced out by Brennan specifically over the issue of letting marketing drive decisions. In "Common Sense on Mutual Funds," Jack blasted fund companies for caring more about marketing and distribution issues than the actual trusteeship of investors' money. This wasn't just about the industry at large, it was a thinly veiled swipe at Brennan and what Vanguard had become.

Vanguard demonstrated in the run up to 2008/2009 that it too is driven by desire for market share. Just like it is a mistake to think that a Mutual Insurance company is operated for the benefit of its policy holders (it is not), it is a mistake to think that Vanguard is operated solely for the benefit of its investors.

Whether it be mutual insurance companies, credit unions, labor unions, or Vanguard, somewhere along the way altruism is replaced by self-interest of the management. It is human nature.

Don't take this as a discouragement of Vanguard in general. Vanguard is still by far the best place for low cost investments. However, one should not attach blind faith to an institution run by human beings.
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Re: Fidelity target date funds pile on stocks

Post by stemikger »

mhc wrote:One more reason to not use TR funds. Too bad.
+1

I agree. This is one reason why I decided they weren't for me. I'm not saying they are wrong or right for doing this, but if you really want to stay the course with your plan, this not be the way to go. You will be staying the course by contributing, but they will be changing that course as they see fit.

If you want a one fund option for retirement, I personally like the old fashioned balanced fund. Or if you want to listen to what Warren Buffett says just stick it in an index fund that buys America and forget about it.
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Re: Fidelity target date funds pile on stocks

Post by rkhusky »

nisiprius wrote:
3) This is exactly the same rationale Vanguard has given for increasing their stock allocations--sharply--in 2006. But that was before 2008-2009. It will be interesting to see whether Vanguard follows Fidelity's lead and assumes that the lesson to draw from 2008-2009 is to have more stocks.
Vanguards TR 2035 is already at 85% stock. TR 2030 is 78% stock. Fidelity may be trying to catch up and pass.

One more reason to look at the stock percentage, rather than the fund name.
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Re: Fidelity target date funds pile on stocks

Post by ftobin »

matjen wrote:Completely agree with this. These are what I suggest to friends who aren't super interested in investing.
If they aren't super interested in investing, why not recommend a TR fund, as at least it will give a reasonable stock/bond allocation and glide path? If you want a particular breakdown, sure, select a LifeStrategy, but that's beyond what most people are looking to do.
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Re: Fidelity target date funds pile on stocks

Post by berntson »

stemikger wrote: If you want a one fund option for retirement, I personally like the old fashioned balanced fund. Or if you want to listen to what Warren Buffett says just stick it in an index fund that buys America and forget about it.
You know, I've been slowly coming around to the idea for investors who don't pay attention to the market, there are worse portfolios than just putting everything in VTI and checking back in 30 years. No need for rebalancing, rock bottom fees, minimal distributions, and no need for an advisor or any time spent managing your portfolio. You just have to avoid looking at your statements in really bad years. :happy
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Re: Fidelity target date funds pile on stocks

Post by YDNAL »

berntson wrote:You know, I've been slowly coming around to the idea for investors who don't pay attention to the market, there are worse portfolios than just putting everything in VTI and checking back in 30 years. <snip> You just have to avoid looking at your statements in really bad years. :happy
What happens if we change the heading to VTI and accumulation for 40+ years (1970-2013) looks graphically like this when they look to retire ? :happy
Image
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Re: Fidelity target date funds pile on stocks

Post by manwithnoname »

peppers wrote:
neurosphere wrote:
The most change will be in Fidelity's longer-dated target date funds. Freedom Fund investors will now hold a 90% allocation to stocks until they are about 20 years away from their retirement date. Currently, they invest in less than 75% equities at the same point.
Wait, what? So a target fund will be invested in NINETY percent stocks up until 20 years prior to retirement? That is, when the average likely owner of this mutual fund is 45 (20 years from a target retirement age of 65). Am I the only one who thinks that's a very aggressive portfolio? Yikes.
Depends.
Being one of the older (I prefer more mature) in the organization, I somehow became Mr. Google when it came to questions about the 401k plan for the 20/30 something crowd. "Go ask the old guy, he knows all about it."
After some time, I took an informal and very unscientific poll about the younger employee's % in equity holdings, 90-100% in particular. I simply asked why so much? The replies:

1) I don't have/will not qualify for any type of pension
2) Social Security will not be there for me
3) Stocks do well in the long run
4) Fixed Income: Dude, are you for real? <actual response>

And as I posted awhile back in one of Rick's threads, one of my sons', late 30's, investing ~13 years, never sold, 100% equity, no fixed income, all international.

I have advised several 30 somethings who have 6 figure portfolios to stay 95-100% in equities in low cost index funds or VG funds. Why should they invest in fixed income which is paying bupkis in interest and will decline when interest rates rise? They can start moving to fixed income when they are 45. These investors understand the risk but they have a 30 year investment horizon.
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Re: Fidelity target date funds pile on stocks

Post by YDNAL »

manwithnoname wrote:I have advised several 30 somethings who have 6 figure portfolios to stay 95-100% in equities in low cost index funds or VG funds. Why should they invest in fixed income which is paying bupkis in interest and will decline when interest rates rise? They can start moving to fixed income when they are 45. These investors understand the risk but they have a 30 year investment horizon.
Knowing what [little] I know, and if starting today saving for 30+ year horizon, I would put my regular paycheck contribution in Vanguard TR 2040* and do something else with my time like improving skills - to improve income, to improve savings - comes to mind !!

* currently 90/10 Equity/Fixed.
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Re: Fidelity target date funds pile on stocks

Post by manwithnoname »

Spirit Rider wrote:
gwrvmd wrote:Vanguard, Fidelity, T Rowe Price and TIAA/CREF are the largest provider of Target Date Funds
T Rowe Price has the highest stock/bond ratio, it has the best 5 year return, people notice that and they advertise that, its funds are selling very well, Fidelity noticed that too, Vanguard may notice that too but Vanguard is conservative and may not change.....Gordon
Vanguard may be "the house that Jack built", but it isn't Jack's house anymore (and hasn't been for some time). He was forced out by Brennan specifically over the issue of letting marketing drive decisions. In "Common Sense on Mutual Funds," Jack blasted fund companies for caring more about marketing and distribution issues than the actual trusteeship of investors' money. This wasn't just about the industry at large, it was a thinly veiled swipe at Brennan and what Vanguard had become.

Vanguard demonstrated in the run up to 2008/2009 that it too is driven by desire for market share. Just like it is a mistake to think that a Mutual Insurance company is operated for the benefit of its policy holders (it is not), it is a mistake to think that Vanguard is operated solely for the benefit of its investors.

Whether it be mutual insurance companies, credit unions, labor unions, or Vanguard, somewhere along the way altruism is replaced by self-interest of the management. It is human nature.

Don't take this as a discouragement of Vanguard in general. Vanguard is still by far the best place for low cost investments. However, one should not attach blind faith to an institution run by human beings.
[OT comment removed by admin LadyGeek] Vanguard has grown because the amount of investor assets has grown exponentially since 1976 when VG introduced the S & P 500 fund. To take one example, it was estimated that in 1972 the amount of retirement assets held in pension plans was 150B. Today retirement assets total 20.8T. VG has benefited from the expansion of investment opportunities by offering low cost products that are attractive to all investors whether they own index funds, actively managed funds, ETFs or annuities. That's why VG has $2T of assets. No brainer.VG growth has more to do with offering investment products that appeal to all investors than marketing. Marketing is enhanced when a good product is offered to a large number of customers.
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Re: Fidelity target date funds pile on stocks

Post by Spirit Rider »

manwithnoname wrote:[OT comment removed by admin LadyGeek] Vanguard has grown because the amount of investor assets has grown exponentially since 1976 when VG introduced the S & P 500 fund.
[Response to OT comment removed by admin LadyGeek] However, Vanguard has grown because marketing has driven decisions on offerings to drive growth. Growth in itself is not a demonstration of the righteousness of a company's actions.

However, my position is based the factual basis of the direction Vanguard has taken over the last decade. This has continually been a great disappointment to Jack Bogle. He has recently (last few months ) commented about his disappointment in the direction Vanguard has taken. This is not my babble it is the founder of Vanguard's esteemed view.

You seem to be taking this personally. I am not disparaging Vanguard, I am just pointing out that the current management of Vanguard will take actions to improve its position in the marketplace, even if those actions are not necessarily in the best interests of its investors.. [OT comment removed by admin LadyGeek], it has been demonstrated fact.
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Re: Fidelity target date funds pile on stocks

Post by manwithnoname »

Spirit Rider wrote:
manwithnoname wrote:[OT comment removed by admin LadyGeek] Vanguard has grown because the amount of investor assets has grown exponentially since 1976 when VG introduced the S & P 500 fund.
[Response to OT comment removed by admin LadyGeek] However, Vanguard has grown because marketing has driven decisions on offerings to drive growth. Growth in itself is not a demonstration of the righteousness of a company's actions.

However, my position is based the factual basis of the direction Vanguard has taken over the last decade. This has continually been a great disappointment to Jack Bogle. He has recently (last few months ) commented about his disappointment in the direction Vanguard has taken. This is not my babble it is the founder of Vanguard's esteemed view.

You seem to be taking this personally. I am not disparaging Vanguard, I am just pointing out that the current management of Vanguard will take actions to improve its position in the marketplace, even if those actions are not necessarily in the best interests of its investors.. [OT comment removed by admin LadyGeek], it has been demonstrated fact.
[OT comment removed by admin LadyGeek]

[1]: What is the "factual basis of the direction that VG has taken over the last decade" that your position is based on? We cant read your mind.

[2]: Where has marketing driven decisions on offerings to drive growth?

[3]; What comment has Jack Bogle made where he states his disappointment in the direction VG has taken?

[4]: what is the founder of VG esteemed view?

[5]: what actions is VG taking which are not necessarily in the best interests of its investors? Is VG violating some fiduciary standard?

[6] : What is the demonstrated fact that you refer to?
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Re: Fidelity target date funds pile on stocks

Post by mikem »

I am scheduled (or want to) retire in 3 years. I do not want to endure a 20 year recovery from a major drawdown in the market with an equity heavy portfolio. If Vanguard takes the same tact as Fidelity and substantially increases the stock portion of the Target Date series, I will replace my Target Fund with something in line with "MY" risk tolerance, not a risk tolerance that a competitors research indicates I "should" have. If Fidelity is doing this because return on fixed income is so low, this is mass market timing IMHO.
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Re: Fidelity target date funds pile on stocks

Post by LadyGeek »

As a reminder, see: Forum Policy
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
I want to be clear that opposing points of view are perfectly acceptable to be discussed in this forum; as long as the details are presented in a factual way.

That being said, this thread is about Fidelity, not Vanguard's long term business outlook or Jack Bogle. Please stay on-topic.
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Re: Fidelity target date funds pile on stocks

Post by dkturner »

nisiprius wrote:1) "They didn't panic in 2008-2009, so let's increase the risk until they do."

It will be interesting to see whether Vanguard follows Fidelity's lead and assumes that the lesson to draw from 2008-2009 is to have more stocks.
I think it's the other way around. It would appear that Fidelity is, belatedly, catching up with - and surpassing - Vanguard's 2006 move. Vanguard's Target 2035 fund is 85% equity, while Fidelity's Freedom 2035 will increase its equity allocation from about 82% to 90%.
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Re: Fidelity target date funds pile on stocks

Post by nedsaid »

I can see why Fidelity is doing this. We could be in for an extended period of time where bonds have zero real return. But I am a bit uneasy.

I am age 54 and my allocation is 69% stocks and 31% bonds. So I guess I have done what Fidelity has done, keeping a higher percentage in stocks than I would like. I just cannot get excited about 2 and 3% yields.

That being said, I have been mildly rebalancing from stocks to bonds and buying bonds with new monies.

I have mixed feelings about having a stock heavy portfolio.
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Re: Fidelity target date funds pile on stocks

Post by woof755 »

Wish we could finally graduate to:

Vanguard Target 80/20
Vanguard Target 70/30
Vanguard Target 60/40
Vanguard Target 50/50...etc?

That way all the investor has to know is that every 5 years your fund will be changed out for the next named fund?

At least investors would know what their fund holds.

BTW, those Fidelity target retirement funds ignore the fact that Fido has excellent low cost Spartan index funds that cover the entire market. Instead, Fido uses these funds to funnel money into their actively managed funds. There are like 17 funds that comprise these monstrosities. Shameful.
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Re: Fidelity target date funds pile on stocks

Post by gerrym51 »

gwrvmd wrote:Vanguard, Fidelity, T Rowe Price and TIAA/CREF are the largest provider of Target Date Funds
T Rowe Price has the highest stock/bond ratio, it has the best 5 year return, people notice that and they advertise that, its funds are selling very well, Fidelity noticed that too, Vanguard may notice that too but Vanguard is conservative and may not change.....Gordon

TRPRICE TRRBX is mine had it 10 years :mrgreen:
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Re: Fidelity target date funds pile on stocks

Post by umfundi »

woof755 wrote:Wish we could finally graduate to:

Vanguard Target 80/20
Vanguard Target 70/30
Vanguard Target 60/40
Vanguard Target 50/50...etc?

That way all the investor has to know is that every 5 years your fund will be changed out for the next named fund?

At least investors would know what their fund holds.

BTW, those Fidelity target retirement funds ignore the fact that Fido has excellent low cost Spartan index funds that cover the entire market. Instead, Fido uses these funds to funnel money into their actively managed funds. There are like 17 funds that comprise these monstrosities. Shameful.
They are already there. Vanguard LifeStrategy funds can be had in 20/80, 40/60, 60/40, and 80/20.

I have chosen LS Moderate (60/40) and added bond funds to bring me to 50/50. I feel real good, because I did not choose Target Retirement Funds because they have a history of tampering with their AA and strategy. Not that the LS funds are totally clean in this regard ...

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woof755
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Re: Fidelity target date funds pile on stocks

Post by woof755 »

No, I mean, ditch the "Retirement 2035" and say what's actually in the fund. They are all too aggressive, VG included in my opinion.
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FlyingMoose
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Re: Fidelity target date funds pile on stocks

Post by FlyingMoose »

So does LifeStrategy Growth bias towards stocks with low yields? </rhetorical>

And you guys wonder why the general public is confused about investing. Whoever named that should be fired.
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Re: Fidelity target date funds pile on stocks

Post by YDNAL »

woof755 wrote:No, I mean, ditch the "Retirement 2035" and say what's actually in the fund. They are all too aggressive, VG included in my opinion.
You opinion based on what ?

I will use Vanguard TR2035, because you mention it, which is currently 85/15 Equity/Fixed.
  • 1. TR2035 is designed for someone to retire at 65 in 22 years (2035), who is currently 43 years old. This is hugely important to note.
    2. In Boglehead polls, lots of posters say they are Age - 20 in Bonds. A typical 43yo would be Age - 28 using this basic guideline. IF you believe this to be "too aggressive," regardless of the many variables at play, then I can stop at #2, but I'm not stopping.
    3. Likely since graduating college at 22, this typical 43yo has been working 21 years (about 50% of plan).
    4. (S)He also likely has saved for a house, started a family, etc.
    - How much has (s)he accumulated or saved for retirement ?
    - What level of savings and risk, for hoped-for return, does (s)he needs over the NEXT 22 years to meet goals ?
[edit] No, woof755, we shouldn't casually say TR Funds are too aggressive as a generalization, in my opinion.
Last edited by YDNAL on Sat Sep 28, 2013 5:17 pm, edited 2 times in total.
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woof755
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Re: Fidelity target date funds pile on stocks

Post by woof755 »

That was a bit harsh.

Some people also say to hold one's age in bonds. In that case, Target 2035 is off by 25%. Imagine you've been working for 20 years in 2008 and you think you're safely tucked away in Target 2035. A year later, your portfolio is down 40%.

I did say it was my opinion, after all. And it's the opinion of many, many others on this board.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
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Re: Fidelity target date funds pile on stocks

Post by YDNAL »

woof755 wrote:That was a bit harsh.

Some people also say to hold one's age in bonds. In that case, Target 2035 is off by 25%. Imagine you've been working for 20 years in 2008 and you think you're safely tucked away in Target 2035. A year later, your portfolio is down 40%.

I did say it was my opinion, after all. And it's the opinion of many, many others on this board.
I edited my post to soften the conclusion and to reflect it is "my opinion." :beer

After working 20 years, at age 43, you have another 23 years of accumulation. We should never lose sight of the BIG picture.
Last edited by YDNAL on Sat Sep 28, 2013 5:23 pm, edited 1 time in total.
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Re: Fidelity target date funds pile on stocks

Post by nonnie »

woof755 wrote:No, I mean, ditch the "Retirement 2035" and say what's actually in the fund. They are all too aggressive, VG included in my opinion.
Life Strategy Income -19.5/80.5 - 1.99% YTD. Can't get much more conservative than this 20/80 allocation.
Life Strategy Conserv- 39.6/60.4 - 5.91% YTD

Interestingly enough, TR 2010, with 5 funds instead of the 4 fund approach that Life Strategy uses is:
40.3/59.7 and 5.93% YTD-- so adding a fifth fund, Vanguard Short-Term Inflation-Protected Securities, and .7% more equities you earn a whopping .02% additional. Slice and dice away!

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woof755
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Re: Fidelity target date funds pile on stocks

Post by woof755 »

YDNAL wrote:
woof755 wrote:That was a bit harsh.

Some people also say to hold one's age in bonds. In that case, Target 2035 is off by 25%. Imagine you've been working for 20 years in 2008 and you think you're safely tucked away in Target 2035. A year later, your portfolio is down 40%.

I did say it was my opinion, after all. And it's the opinion of many, many others on this board.
I edited my post to soften the conclusion and to reflect it is "my opinion." :beer

After working 20 years, at age 43, you have another 23 years of accumulation. We should never lose sight of the BIG picture.

Don't forget the behavioral investing aspect of this. Many people using these funds in their 401(k)s are investing novices. "My target 20-years-from-now fund loses half its value in 18 months but I'm gonna stick it out" is probably not the most common response. Fear, panic, and exchange for the money market fund is more likely.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
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Re: Fidelity target date funds pile on stocks

Post by matjen »

woof755 wrote: Don't forget the behavioral investing aspect of this. Many people using these funds in their 401(k)s are investing novices. "My target 20-years-from-now fund loses half its value in 18 months but I'm gonna stick it out" is probably not the most common response. Fear, panic, and exchange for the money market fund is more likely.
Well that seems to be directly contradicted by Fidelity's research regarding participants in its 401(k)s. "The biggest reason for the change was new research Fidelity conducted on how 401(k) plan participants reacted to the stock market plunge in 2008, the worst decline since the Great Depression. The firm's research uncovered no discernible change in the 401(k) participation rate or in fund turnover across the 12 million participants in its record-keeping platform"
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woof755
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Re: Fidelity target date funds pile on stocks

Post by woof755 »

Wonder how scientific their poll was? Sounds like they got the answer they wanted.
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Re: Fidelity target date funds pile on stocks

Post by WendyW »

woof755 wrote:Imagine you've been working for 20 years in 2008 and you think you're safely tucked away in Target 2035. A year later, your portfolio is down 40%.
$1 million in Vanguard Target Retirement 2035 Fund VTTHX in 2008 is worth $2 million today in 2013.

The takeaway is the same: Stay the course.
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Re: Fidelity target date funds pile on stocks

Post by nedsaid »

As a very large 401k provider, Fidelity can monitor what investors are actually doing in their 401k's. I don't think they are sending out surveys. How many people are going to admit to bailing out at the bottom and buying back in at the top? A survey, no matter how big a sample is going to suffer from the Lake Woebegone effect. Investors will rate themselves and their investment behavior as better than average. All Fidelity has to do is look at the transactions of 401k participants. That is good enough data.
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Re: Fidelity target date funds pile on stocks

Post by stratton »

During a bear market, "There's too much stock in the target fund!" Lower it.

During a bull market, <You fill in the blank!>

You'd think counter-cyclical might be better. Raise stock percentage after a large drop and lower large run up.

I think this is called rebalancing.

:P

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Re: Fidelity target date funds pile on stocks

Post by nisiprius »

Morningstar has published an excellent article by Thomas Idzorek, Jeremy Stempien, and Nathan Voris. It's available with no registration, dated 2011, here:

Bait and Switch: Glide Path Instability

and in a version dated 2013 (no-cost registration required) here:

Bait and Switch: Glide Path Instability

Not quite sure whether they're identical.

"This article highlights a previously unrecognized characteristic of target date fund families: Glide paths aren’t necessarily stable over time, and in some cases change dramatically. We document the stability, or lack of stability, of the glide paths for the largest target date fund families and introduce quantitative measures of glide path stability, including our preferred measure, the Glide Path Stability Score."

One of their illustrations of an unstable fund family is Fidelity's:

Image

Fidelity was literally all over the map before. If Morningstar updates this article, that swath of lines will fatten up even more, as the glide paths for 2013 gets drawn in way at the top.

[Edited]What I think is atrocious, on the part of both Fidelity and with Vanguard, is that they made presentations from which an investor could reasonably have inferred that these funds would de-risk with time--and that both firms have failed to meet those expectations. Good, bad, or indifferent, the entire premise of these funds is--this is a direct quotation from Fidelity's statement of the Strategy for Fidelity Freedom 2040
Allocating assets among underlying Fidelity funds according to an asset allocation strategy that becomes increasingly conservative until it reaches approximately 17% in domestic equity funds, 7% in international equity funds, 46% in bond funds, and 30% in short-term funds (approximately 10 to 17 years after the year 2040). Ultimately, the fund will merge with Fidelity Freedom Income Fund.
So, people invest in this fund in the belief that it will become more conservative over time. That is what Fidelity says. So the question is, when does the de-risking begin? Over time, you proceeded downward on the curve, but both Fidelity and Vanguard keep raising the entire curve. The result is that the investor is left with the same or even a more aggressive allocation than they had when they were younger! Of course, there are some who might argue that this is better, but it is not what investors were told that the fund would do.

Whenever the fund is actually about to get less risky, they just goose it up right back to where it was.
Last edited by nisiprius on Mon Sep 30, 2013 6:49 am, edited 1 time in total.
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