Here is the breakdown of my target date 2035 fund available through my 401k at work. Can someone tell me why they might choose this allocation in terms of MPT and/or FF? Let's assume that they are acting in good faith and not loading up on funds to enrich themselves...
American Funds Growth Fund R6................... 21.30%
Fidelity Spartan Total Market ...................... 21.30%
American Europacific Growth R6....................11.50%
Fidelity Spartan Extended Market ..................08.20%
My Bank X Tactical Fund .............................08.00%
My Bank X Capital Opportunity Fund ...............07.40%
My Bank X Equity Income R ..........................06.60%
Vanguard Small Cap Index ...........................04.90%
Vanguard Total Market Bond Index .................02.40%
PIMCO Total Return ..................................02.20%
My Target Date Fund Overweights Large Growth?
My Target Date Fund Overweights Large Growth?
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Re: My Target Date Fund Overweights Large Growth?
Target Date funds are not created equally unfortunately. Many are high costs, different allocations, and a wide range of underlying investments.
The most important aspect is to look "under the hood" at the stock and bond allocation. Ignore the date of retirement in the funds name. This is key.
The most important aspect is to look "under the hood" at the stock and bond allocation. Ignore the date of retirement in the funds name. This is key.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: My Target Date Fund Overweights Large Growth?
This is a great point about Target Date Funds. These funds are defaults for most retirement plans and many individuals blindly believe picking a fund based upon their retirement date means it fits their risk portfolio. I really dislike them because once you get over 4 or 5 funds, it is very difficult for an investor to know if they are taking the appropriate risk. Vanguard has some nice Target Date funds that invest in STIPs, Total Stock, Total Intl., & Total Bond funds. They are fairly straight forward and you can see the underlying funds ERs to figure out what an investment in all of those funds would cost you. They might overweight their longer-term funds in some cases towards stocks, but at least you can understand everything you are investing in. If you have some lower cost index funds, I might look at controlling your own asset allocation and rebalancing on your own personal glide path.
Re: My Target Date Fund Overweights Large Growth?
Agreed.neoptolemus412 wrote:This is a great point about Target Date Funds. These funds are defaults for most retirement plans and many individuals blindly believe picking a fund based upon their retirement date means it fits their risk portfolio. I really dislike them because once you get over 4 or 5 funds, it is very difficult for an investor to know if they are taking the appropriate risk. Vanguard has some nice Target Date funds that invest in STIPs, Total Stock, Total Intl., & Total Bond funds. They are fairly straight forward and you can see the underlying funds ERs to figure out what an investment in all of those funds would cost you. They might overweight their longer-term funds in some cases towards stocks, but at least you can understand everything you are investing in. If you have some lower cost index funds, I might look at controlling your own asset allocation and rebalancing on your own personal glide path.
I use VINIX in my 401k exclusively and then supplement them with funds in my Roth and my wife's 403b.
I am just curious about why they might choose this allocation. It looks like they are tilting toward small and large growth which seems odd to me.
Walk a single path, becoming neither cocky with victory nor broken with defeat, without forgetting caution when all is quiet or becoming frightened when danger threatens. -- Jigoro Kano
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Re: My Target Date Fund Overweights Large Growth?
1) Heresy, of course, but maybe, just maybe, the case for value isn't actually all that cut-and-dried. Burton Malkiel disposes of it a few pages in A Random Walk Down Wall Street, under the heading "Potshots At The Efficient Market Theory And Why They Miss: The 'Value Will Win' Record." I don't regard Malkiel as gospel to the extent that I used to, but when a heavyweight like him expresses skepticism it tells you something.
Or, at the very least, when you look at what "value factor" advocates are claiming, it seems to be a "kids don't try this at home" thing. It's not just any old value, you have to know to throw out utilities, and you need to be way more value-y then the pokey old too-broad categories Morningstar uses, etc. etc.
So, even if you believe in the value factor, the kind and amount of value you would get in a plain vanilla centrist portfolio might not be worth all that much, and you might not be missing out on all that much by being slightly tilted toward growth.
2) American Funds Growth R6 is a share class of American Funds Growth Fund of America, which until quite recently was the fund everyone cited as proof that active management works, as it had "consistently" beaten the S&P and Vanguard Total Stock and Morningstar's "Large Growth" benchmark for a very long time. And for the last five years or so it hasn't done anything bad, it has just pretty well paralleled everything else. It didn't tank worse than the total market in 2008-2009. It appears to me that anyone who bought it just about any time 1980 to 2008 and held did a lot better than they would have in an index fund, and anyone who bought it after that has done no worse. It's NOT like Bill Miller's Legg Mason Value Trust, that beat the S&P mumble years running and then gave all of it back.
So, it's been a very well liked, very successful fund, and probably someone who constructed the target date fund still likes it.
I'll bet they didn't use MPT or Fama-French factors at all. I'll bet it was educated guess, informed opinion, and maybe committee logrolling.
Or, at the very least, when you look at what "value factor" advocates are claiming, it seems to be a "kids don't try this at home" thing. It's not just any old value, you have to know to throw out utilities, and you need to be way more value-y then the pokey old too-broad categories Morningstar uses, etc. etc.
So, even if you believe in the value factor, the kind and amount of value you would get in a plain vanilla centrist portfolio might not be worth all that much, and you might not be missing out on all that much by being slightly tilted toward growth.
2) American Funds Growth R6 is a share class of American Funds Growth Fund of America, which until quite recently was the fund everyone cited as proof that active management works, as it had "consistently" beaten the S&P and Vanguard Total Stock and Morningstar's "Large Growth" benchmark for a very long time. And for the last five years or so it hasn't done anything bad, it has just pretty well paralleled everything else. It didn't tank worse than the total market in 2008-2009. It appears to me that anyone who bought it just about any time 1980 to 2008 and held did a lot better than they would have in an index fund, and anyone who bought it after that has done no worse. It's NOT like Bill Miller's Legg Mason Value Trust, that beat the S&P mumble years running and then gave all of it back.
So, it's been a very well liked, very successful fund, and probably someone who constructed the target date fund still likes it.
I'll bet they didn't use MPT or Fama-French factors at all. I'll bet it was educated guess, informed opinion, and maybe committee logrolling.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: My Target Date Fund Overweights Large Growth?
I would've thought that a target date fund would be composed from funds from a single family. Do financial advisors roll their own and handle all the rebalancing and glide paths?