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facmit
Joined: 21 Oct 2009
Posts: 87
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 Posted: Wed Nov 04, 2009 11:19 pm Post subject: target date funds |
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in the thread on permanent profolio, I ask: why don't the retirement accounts 2020, 2035, etc, follow this stragetry?
I was told this question needs another thread. So here it is 
do TD funds make good sense?
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CABob
Joined: 25 Feb 2007
Posts: 899
Location: Southern California
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| Posted: Wed Nov 04, 2009 11:53 pm Post subject: |
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| Quote: | do TD funds make good sense?
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Yes, provided they are used properly and they are suitable to the investor.
The asset allocation should be suitable for the investors risk tolerance and goals.
Generally they should be held in tax advantaged accounts.
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facmit
Joined: 21 Oct 2009
Posts: 87
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| Posted: Thu Nov 05, 2009 9:20 am Post subject: |
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| CABob wrote: | | Quote: | do TD funds make good sense?
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Yes, provided they are used properly and they are suitable to the investor.
The asset allocation should be suitable for the investors risk tolerance and goals.
Generally they should be held in tax advantaged accounts. |
but they are quite different from pp, right? |
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dbr
Joined: 04 Mar 2007
Posts: 3457
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| Posted: Thu Nov 05, 2009 9:34 am Post subject: |
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| It is entirely possible that TD funds make sense even though they are not pp funds. If one believes only pp makes sense then by necessity TD funds do not make sense. Does the thread on pp conclude that pp is the only sensible portfolio design? Is it possible to conclude that if TD make sense, then pp cannot make sense? |
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subrosa
Joined: 28 Feb 2007
Posts: 145
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| Posted: Fri Nov 06, 2009 11:04 am Post subject: |
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| Quote: | | but they are quite different from pp, right? |
Would seem to me they are completely different.
TD funds use stocks and total bonds (for the most part) with a glide path that sets risk (traditional definition) highest initially and gradually reduces. They have minimal cash and no gold.
PP sets a constant allocation and rebalances to that continuously. Risk does not very over time, it is very cash heavy compared to most any other portfolio, does not mix bonds, and uses gold.
To very different constructs from two very different philosophies.
To answer your basic question, put aside 2008 for a moment: does a TD path make sense for a "young" accumulator with a mortgage and an accumulating pension?
Does , via the PP, a static allocation to 50% net cash and bonds make as much sense for the same person?
Imagine for the PP your person is using a cash account at the local bank, is using CD's for the bond part of the PP from the same local bank (lets pretend the bank sells 30 year CD's with identical credit risk to treasuries), and is paying her monthly mortgage to that same local bank.
Is this person not buying fixed coupon / income interest and cash interest from the bank and then turning around and paying the same bank a fixed coupon with interest?
I can see where either the PP or the TD approach make sense sometimes for the same person sometimes in the same lifetime.
[Although, with the recent events, and the fed now buying both treasuries and MBS, I do not know what that will hold for the traditional distinction between how the approachs select their bond components. I understand the PP reasoning quite well, I just do not know what the recent actions will mean for it.]
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Last edited by subrosa on Fri Nov 06, 2009 11:14 am; edited 1 time in total |
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Opponent Process
Joined: 18 Sep 2007
Posts: 1896
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| Posted: Fri Nov 06, 2009 11:13 am Post subject: |
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I don't think PP would work for TRs at all.
People in TRs tend to be very sensitive to short-term returns and would likely not be able to handle the tracking error. One year, there'd be a call for congressional investigations into why TR funds don't hold enough gold. The next, there would be calls for congressional investigations into why TR funds contain so much gold.
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