Choosing later date target funds

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Brand0n
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Choosing later date target funds

Post by Brand0n »

Just curious how often people that use target date funds exclusively pick fund years later than the year they intend to retire in?
stan1
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Re: Choosing later date target funds

Post by stan1 »

You can pick the fund that best meets your desired asset allocation.

The FBI will not open an investigation if you are planning to retire in 2035 but choose a 2050 fund.

In reality though I think "most people" who use a target date fund in an IRA or 401K want something very simple and yield to the experts who set up the fund for direction rather than looking under the hood at the details.
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eye.surgeon
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Re: Choosing later date target funds

Post by eye.surgeon »

Pick the AA you are comfortable with today and choose the target date fund that corresponds most closely with that AA.

*AA= asset allocation
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theorist
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Re: Choosing later date target funds

Post by theorist »

Brand0n wrote: Tue Sep 14, 2021 4:52 pm Just curious how often people that use target date funds exclusively pick fund years later than the year they intend to retire in?
Clearly it is a matter of personal preference, but I’ve found the Vanguard TDFs pretty aggressive in their allocation if one assumes retirement at 65.
For instance the 2035 and 2040 funds have 73% and 81% stocks, respectively. I’m 51 now and at about 75/25 (with an IPS goal of 70/30 that I’ve been slow to adhere to), and I think 80/20 is actually pretty aggressive in your 50s!

(Though actually my Fidelity retirement account — which is currently at 74/26 — warns me that my allocation is atypical for my age because it isn’t aggressive enough!)
dalbright
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Re: Choosing later date target funds

Post by dalbright »

Brand0n wrote: Tue Sep 14, 2021 4:52 pm Just curious how often people that use target date funds exclusively pick fund years later than the year they intend to retire in?
The two vanguard TDF we are in are both 2060, however I hope to retire long before then (we are 33/37). One is in an HSA and the other is a 403b that cannot be easily rebalanced, thus the target date fund makes life simpler for a small fee beyond holding the components separately. I also personally do not prefer the total bond market (us/intl) and instead lean towards treasuries (as well as HYSA, I bonds, EE bonds, and stable value).
exodusNH
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Re: Choosing later date target funds

Post by exodusNH »

Brand0n wrote: Tue Sep 14, 2021 4:52 pm Just curious how often people that use target date funds exclusively pick fund years later than the year they intend to retire in?
When my gf recently changed jobs, I recommended she go into a TDF 5 years later than her target year. She anticipates a healthy, but not life changing, inheritance from her mother in the next 10-15 years. That is sort of a bond and allows her to be a bit more aggressive.

I don't use a TDF because the international allocation is higher than I like.
mr_brightside
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Re: Choosing later date target funds

Post by mr_brightside »

Brand0n wrote: Tue Sep 14, 2021 4:52 pm Just curious how often people that use target date funds exclusively pick fund years later than the year they intend to retire in?
fwiw mine is 10 yrs past my 'retirement date'

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dbr
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Re: Choosing later date target funds

Post by dbr »

One objection I have to the marketing of TD funds is the potential to confuse the date label with responsible advice for how to invest. In short the investor should absolutely not be choosing the fund according to their expected retirement date but rather according to the asset allocation they have determined they should have. Also, it is unusual that people end up with only a single target date fund in a single account. That means the portfolio is usually more complicated than just picking one fund. For young investors with an emergency fund saved in a taxable account, that is already a second allocation to an asset that is not a TD fund.
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Quirkz
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Re: Choosing later date target funds

Post by Quirkz »

Yeah, I've got some that are further out than my projected retirement. Partly because I'm a smidge more aggressive than the funds are, partly because I'm hoping to retire a bit earlier than 65-67, which makes me younger than my anticipated "retirement date" would normally be.
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arcticpineapplecorp.
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Re: Choosing later date target funds

Post by arcticpineapplecorp. »

i would bet that most people pick the target date that closely matches the year they plan to retire but then the market crashes and they panic because they didn't understand in the first place how their money was allocated.

this can even be when one reaches the target date (in which case one's allocation is still 50% stock) or even a conservative portfolio...

my mom freaked a few years ago when she lost $6000 (which only represented a 3% decline in her 401k). The market had dropped 10%, so that tells you she was conservatively invested (30% stock). She shouldn't have freaked out, but she only understood half the equation (that she had 30% in stocks). She didn't understand how a 30% stock portfolio would perform if the market fell 10% (or more).

so understanding how one's portfolio will behave when the market falls is key to staying the course.

just picking a fund because it's supposed to work for people who plan to retire around the same time won't matter if they don't understand how it's likely to perform in down markets.

that and people overestimate the amount of risk they think they can handle. This can be due to inexperience, but people especially overestimate this during prolonged bull markets.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events.
etfan
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Re: Choosing later date target funds

Post by etfan »

The pros of TDF's:

1- Experts pick the investments and rebalance without any effort from the investor.
2- Their stock/bond allocation seems to match the "120 - age" rule of thumb, which seems like the standard modern recommendation.
3- TDF's seem to roughly implement the standard Bogleheads 3-fund portfolio, which also seems to be the common recommendation.

So someone who invests in a TDF (because they don't know any better) will be unknowingly following all the best guidelines of investing. One could do a lot worse.
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