Why lack of bonds in Target Date Funds?

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stocknoob4111
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Why lack of bonds in Target Date Funds?

Post by stocknoob4111 »

Various sources are pretty consistent with how much of your portfolio should be in bonds vs your age. The recommendation from shows such as Cramer/Wealthtrack and the Bogleheads Wiki itself suggests that after age 40+ the bonds should be around 15-40% depending on risk tolerance.

However, when I check FFFFX (Fidelity Target Date 2040) the Bond allocation is only 6.4%. Target Date funds are supposed to cover the broad spectrum of investors so I would imagine they should have a median risk profile but 6% Bonds for a 45 year old seems like high risk/high volatility to me.

Question - why is Fidelity being so aggressive with their Target Date Fund? I have 15% bonds at 45 years of age and thought it was just about right for a more aggressive portfolio, however it looks like 15% is now rather conservative when I look at the TDFs.

By contrast Vanguard TDF 2040 has 16.6% Bonds which is radically different from Fidelity's allocation.

Is Fidelity being reckless taking extreme risk with a fund that is bought by many average Joe's who have no idea what their risk tolerance is? In this case if there is a significant downturn this could cause people to panic and sell. And with a TDF selling is even worse since you sell the whole fund as a package since you have no access to individual asset classes.

Just trying to figure out Fidelity's motivation here.

https://fundresearch.fidelity.com/mutua ... /315792101
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greg24
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Re: Why lack of bonds in Target Date Funds?

Post by greg24 »

I think Target Date funds are trash. Way too aggressive for a "set it and forget it" fund.

Vanguard LifeStrategy funds are a much better option.
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Re: Why lack of bonds in Target Date Funds?

Post by Triple digit golfer »

When comparing returns of other target date funds, the ones with more equities will look better. That is likely why many are so equity-heavy.

I don't think they're trash, but they're not perfect. However, no one-size-fits-all solution ever is. They're sure as heck better than an investor using 10 different actively managed funds just because they have the word "growth" in the name.

Target Retirement and Life Strategy funds are very different. Target funds become more conservative over time. Life Strategy funds do not.
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Re: Why lack of bonds in Target Date Funds?

Post by dukeblue219 »

A lot of them are heavily international as well, which many Boglers don't like. That FFFFX fund is 56% domestic equities and 38% international equities which is not my personal preference, especially for a "20 years from now" fund.
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stocknoob4111
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Re: Why lack of bonds in Target Date Funds?

Post by stocknoob4111 »

My thoughts were that the Target Date fund should target a median risk tolerance profile... we talk so much on this forum about risk tolerance and staying the course. However, the Fidelity TDF virtually have no ballast in case the market melts down and it will someday.

I wouldn't expect performance chasing with a TDF, rather I would expect a median return, median risk type situation since the risk tolerance of the buyer is unknown.

In addition I would argue that since a large majority of TDF buyers are folks that have no interest in managing risk themselves they are more on the conservative end and would react very negatively to large drops in their portfolio and do something really damaging like sell at the bottom.
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Re: Why lack of bonds in Target Date Funds?

Post by Wiggums »

Triple digit golfer wrote: Mon Jan 06, 2020 1:35 pm
I don't think they're trash, but they're not perfect. However, no one-size-fits-all solution ever is.

Target Retirement and Life Strategy funds are very different. Target funds become more conservative over time. Life Strategy funds do not.
+1

Target date funds are good for a default fund in a 401k. All in one funds are good for people getting started, want the broker to manage the funds at a low cost to you. Nothing to tinker with. Better than paying a high AUM fee. Many other positive aspects.

As you generate wealth, have different types of accounts, it might make sense to use separate funds such as the three fund portfolio.
oldfatguy
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Re: Why lack of bonds in Target Date Funds?

Post by oldfatguy »

Ignore the date of any Target Date Fund, and just look at the asset allocation.
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Re: Why lack of bonds in Target Date Funds?

Post by mervinj7 »

stocknoob4111 wrote: Mon Jan 06, 2020 1:31 pm By contrast Vanguard TDF 2040 has 16.6% Bonds which is radically different from Fidelity's allocation.
When comparing Fidelity TDFs and Vanguard TDFs, you should compare the Fidelity Freedom Index versions. Here's the 2040 version (FBIFX):
https://fundresearch.fidelity.com/mutua ... /315793885

That said, there are many ways to implement a glide path and it's not clear which methodology for asset allocation is the best. For example, the above listed FBIFX has a lower allocation to bonds (10% vs 16%) but it doesn't include international bonds like Vanguard does. However, if you are look at portfolio visualizer, the performance, risk, and return over the last few years has been nearly identical since inception (2006).

https://www.portfoliovisualizer.com/bac ... ation4_2=0
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Target Funds are not "trash."

Post by Taylor Larimore »

greg24 wrote: Mon Jan 06, 2020 1:32 pm I think Target Date funds are trash. Way too aggressive for a "set it and forget it" fund.

Vanguard LifeStrategy funds are a much better option.
Bogleheads:

Target Date funds are not "trash." The amount of "aggressive" in Target Funds AND LifeStrategy Funds is determined primarily by their stock/bond allocation -- not their target date.

Knowledgeable investors choose expertly designed Target Funds by their stock/bond allocation. This stock/bond allocation can be easily changed tax-free in retirement accounts where these funds belong.

Target Retirement Funds, the simplest path to wealth of all

Best wishes.
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Re: Target Funds are not "trash."

Post by Sheepdog »

Taylor Larimore wrote: Mon Jan 06, 2020 2:40 pm
greg24 wrote: Mon Jan 06, 2020 1:32 pm I think Target Date funds are trash. Way too aggressive for a "set it and forget it" fund.

Vanguard LifeStrategy funds are a much better option.
Bogleheads:

Target Date funds are not "trash." The amount of "aggressive" in Target Funds AND LifeStrategy Funds is determined primarily by their stock/bond allocation -- not their target date.

Knowledgeable investors choose expertly designed Target Funds by their stock/bond allocation. This stock/bond allocation can be easily changed tax-free in retirement accounts where these funds belong.

Target Retirement Funds, the simplest path to wealth of all

Best wishes.
Taylor
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100% in agreement. Yes!!
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Jablean
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Re: Why lack of bonds in Target Date Funds?

Post by Jablean »

You can look up Fidelity's Balanced Fund and their 4in1 fund. Several of us have assets in them.
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Re: Why lack of bonds in Target Date Funds?

Post by Dandy »

I think it is very misleading, especially to those with little investment savvy, to make the TD funds so aggressive. Many buyers will just pick the TD fund by target retirement year vs looking under the hood or even understanding what is under the hood. We can surely say that people shouldn't just buy the fund by the TD year -- but they are kind of being led astray. And then you have the Retirement Income Fund with a 30% equity allocation - which is quite reasonable, even conservative.

So for me most TD funds aren't simple they are simplistic and often misleadingly dangerous for many. It reminds me somewhat like the High Yield Fund. I can't tell you the complaints we got when retirees who told their FA/agent they wanted high income and then got a wake up when the fund tanked and cut the dividend and they realized that High Yield was also known as junk and was much riskier then they thought.

I'm sure the potential damage/complaints have been largely masked by a rare and wonderfully long bull market.
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Re: Why lack of bonds in Target Date Funds?

Post by snailderby »

At your age, some might prefer Fidelity's allocation. Others might prefer Vanguard's allocation. Rob Arnott has argued that investors would be better off with an inverse glidepath that makes their portfolios more aggressive as they near retirement. See https://web.iese.edu/jestrada/PDF/Resea ... depath.pdf. Then there's the "100% STOCKS UNTIL I CROAK" crowd.

At this point, I throw my hands in the air and confess that I have no idea what asset allocation is "best" for you at your age. If you're not comfortable with the asset allocation for your current TDF, switch to another TDF.
Last edited by snailderby on Mon Jan 06, 2020 3:33 pm, edited 1 time in total.
mr.masku
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Re: Why lack of bonds in Target Date Funds?

Post by mr.masku »

I stay away from any Balanced Funds - prefer to own Stock and Bonds funds separately, so that they can be located in the proper account - Tax Free, Tax Deferred or Taxable.
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Re: Why lack of bonds in Target Date Funds?

Post by retiredjg »

stocknoob4111 wrote: Mon Jan 06, 2020 1:31 pm Question - why is Fidelity being so aggressive with their Target Date Fund?
It's not just Fidelity.

I was not around to see this, but word has it that target date funds were more middle of the road when they first became available. Then they started creeping toward more aggressive ratios as each company wanted its target date to outperform everyone else's product with the same date.

Essentially, they all got more aggressive. Many thought they were - and continue to be to be - too aggressive.

This was discussed quite a lot 10 or 12 years ago. With this long bull market, it's hard to convince people, especially newer investors, that any allocation to bonds is worthwhile much less a reasonable allocation to bonds. These people think the current ratios in the target funds are good and reasonable. :shock:

It has long been the suggestion here to pick your target date fund by the stock to bond ratio you want, ignoring the date in the fund name.
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Re: Why lack of bonds in Target Date Funds?

Post by grabiner »

mr.masku wrote: Mon Jan 06, 2020 3:31 pm I stay away from any Balanced Funds - prefer to own Stock and Bonds funds separately, so that they can be located in the proper account - Tax Free, Tax Deferred or Taxable.
In general, target-date funds make sense for investors without taxable accounts, so that this is not an issue. The funds are intended to be your whole portfolio, so you want to either hold them in both your 401(k) and IRA, or in neither, but holdjing them in two tax-favored accounts works fine.
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Re: Why lack of bonds in Target Date Funds?

Post by rkhusky »

+1 to comment above to use the Freedom Index funds, not the active Freedom funds. For example, FFFFX (2040) is composed of 36 active funds with a 0.75% ER.
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Re: Why lack of bonds in Target Date Funds?

Post by Xrayman69 »

oldfatguy wrote: Mon Jan 06, 2020 1:56 pm Ignore the date of any Target Date Fund, and just look at the asset allocation.
+1.

Match the allocation with your risk profile and needs and not the date. Different People intending to retire in 2040 can and will have different risk tolerance and allocation desires. OP may prefer a 2030 TDF allocation.
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Re: Target Funds are not "trash."

Post by F150HD »

Taylor Larimore wrote: Mon Jan 06, 2020 2:40 pm
greg24 wrote: Mon Jan 06, 2020 1:32 pm I think Target Date funds are trash. Way too aggressive for a "set it and forget it" fund.

Vanguard LifeStrategy funds are a much better option.
Bogleheads:

Target Date funds are not "trash." The amount of "aggressive" in Target Funds AND LifeStrategy Funds is determined primarily by their stock/bond allocation -- not their target date.

Knowledgeable investors choose expertly designed Target Funds by their stock/bond allocation. This stock/bond allocation can be easily changed tax-free in retirement accounts where these funds belong.
+1
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Re: Why lack of bonds in Target Date Funds?

Post by Phineas J. Whoopee »

Age in bonds is, at most, a conceptual starting point. It is not a rule, nor even a guideline. It's a place to begin thinking if one has no other place to begin.

Target date funds seem to be, but are not, one-size-fits-all. As pointed out upthread one would be best advised to choose among them based on allocation, rather than on name.

That said, for people who know no better choosing one by its name is a superior option over committing one's future to 100% FSCR.

PJW
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Re: Why lack of bonds in Target Date Funds?

Post by abuss368 »

Target date (and LifeStrategy funds) are an excellent one size fits all strategy. The most important decision an investor will make is the overall asset allocation between stocks and bonds. For that purpose it is recommended to look "under the hood" of the fund and make a decision based on the asset allocation rather than the year of the fund.

Jack Bogle has often recommended "age in bonds" or something that increases with age and time as a good starting point.
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Re: Why lack of bonds in Target Date Funds?

Post by AlohaJoe »

stocknoob4111 wrote: Mon Jan 06, 2020 1:31 pm Various sources are pretty consistent with how much of your portfolio should be in bonds vs your age.
I disagree strongly with the claim that "various sources are pretty consistent" and the fact that you are trivially able to find other sources (Fidelity) that disagree proves it. You cherry picked a handful of places and pretended you've found some broad agreement.

There is no such thing because there is no empirical or theoretical basis for the amount of bonds or the change in bonds over time in target date funds.
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Re: Why lack of bonds in Target Date Funds?

Post by Katietsu »

I can only say that the first time I became aware of target date funds, the allocation was about age-10 in bonds. I have noticed the allocations drifting to a more aggressive portfolio over the last couple decades.
Last edited by Katietsu on Mon Jan 06, 2020 10:53 pm, edited 1 time in total.
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Re: Why lack of bonds in Target Date Funds?

Post by BSBHead »

stocknoob4111 wrote: Mon Jan 06, 2020 1:31 pm Various sources are pretty consistent with how much of your portfolio should be in bonds vs your age. The recommendation from shows such as Cramer/Wealthtrack and the Bogleheads Wiki itself suggests that after age 40+ the bonds should be around 15-40% depending on risk tolerance.

However, when I check FFFFX (Fidelity Target Date 2040) the Bond allocation is only 6.4%. Target Date funds are supposed to cover the broad spectrum of investors so I would imagine they should have a median risk profile but 6% Bonds for a 45 year old seems like high risk/high volatility to me.

Question - why is Fidelity being so aggressive with their Target Date Fund? I have 15% bonds at 45 years of age and thought it was just about right for a more aggressive portfolio, however it looks like 15% is now rather conservative when I look at the TDFs.

By contrast Vanguard TDF 2040 has 16.6% Bonds which is radically different from Fidelity's allocation.

Is Fidelity being reckless taking extreme risk with a fund that is bought by many average Joe's who have no idea what their risk tolerance is? In this case if there is a significant downturn this could cause people to panic and sell. And with a TDF selling is even worse since you sell the whole fund as a package since you have no access to individual asset classes.

Just trying to figure out Fidelity's motivation here.

https://fundresearch.fidelity.com/mutua ... /315792101
Most TD Funds have shifted the past few years to “through retirement” glidepaths v. “to retirement.” If you consider it from that perspective, the equity exposure isn’t necessarily high. More or less, TD funds have shifted their focus to maintain sufficient funding through decumulation until death. I actually think this makes sense from a fiduciary perspective as retirees need not be kicked off the plan after retirement. They can just stay in the investment vehicle. Of course, this may not be what the average Boglehead would do, but Target Dates “target” is the mean, which means very little investment knowledge and a propensity toward doing nothing. Or even worse, they could buy an annuity (ha ha)!

What’s funny is many TD funds were criticized for under allocating to equities when focused on the “to” glidepath a few years ago.

I personally think the equity exposure is a bit low for most TD funds given Social Security is really bond like exposure. I also don’t differentiate cash / cash equivalents from bonds in my asset allocation, but that is personal preference.
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Re: Why lack of bonds in Target Date Funds?

Post by nisiprius »

Investing is not a science. Even the general idea of stock allocation declining with age (which to me is just common sense) has been challenged. Nobody can say rationally how aggressive or conservative one "should" be, any more than one can say rationally whether one "should" drink light roast or dark roast coffee.

This chart--which I made from data Morningstar published back in 2011--shows Morningstar's idea of a reasonable range of glide slopes. Another chart of theirs shows the actual glide slopes used by twenty or so real-life target-date funds, and they pretty much color in the entire band between the conservative and aggressive lines.

So, retiring in 2040 = twenty years from now = age 45 now.

Now, personally, I am at, and was times below, their "conservative" line. So I am very conservative, and naturally I happen to feel that the conventional wisdom is "too" aggressive--for me, at least--and has been becoming more so with time. But, hey, that's me. The point is that the difference between 6.4% and 16% bonds is not, in fact, "radically" different--and while Fidelity's is technically above the purple line, it's only a little above it.

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Re: Why lack of bonds in Target Date Funds?

Post by abuss368 »

Katietsu wrote: Mon Jan 06, 2020 10:18 pm I can only say that the first time I became aware of target date funds, the allocation was about age-10 in bonds. I have noticed the allocations drifting too a more aggressive portfolio over the last couple decades.
Vanguard has changed the allocation of the funds many times over the years.
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Re: Why lack of bonds in Target Date Funds?

Post by Northern Flicker »

I would call it an equity arms race for market share. Basically one or two active management shops decided that if they had a higher equity allocation in their target date funds, they would eventually outperform and could use that to market their superiority. Once some started doing it, others had to follow suit. There was a justification that people were living longer and have a longer investment horizon, which, while not untrue, is insufficient to explain the aggressive positions where they eventually landed.

American Century is among the few who have refused to succumb to this with their One Choice target year funds. Unfortunately, they only get partial kudos for that because expense ratios for those funds are around 85 bp/year.

Dimensional Fund Advisors also have more reasonable allocations and expense ratios are more reasonable, around 26 bp/yr. I assume one can get these without working through an advisor, as that would be preposterous.
Last edited by Northern Flicker on Mon Jan 06, 2020 11:05 pm, edited 1 time in total.
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Re: Why lack of bonds in Target Date Funds?

Post by pkcrafter »

stocknoob4111 wrote: Mon Jan 06, 2020 1:31 pm Various sources are pretty consistent with how much of your portfolio should be in bonds vs your age. The recommendation from shows such as Cramer/Wealthtrack and the Bogleheads Wiki itself suggests that after age 40+ the bonds should be around 15-40% depending on risk tolerance.

However, when I check FFFFX (Fidelity Target Date 2040) the Bond allocation is only 6.4%. Target Date funds are supposed to cover the broad spectrum of investors so I would imagine they should have a median risk profile but 6% Bonds for a 45 year old seems like high risk/high volatility to me.

Question - why is Fidelity being so aggressive with their Target Date Fund? I have 15% bonds at 45 years of age and thought it was just about right for a more aggressive portfolio, however it looks like 15% is now rather conservative when I look at the TDFs.

By contrast Vanguard TDF 2040 has 16.6% Bonds which is radically different from Fidelity's allocation.

Is Fidelity being reckless taking extreme risk with a fund that is bought by many average Joe's who have no idea what their risk tolerance is? In this case if there is a significant downturn this could cause people to panic and sell. And with a TDF selling is even worse since you sell the whole fund as a package since you have no access to individual asset classes.

Just trying to figure out Fidelity's motivation here.
Simple, Fidelity wanted to show higher returns. When Vanguard started with target funds they weren't as aggressive, but they changed/ increased the equity percentages to become competitive with the competition. I think the main competitor back then was TRPrice.

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Re: Why lack of bonds in Target Date Funds?

Post by MNGopher »

Exactly. My 2040 fund beat your 2040 fund is a great advertising point, even though the asset allocation may not be the same. It's important to look at the internal makeup of your index funds to make sure you are getting what you want.
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Re: Why lack of bonds in Target Date Funds?

Post by whodidntante »

dukeblue219 wrote: Mon Jan 06, 2020 1:39 pm A lot of them are heavily international as well, which many Boglers don't like. That FFFFX fund is 56% domestic equities and 38% international equities which is not my personal preference, especially for a "20 years from now" fund.
Would 38% international equities be OK for a 5 years from now fund? How about a 40 years from now fund?
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Re: Why lack of bonds in Target Date Funds?

Post by Lee_WSP »

TDF's are made for the average person, not a boglehead. As such, the average person is supposed to put 100% of their savings into said fund. And since, apparently the average person (in another thread) doesn't actually touch or look at their 401k, it wouldn't matter whether it's 100% equities or not since they aren't going to be doing anything with it anyway. What does matter is that it glides down to a much more conservative AA as retirement approaches.
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Re: Why lack of bonds in Target Date Funds?

Post by SevenBridgesRoad »

Lee_WSP wrote: Tue Jan 07, 2020 12:03 am TDF's are made for the average person, not a boglehead. ...
Evidence, please
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Re: Why lack of bonds in Target Date Funds?

Post by sergio »

The Fidelity Freedom 2040 fund in question also holds a lot of cash. Total between cash + bonds is around 14%.
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Re: Why lack of bonds in Target Date Funds?

Post by Silence Dogood »

Lee_WSP wrote: Tue Jan 07, 2020 12:03 am TDF's are made for the average person, not a boglehead.
:confused

I consider myself a Boglehead...

My Roth IRA is 100% invested in the Vanguard Target Retirement 2055 fund (VFFVX).

It's been that way since I first opened the account - in January 2011 (I was 20).
Taylor Larimore wrote: Mon Jan 06, 2020 2:40 pm
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Re: Why lack of bonds in Target Date Funds?

Post by danielc »

Dandy wrote: Mon Jan 06, 2020 3:20 pm I think it is very misleading, especially to those with little investment savvy, to make the TD funds so aggressive. Many buyers will just pick the TD fund by target retirement year vs looking under the hood or even understanding what is under the hood. We can surely say that people shouldn't just buy the fund by the TD year -- but they are kind of being led astray.
You don't even need to go that far. My DW was auto-enrolled in a 401k program, and within that 401k she was auto-enrolled in Fidelity's TD fund based purely on her birth date. Had she not been married to me, this is exactly the fund she would be invested in right now, since she likely would have assumed that Fidelity wouldn't have put her in that fund if it wasn't the right one for her.

Dandy wrote: Mon Jan 06, 2020 3:20 pm So for me most TD funds aren't simple they are simplistic and often misleadingly dangerous for many. It reminds me somewhat like the High Yield Fund. I can't tell you the complaints we got when retirees who told their FA/agent they wanted high income and then got a wake up when the fund tanked and cut the dividend and they realized that High Yield was also known as junk and was much riskier then they thought.
I remember I was very surprised when I discovered what "high yield" meant.
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Re: Why lack of bonds in Target Date Funds?

Post by lazyday »

It can be healthy to be cynical when investing, expecting others to act in their own interest and against yours. But especially with Vanguard, it’s not always true.

It’s possible that Vanguard’s Target Retirement funds are designed as best as Vanguard can to work well for investors. Maybe the changes made over the years were improvements, as theories of retirement planning developed, as investing theory developed, and as investors became more receptive to better portfolio allocations.

I think that someone who just buys a Vg TR fund of the appropriate date and sticks with it will do better than most Bogleheads. Even if you limit it to Bogleheads with more than 1000 posts and over 150 IQ.
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Re: Why lack of bonds in Target Date Funds?

Post by Uncorrelated »

I agree that target data funds are trash... but only because they are not aggressive enough. The optimal asset allocation for a hypothetical investor with a coefficient of relative risk aversion of 3 is shown below:

Image

The y axis denotes the amount of years left until the date one plans to retire (assumed to be a fixed date). Although this investor's risk tolerance normally only supports an allocation of 60% of equity, the magic of compounding and using one's income as a synthetic bond allocation results in the rational application of leverage early in one's savings adventure.

Just by eye-balling the chart, fidelity's 6.4% bond allocation for a retiree with 20 years to go sounds about right for an investor with a coefficient of relative risk aversion around 3. It seems vanguard's asset allocation is calibrated to a slightly higher risk aversion and/or slightly different savings curve.
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Re: Why lack of bonds in Target Date Funds?

Post by Lee_WSP »

SevenBridgesRoad wrote: Tue Jan 07, 2020 12:12 am
Lee_WSP wrote: Tue Jan 07, 2020 12:03 am TDF's are made for the average person, not a boglehead. ...
Evidence, please
That's rather easy. How much of the population do you think BH's make up? Less than 1% for sure, less than .1% probably, less than .001% is my guess.

Compared to the rest of the 401k holders, you cannot possibly think that mutual fund creators made it for BH's.
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Re: Why lack of bonds in Target Date Funds?

Post by rkhusky »

abuss368 wrote: Mon Jan 06, 2020 10:45 pm
Katietsu wrote: Mon Jan 06, 2020 10:18 pm I can only say that the first time I became aware of target date funds, the allocation was about age-10 in bonds. I have noticed the allocations drifting too a more aggressive portfolio over the last couple decades.
Vanguard has changed the allocation of the funds many times over the years.
I think you meant a few times over the years.
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Re: Why lack of bonds in Target Date Funds?

Post by stormcrow »

nisiprius wrote: Mon Jan 06, 2020 10:29 pm Nobody can say rationally how aggressive or conservative one "should" be, any more than one can say rationally whether one "should" drink light roast or dark roast coffee.
"A scientific analysis of why dark roast is in fact superior..."

But in all seriousness, the changing allocations is why I have moved away from TD funds in my 401k. I much prefer to set the allocation by my risk standards, not have someone else do it for me.
jpelder
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Re: Why lack of bonds in Target Date Funds?

Post by jpelder »

stormcrow wrote: Tue Jan 07, 2020 9:34 am
nisiprius wrote: Mon Jan 06, 2020 10:29 pm Nobody can say rationally how aggressive or conservative one "should" be, any more than one can say rationally whether one "should" drink light roast or dark roast coffee.
"A scientific analysis of why dark roast is in fact superior..."

But in all seriousness, the changing allocations is why I have moved away from TD funds in my 401k. I much prefer to set the allocation by my risk standards, not have someone else do it for me.
This goes to the point that Target Date funds are a good default choice (especially good. low-cost ones like Vanguard's). Some people know enough to make their own allocation. Many do not, and a good target date fund can be an easy choice that prevents taking too much or too little risk.

And medium roast is objectively better than dark roast. If I wanted to taste charcoal, I'd just lick my smoker :twisted:
Triple digit golfer
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Re: Why lack of bonds in Target Date Funds?

Post by Triple digit golfer »

I think a target date fund is a good option simply because it can make people who don't understand investing who otherwise might second guess themselves feel good about their choice. It will help stay the course.
SevenBridgesRoad
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Re: Why lack of bonds in Target Date Funds?

Post by SevenBridgesRoad »

Lee_WSP wrote: Tue Jan 07, 2020 9:00 am
SevenBridgesRoad wrote: Tue Jan 07, 2020 12:12 am
Lee_WSP wrote: Tue Jan 07, 2020 12:03 am TDF's are made for the average person, not a boglehead. ...
Evidence, please
That's rather easy. How much of the population do you think BH's make up? Less than 1% for sure, less than .1% probably, less than .001% is my guess.

Compared to the rest of the 401k holders, you cannot possibly think that mutual fund creators made it for BH's.
Strawman. Do you have evidence for your claim? I don’t think it’s provable. And getting into a back and forth argument on a claim that is not provable isn’t that valuable.

Are you trying to say Bogleheads aren’t average investors and would not invest in a TDF? If so, the question is are there Bogleheads using Target Date Funds? Yes.
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Re: Why lack of bonds in Target Date Funds?

Post by abuss368 »

rkhusky wrote: Tue Jan 07, 2020 9:25 am
abuss368 wrote: Mon Jan 06, 2020 10:45 pm
Katietsu wrote: Mon Jan 06, 2020 10:18 pm I can only say that the first time I became aware of target date funds, the allocation was about age-10 in bonds. I have noticed the allocations drifting too a more aggressive portfolio over the last couple decades.
Vanguard has changed the allocation of the funds many times over the years.
I think you meant a few times over the years.
No I meant many times. Individual international funds to total international. International allocation changed from 20, to 30, to 40. International bonds added at allocation of 20 then changed to 30. Intermediate tips changed to short term tips.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Why lack of bonds in Target Date Funds?

Post by rkhusky »

abuss368 wrote: Tue Jan 07, 2020 10:22 am
rkhusky wrote: Tue Jan 07, 2020 9:25 am
abuss368 wrote: Mon Jan 06, 2020 10:45 pm
Katietsu wrote: Mon Jan 06, 2020 10:18 pm I can only say that the first time I became aware of target date funds, the allocation was about age-10 in bonds. I have noticed the allocations drifting too a more aggressive portfolio over the last couple decades.
Vanguard has changed the allocation of the funds many times over the years.
I think you meant a few times over the years.
No I meant many times. Individual international funds to total international. International allocation changed from 20, to 30, to 40. International bonds added at allocation of 20 then changed to 30. Intermediate tips changed to short term tips.
Over 17 years, I consider those just a few changes. And most not very significant. And there was also the change in the glide paths to make them more aggressive. I find the current allocation nicely symmetric.
Last edited by rkhusky on Tue Jan 07, 2020 10:36 am, edited 2 times in total.
stormcrow
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Re: Why lack of bonds in Target Date Funds?

Post by stormcrow »

jpelder wrote: Tue Jan 07, 2020 9:47 am This goes to the point that Target Date funds are a good default choice (especially good. low-cost ones like Vanguard's). Some people know enough to make their own allocation. Many do not, and a good target date fund can be an easy choice that prevents taking too much or too little risk.

And medium roast is objectively better than dark roast. If I wanted to taste charcoal, I'd just lick my smoker :twisted:
Oh I agree - a dozen years ago I went straight target date. Now, I don't. But they are a good gateway drug to the wormhole of asset allocation.

And how dare you impugn my dark roast! The blackness brings out the smoky goodness of the beans! :P 8-)
Lee_WSP
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Re: Why lack of bonds in Target Date Funds?

Post by Lee_WSP »

SevenBridgesRoad wrote: Tue Jan 07, 2020 9:52 am
Lee_WSP wrote: Tue Jan 07, 2020 9:00 am
SevenBridgesRoad wrote: Tue Jan 07, 2020 12:12 am
Lee_WSP wrote: Tue Jan 07, 2020 12:03 am TDF's are made for the average person, not a boglehead. ...
Evidence, please
That's rather easy. How much of the population do you think BH's make up? Less than 1% for sure, less than .1% probably, less than .001% is my guess.

Compared to the rest of the 401k holders, you cannot possibly think that mutual fund creators made it for BH's.
Strawman. Do you have evidence for your claim? I don’t think it’s provable. And getting into a back and forth argument on a claim that is not provable isn’t that valuable.

Are you trying to say Bogleheads aren’t average investors and would not invest in a TDF? If so, the question is are there Bogleheads using Target Date Funds? Yes.
I'm not sure why you are taking this position other than to score points on the internet. It's quite obvious that Bogleheads do not represent the average investor or the average person by any stretch of the imagination.

They also go against BH philosophy. Even Vanguard TDF are 3-4x the expense ratio of the mutual funds they are made up of.
*Vanguard Target Retirement Funds average expense ratio: 0.12%.
Dandy
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Re: Why lack of bonds in Target Date Funds?

Post by Dandy »

I think Vanguard is doing what it thinks is best for TD allocations. The problem I see it is TD funds are often a 401k type choice for many non investment savvy investors. They see the simple buy of a fund that comes close to their expected retirement date - and maybe a trusted Vanguard reputation. They often sign up based on their retirement date. And even if they looked under the hood at the allocation at the time of initial purchase - VG has changed the content significantly.

There is often a disconnect it what Vanguard considers a proper allocation/risk for a given TD year vs what many buyers would actually find suits their risk tolerance. Yes, the buyer should understand what they are buying but let's face it most people don't really understand investments. It isn't VG's fault per se but the simplistic idea of selling/buying a fund based on a retirement year vs having an allocation that is based on a person's need and ability to take risk. There doesn't seem to be a simple fix.

I don't think VG and others are doing many TD buyers well by having very aggressive allocations. The nice long bull market has probably kept this issue from being more vocal.
rascott
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Re: Why lack of bonds in Target Date Funds?

Post by rascott »

If I was really 20 years from retirement....6% in bonds would be too much for me.

I've never used TDFs as I find them too conservative.... so go figure. Particularly true for the ridiculous funds that have people in their 20s with 10% bond allocations.

All that said..... most of the public would be best suited to use a TDF just to eliminate user error.
Silence Dogood
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Re: Why lack of bonds in Target Date Funds?

Post by Silence Dogood »

Lee_WSP wrote: Tue Jan 07, 2020 10:36 am They also go against BH philosophy. Even Vanguard TDF are 3-4x the expense ratio of the mutual funds they are made up of.
*Vanguard Target Retirement Funds average expense ratio: 0.12%.
Nonsense.

Keep costs low - an expense ratio of 0.12% to 0.15% is low-cost.
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