Yet another reason to hate target date funds

[jfoxcpacfp]

Target-Date Funds May be Off-Target. I also have a post about TDFs on my blog.

btw, for those of you who have not heard of my old buddy, David Snowball, he is a witty and brilliant writer on mutual funds. David is the creator of Mutual Fund Observer (formerly Fund Alarm which I relied on extensively in my old investing life). He's excellent at sniffing out little-known funds that are worth buying (or taking a second look at) before the rest of the world wakes up to them, using plain old common sense. David also has a knack for pointing out funds in which the Emperor has no clothes. Hope you'll give MFO a look.

David and I have no financial affiliation; I haven't even chatted with him in several years. He's a professor in his day job and, last I knew, MFO was a totally free, reader-supported site.

[AlexDDS]

If no TDF, what would be your choice for Qualified Default Investment Alternative (QDIA)? Thanks.

[jfoxcpacfp]

Education and personal involvement. Absent that, a TDF gets the employers off the hook for fiduciary liability.

[conniebird]

Some of my residents started a Roth IRA after I gave them a finance lecture (woohoo) and many have asked me what to invest in. I was going to just have them put it in a vanguard target fund to start then slice and dice later when they learn more, if they are so inclined.

[jfoxcpacfp]

conniebird wrote:

Some of my residents started a Roth IRA after I gave them a finance lecture (woohoo) and many have asked me what to invest in. I was going to just have them put it in a vanguard target fund to start then slice and dice later when they learn more, if they are so inclined.

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It won't hurt to have their $ in a TDF until they have a better education. More importantly, you deserve a big pat on the back. Way to go, conniebird!!!

[The White Coat Investor]

Much ado about nothing. Bottom line, if you're going to do a TDF, go to Vanguard. It's still a very reasonable way to invest. I don't consider this a terribly hidden fact. No more hidden than the fact that Vanguard's TDFs and individual 401(k) uses investor shares instead of admiral shares.

[AlexDDS]

I think with introduction of low cost Schwab Target Date Index Funds Vanguard , to be competitive and be industry leader , will be required to do something : either to introduce  admiral shares of TDF and Lifecycle funds or offer institutional class to small business retirement plans.

https://www.csimfunds.com/public/file/P-9430864

https://www.csimfunds.com/public/file/P-9431437

[VagabondMD]

I am agnostic. My wife has a TDF in her 401k that we use for a 25% allocation, in part because of the low fees (0.09%, all in using index funds) and the diversification into asset classes that are not otherwise available in her plan--international bonds, REITs, and commodities. Like any other investment, the TDF can be good or bad and should be evaluated on its own merits.

[Noah]

So what this article is saying is that there is in fact nothing inherently wrong with target date funds, just that many providers charge high fees for them and that high fees will cost you. Nothing new. Misleading title and a bit of clickbait.

 

Nice to see the Schwab target date ETF options. I would recommend those for the many people (along with Vanguard) who aren't very financially savvy and just want to set a savings rate and get back to other non financial aspects of life.

[jfoxcpacfp]

Noah wrote:

So what this article is saying is that there is in fact nothing inherently wrong with target date funds, just that many providers charge high fees for them and that high fees will cost you. Nothing new. Misleading title and a bit of clickbait.

 

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Of course it's clickbait   but I don't see how the title is misleading. The article on our blog details more reasons not to use ETFs.

[DMFA]

For military folks, the TSP's TDFs (lifecycle funds, e.g. L2050) have the same expense ratio as all the other TSP funds (0.029%), which is lower than I've seen any other fund period, let alone a TDF.