Wednesday, August 18, 2010

Target Date Funds

A few weeks back, The Wall Street Journal examined different Target Date Funds:

... Fees are the single biggest factor in predicting the performance of target-date funds, and portfolios stuffed with funds that passively track indexes tend to outperform those holding funds run by money managers. ...

Target-date funds are designed for investors who hope to retire around a certain date—say, 2025—and don't want to fuss with changing their allocations of stocks, bonds and cash by themselves. Instead, the fund becomes more conservative as the retirement date nears ...

Only seven of the 31 fund families Morningstar included in its analysis managed to beat the benchmark over the three years ended June 30. ... Five of the six top performers—including Vanguard, Wells Fargo and JPMorgan's SmartRetirement funds—were helped by below-average fees ...

I bring the above up in a blog post because I am doing 401(k) Enrollment Meetings this week and next, plus I think it's really, really important to focus on building a nest egg.

The trouble is, many participants in 401(k) Plans don't know much about investing and don't want to know. (Studying asset allocation charts and reading about investment strategies is almost as exciting as watching paint dry.) That being the case, Target Date Funds are the solution that a lot of professionals choose, since who the hell knows what the best selection of stand-alone mutual funds are, and who has the time to read thirty research papers to find out anyway?

For some years, the Animation Guild 401(k) Plan suffered along with sub-par target date retirement funds. Happily, a couple of years back we were able to secure Vanguard Target Retirement Funds for the Plan's investment lineup. These babies are a combination of different Vanguard Index Funds and generally out-perform managed funds over time. They have the added advantage of being inexpensive (less than one fifth of one percent in fees) while providing "one stop shopping."

(The Journal's article misstates the costs of the Vanguard funds. It's .18%, not .70%.)

I will be holding 401(k) Enrollment Meetings next week, so if you work at one of the fine studios listed below and would like to join TAG's investment club, fall on by the conference room where I'm holding forth and we'll get you started on squirreling money away for your sunset years.

TAG 401(k) Enrollment Meetings

Starz/ Film Roman -- Tuesday, Aug. 24, 10 a.m. "Glass" conf. rm.

Sony Pictures Animation -- Wed. Aug 25, 10 a.m., rm 2000

Disney Toons Sonora -- Fri., Aug 27, 10 a.m., rm 2025


Anonymous said...

Let's do the 401K math, shall we? Average 8% gain in target retirement minus 15% healthcare inflation and 10% college tuition inflation minus 25% unemployment and then the .18% fee which gives an awesome return of negative 42.18%! Things are looking up in America!


Anonymous said...

Spend it as fast as you get it.

Grand idea.

Anonymous said...

yes, that's called inflation. get it?

Anonymous said...

and unemployment. get it?

Site Meter