NO target date funds

This post is for knowledge sharing only. It is not intended to be investment or tax advice.

If one does not manually select or change investments,  the default investment options in most 401K plans are usually some target data funds similar to Vanguard Target Retirement Funds. Such funds are dynamically mixed with stocks and bonds, and the asset allocation gradually weights more to bonds from stocks.

My personal opinion is very simple:
  • NO target date funds. 
  • Instead, choose a low-cost S&P 500 index fund in the 401K plan.
Here are the main reasons:
  • The fees of target date funds are high.
  • The long term performance is worse than the S&P 500 index.
    • This is not surprising because of the existence of bonds in the target date funds.
    • The fund may also include international stocks. For developed countries other than U.S., their real estate is much better than their stocks.
  • Most importantly, asset rebalance within a single fund does not make any sense.
    • Instead, asset rebalance should be done among all the family assets including stocks and bonds in all accounts, cash reserves for family emergency as well as all the owened real estate properties.
    • High net worth families may not even need bonds for cash flow after retirement. 
Location: 美国加利福尼亚帕罗奥图

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