Definitely! I also recommend a single target date fund - because they try to optimize risk, they have good diversification, and because they help prevent behavioral errors. The additional portfolio preference stuff comes 10 years before retirement so we should have a good 20-30 years with just the target date fund. We had a case when there were big taxes in taxable with a TDF (target date fund) so I recommend investments that won't have a big rebalancing event for taxable.The target investors for target date funds often don’t know their own preferences, at least not in a way to construct and maintain and maintain a portfolio. There are plenty of people, such as young adults just starting out, for whom a well diversified fund like a target date fund is the ideal simple choice for their first investments (401k and/or roth ira). At that age would be mostly stocks but globally diversified and rebalanced for them. What could be easier for the young busy and not yet knowledgable person.Yes, the target date fund was designed with risk optimization in mind.This seems to be the poster child for the benefit of TD/age-in-bonds style glide path. Of course not identical, but closer than 100% equity until you are at/near retirement (fall off the cliff path instead of glide path).
The main drawback of the target date fund is they don't know how much money you actually have or your preferences. Given these constraints, choosing a 30/70 AA will meet the wants of the most risk averse and the needs of those with larger portfolios (35x+ expenses). I would choose 30/70 if I had to develop a retirement AA without any knowledge of the investor.
My suggestion is to start a second fund about a decade before retirement that when combined with the target date fund meets your preferences. The TDF will have enough diversification so you can blend your portfolio to taste (international, small cap value, AA, etc). The TDF will likely be accumulated in traditional and 30/70 is a good mix for this part of your portfolio.
Yes they can supplement to fine tune if & when they know what they prefer. But since these funds are mostly sold in 401k and recommended for IRAs, they can also get out of them completely, tax-free if they so choose. For taxable it can be a bit more of a problem, but for those who want simplicity, it is an option to buy as core and supplement as you say.
Personally I have never used a TD fund for my own portfolio (worked in the fund management industry 4 decades and I do know what I prefer). But for people who clearly want to be hands off I do suggest TD for retirement accts. Taxable depends on their goals but usually I do not recommend for taxable, but there are exceptions.
I have a TDF for my 457b. I want it to go to 30/70 as I will be withdrawing from it at the target date and I want a fixed amount of income from it.
Statistics: Posted by abc132 — Sat Dec 23, 2023 12:19 am — Replies 53 — Views 3399