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I’ve been invested in a Target Fund for about 15 years now, and I’m satisfied with how it’s performed relative to the market. I think it’s currently supposed to be essentially 80% equities and 20% bonds. We have our non-emergency savings in an S&P 500 fund, and when I compare the two, I’m satisfied that the target fund is growing enough for my goals.
Posts here are 100% right - you can do even just a little effort and choose your own funds and likely get a better return, but I don’t feel like I’ve left a lot on the table by choosing a target.
Management fees are too high for target date funds IMO. Be since you’re still so young — it’s probably worthwhile to just dump money into small cap for a while
Index. At your age, target date fund will be too conservative and too high fees. Just remember to start rebalancing into a small amount of bonds around age 40
They are not "too high fees". They cover more asset class and yes that comes with slightly higher transactional costs. I do agree it is a little too conservative for someone in their early 20s. But it is still a very solid option
Perspective: girlfriend does target date fund 2060 and her return this year has been about 7%. I do not do target date, do index with a mix a growth and stock funds. My return has been about 15%.
Pick your poison - hands off and 8% less or a little hands on with 8% more
Target funds can be more conservative and have higher fees. If that’s the route you want, you can be slightly more hands on and make your own. You can see what makes up each firm’s target date fund. And at your age I’d back out any bonds and probably add some a tech focused fund like QQQ.
As a starting point read up on lazy portfolios.
Thank you!
I do both! My Roth IRA contributions are into a target date index fund which I max out at $6k annually. I also put money into a regular index fund biweekly. Am 24 y.o. for context.
Thanks for sharing. Thinking of doing the same thing
Are you interested in being hands on and putting a little effort into studying options and allocating to optimize, or do you want to be hands off and put it on autopilot? Autopilot = target date. Being more involved = anything else.
Is it common to invest in both?
I’ve accumulated a mix of both over time
Perspective above was for Roth 401k where the options are limited... for my Roth IRA, I actually don’t own any target dates or index funds. Hold etfs and mutual funds with the following themes: value (VTV), growth (VUG), 2 aggressive funds (AOA & POAGX), tech fund (VGT), health care fund (VHT), dividend fund (VIG), and some international exposure (DGEIX & NFFFX). Limited bonds, keep emergency $$ in low risk bond funds through a brokerage account cause savings rates are so depressed. Good income and capital appreciation I’ve found.
Great insight, thank you
The Target fund creates an equity : bond ratio based on your target date. This formula uses : years away from retirement as percentage to hold on stocks, etc. But , based on my limited knowledge, it just seems the ratio formula used by them is too conservative. Since you have a long way to go , my suggestion would be to invest in growth index funds . You can just invest in an index fund which tracks the entire market. Also, as you learn more you can take control of diversifying- some international funds, bonds, metals, energy, etc.
All the major groups have a growth index fund- Vanguard, Fidelity, etc. They are heavily tilted towards technology funds. Just search online and then compare the growth index funds and invest in the ones you feel good about. I am talking about growth “index” funds. Not growth mutual funds. Some of the growth mutual funds may have high returns but cost structure may be high, turnover high and tax components may be high too.
Awesome perspective - thanks! Do you do index funds for both your Roth IRA and personal brokerage?