Thanks for watching everyone! If you found this video interesting, you can help me out by giving this video a LIKE! Also check out some of my other videos like this one where I break down the difference between Roth and Traditional retirement accounts: th-cam.com/video/XNqe7Utouzg/w-d-xo.html
This might be your best video yet. I’ve seen a handful of personal finance influencers who recommend these funds for retirement saving but overlook their downsides. Learned a lot!
Thanks DD! Yeah... money managers push these because they are easy to understand and "safe" for clients. Finance influencers then push them because the professionals push them... no thought required. I actually like to question and think about stuff. Glad you found my channel!
Usually I agree with Jake, but for this one I have a different viewpoint. The biggest reason for target date funds is for their glide path, or basically to slowing shift from stocks to bonds. This should align with your risk tolerance/ retirement. Two points: 1. It does not always keep selling stocks to buy bonds. If the stock market is down, say in 2008, it will actually buy more stocks (when it's on sale) to keep with your asset allocation. 2. I understand the buy and hold, but when you're in retirement, majority of folks will most likely be selling to fund their retirement. it's hard for folks to have 100% in stocks. There should be some stability, and bonds give that. Therefore, in retirement, you should have some percentage of your portfolio in something stable like bonds depending on your risk tolerance, and a target date fund is a method to get there. Still though, love the video and keep up the great work!
Thanks Alan! Yes, I agree, Target Date Funds are still useful for people who would otherwise sabotage their own retirement fund when the next panic/crash comes. But anyone watching this video has been given the truth... lol. No reason to hold bonds for 30+ years. Just buy and hold, ignore the news. If they get that, then they can handle a simple low cost S&P 500 index fund. Cheers!
I agree that investing in bonds at all when you're young is not a great use of money, so being 100% in equity would be my way to go. So then maybe once you get closer to retirement age, depending on what that is for each individual, you start allocating some of your money to bonds. For example, age 25 to 50 no bonds. Then age 50 to retirement you start acquiring bonds to decrease volatility the next few years. Just my 2 cents.
This is exactly spot on. Target Date Funds are designed for the person being convinced to contribute to a 401k and doesn't care to know anything about what it's doing. They are safe for those people and the majority of them don't even know they are in them because they never log in. Jake is correct, almost anything is better than these, take your money and your investments in your own hands and educate yourself.
Would you say then it's better to contribute less into a current work 401k and instead contribute higher into a Roth IRA? Or in the long run so they somewhat even out?
@@davidfranco1475 Depends if your work 401k has a match.. if so contribute up to the match. Then the rest into a ROTH. Having tax free money in retirement will be worth it.
I agree and disagree. Should everyone learn about finance? Yes, but many people don’t want to and are willing to be good instead of perfect. For those people, this is most likely the best option. Td funds eliminate many risks noobs fall prey to, they are pretty optimal from a risk adjusted return, and low cost (0.12-0.15%). The average investor from 1983-2012 earned a 2.3% according to a JPMorgan study.
Wondering how that is going for you. Your comment reeks of living in the hype bubble. Target Date Funds are much better than trying to pick stocks or time the market.
Jake I also want to thank you for a great discussion about bonds and how they just don’t make as much sense anymore. While that may change this was really an eye opener and I should kick myself for not realizing this myself! Please keep these awesome videos coming! Don’t stop now!
“Flaming hot garbage,” eh? I’ve been investing for decades and I don’t recall ever even hearing of these things. Good thing I have been careful! Thanks for another great video, Jake!
Yes, I agree with you. You must be cautious when investing. I’m starting to help a friend invest a relatively small amount of money and it certainly has me on my toes! I’ll teach him about covered calls and cash secured puts and it’s because of you that I can teach him these two types of options. Be proud, Jake, you’re going to be a multimillionaire some day!
Thank you for your honesty. It is becoming a lost art. You have saved so many people and increased their savings and quality of their retirement years. Every dollar matters. Thank you for sharing your knowledge.
Thanks Jake. You are thinking outside the box, that's a trademark of yours. Love your thoughts about investing. I haven't found anyone that has content like yours on youtube.
Thanks so much Bernd! I honestly just make content that I wish other people made for me, haha. I like questioning things and pulling on loose threads. Thanks for watching!
I am 100% VTI/VTSAX in my ROTH IRA and Taxable accounts but in my 401k I am in a target date fund. It was the default, it's not really terrible, the expense ratio is still incredibly cheap compared to most mutual funds, and honestly I have no idea what the other funds are in my 401k and don't feel like spending hours researching them. It's averaged 29% annually over the last 3 years. I'll eventually rebalance but they aren't terrible options for most people especially when young since it's mostly equity anyways.
One point, at least for federal employees in the TSP lifecycle funds (not sure is applies to other private target date funds in the private sector): Just because you plan to retire in a certain year, doesn't mean you are locked into that same lifecycle fund. For example, I plan to retire in 2028, but I am invested in the 2040 lifecycle fund -- I still get the gradual changeover in allocations, but at a riskier level than someone in the 2030 fund.
Two things about bonds. First, bonds held in target date funds aren't ALL going to be in government bonds. Second, folks tend to only talk about the appreciation or depreciation of bonds. However, you have to take into account they kick off interest, so it's really about the total return.
Good point. The trailing 10 year return of VBTLX is 3.53%, 5 year 5.33%, 1 year 1.34%. It's not that bad and dampens the volatility in a portfolio. They are a different tool and have their place in many portfolios.
I like how you explain that investing is not a one size fits all. Target funds are ignoring individual goals because not everyone starts investing at the same age and don't have the same goals.
Good video. I would also suggest people consider the international stock index. I think target date funds are reasonable for a person that doesn't want to learn much about investing, doesn't have a very high risk tolerance, is about to become senile, invests in a 401k without better options, etc. They are not the best, but they are likely better than such a person would choose themselves. The average investor earned a 2.3% annual return from 1983-2012.
That is one benefit of target date funds. They usually include international holdings preventing investors from betting all of their money into one country
I wish I would have realized I was in a Target Date Fund 10 years ago! I just logged in and saw my terrible returns :( I made a video of my experience on my channel, I wish I would have found your video sooner. Thanks for the great in-depth explanation
@@JakeBroe Fidelity offers an option for investors who prefer passive versus active investing. The TG 2020 funds are obviously for people already retired.
Oooh, I think we finally disagree completely. "Perfect is the enemy of the good." There are plenty of people who will only "cross-shop" Target Date Funds with actively managed mutual funds with even higher fees. (Any fees of 0.15% are reasonable; yeah, you or I can do better but for most investors they will end up paying more by trying to time the market or selecting even higher fee products.) Also pretty sure most of these hold corporate bonds in addition to government bonds, so they will at least return a yield in excess of inflation for that part of the portfolio. But I have no idea what is going on with Fidelity trying to charge 0.6% for their "Freedom 2020 Fund" - more like "Fraudulent 2020 Fund" right guys?
Fidelity has Freedom Index funds that charge 0.12%. The version shared in the video is the active version. I agree @ perfect is the enemy of good. I know many people who just want a good investment option that is easy and mostly auto pilot. They are average people that will retire in their 60s. I think target date funds fits some people well. Some of the older members of my extended family are using them and retiring very comfortably. Those of us that like to learn about investing, tax efficient fund placement, etc will surely do better. Additionally, this adversity to bonds is somewhat warranted but oversold. I question how many 35 year olds that spent 10 years to accumulate say 50-100k could stomach such a loss. Not all market crashes rebound in 3 months, some take years. A 65 year old that worked their whole life to save/invest 1 million dollars does not want to see a 50% portfolio drop. They won the game, they don't need to squeeze out a couple more percent. Is it optimal? Maybe not, but neither are human emotions.
Haha, I understand why these funds exist and who they are for. Just not for me and probably anyone else that wants to take the time to understand the benefits and security of a simple low cost total stock market index fund. Cheers EG!
@@JakeBroe You're right on with the bonds thing. Some boomers still tell people to invest in a savings account that pays 10% per year so that they can be millionaires in 40 years (pro tip: they don't exist anymore) holding bonds is just asking to get your money eaten away by inflation
My son and I studied investing in his senior year of homeschool. His first account was 100% VLXVX - Vanguard Target Retirement 2065 Fund because he didn't want to do any more with it. After he started a steady job he opened a Roth IRA -- 90% VTI / 10% other ETFs with ERs at 0.10 or less. Thanks for the target fund explanation. At age 20, it does make more sense for him to exchange VLXVX for VTI.
@@JakeBroe What advantage does VTSAX have over VTI? I mean for a buy and hold investor. He wants a set it and forget investment. Manual purchases of VTI on payday are fine with him. That is the part he enjoys. A weekly reminder his FIRE plan is a plus. He maxed out his 2020 IRA and on track to max out his 2021 IRA before his 21st birthday.
@@hemetsonshine They are 99% the same, the difference is that with the mutual fund you can invest whole dollar amounts like $1 or $100 or $567.39, and with the index fund you can only invest by buying full shares (if you're in vanguard, i dont know if you can buy fractional shares on order brokers). Also, with VTSAX you need a minimum of $3,000 in order to buy in and the ER for VTSAX is .04%, for VTI the ER is .03%
Let me put it this way....Im 53 ... Ive managed my portfolio most of my working life and have done pretty good. perfomance wise I have beat the target date funds because I am very aggressive....HOWEVER as I transition to the end of my career (I want to retire in 10 years...) I am moving money from my aggressive/speculative stocks to things like VOO VO VTV and the schwab target 2035 fund. (Mind you I still hold sizable postions in AMZN AAPL MSFT GOOGL RC VVR NVDA XOM SWX FB UPS ARKK XLE XLF SOXL F GLD and several others ) I dont see anything wrong with shifting to BUILDING the more conservative funds until I retire while holding all the MAIN players ive built over the year (Ive gotten rid of TSLA, as an example even though I do like the company...it is in my eyes a wildcard...)...So building VOO VO VTV and SWFYX into large holdings will keeping the rest SHOULD give me a balance of diversity and dividend income where I dont "lose sleep" at night as I get closer to retirement.....Let me know what you think of my diversified plan....
The biggest reason I will not buy one is if I bought a mutual fund that follows the S&P 500 in March 1979, just left it there, and sold March 2009, the return is over 10%. As long as I’m making long bets of 30 years or more it doesn’t make sense to rebalance at all. I might buy bonds when I get in my 50s if I want to add to early retirement.
Will have to disagree here. Target date funds are much better for 90% of investors than what is normally peddled out there by financial advisors. Not everyone has time to actively manage their portfolio. I love index funds too but a target date fund will save a novice investor with a bond position from panic selling at the bottom of a crisis. Some people (who obviously don’t watch this channel) can’t stomach a 30% drawdown of their life savings over a couple weeks.
For sure, I understand why the industry has made these the default funds for their customers. But I am just a believer there is a better way and if people are explained the benefits of a simple low cost total stock market index fund, they can be a believer as well, haha.
Great vid Jake! I agree they are too conservative for anyone in 20s to 40s, mayb even early 50s. However, if Vanguard index minimum investment of $3K is too much, one can start off a Target date fund for $1K, then exchange fund for VTSAX, VFIAX, etc. when one reach $3K in Target date fund.
Rationally you are correct Jake but man is not a rational creature. When you don't have as much money losing 30% of 100K hurts but you still sleep at night. When you have a million dollars in the market and you are 60 and lose 30% 300K files out the window and you think about all that money could've done for you. The amount of money does change the way you think about your investments also the amount of time you have left on the earth plays a part. So I would not advise anyone under 50 in a target dated fund but may advise someone older who is financially secure and doesn't want to have to think about the markets. Not all investment decisions are about maximizing your return some are about capital preservation. I don't participate in a target dated fund currently.
Haha, I live my life by making the most rational decision. So I had to make this video and get the word out, but I know why these funds exist and why they are the default for so many people. Not for everyone!
Thank you Jake, good thing you discussed my fidelity 2050 fund. Considering how many years ahead I have to invest, I believe the withholdings in bonds is too conservative to my age. Will be calling fidelity to make necessary changes 👍
What do you recommend if Target Date Funds are only option in 401k? Do you propose something like Dave Ramsey? 4 mutual funds, large, mid, small and international? I agree with you, I don't like the lack of customization, I am too much of a control freak for that set up. However, I keep being told to take advantage of my 401k, and get that match, so I am kind of stuck. So, back to my original question... What do you recommend for us folks who have only mutual funds available, with the majority of them being target-date funds? Thanks, your insight is appreciated.
What an incredible video Jake! my employer just moved everyone over to Fidelity TDF's and i told my immediate team the same information you just laid out in this video, far better than what i could ever do. I moved to managing my own selections and do did the 8 people on my team and i'm sure they'll come back and thank me in 29 years. The expense ratio's for the TDF v selecting your own in my research was 3x more and the funny thing is you can basically select the same funds, without the TDF wrapper you were in with the lower fees just by clicking a button.
Yep! TDFs are popular with 401ks because they are simple to understand for people who know nothing about investing. But a low cost simple total stock market index fund would serve you better over a 29 year period for sure! Just buy and hold forever.
Thank you! What would you recommend to buy instead of the freedom funds? I called Fidelity and they told me to buy those. I am glad I watched your video.
Interesting video. I was thinking of a target date fund for my Roth IRA. I think one reason they are expensive is the inbuilt rebalance and risk transition mechanisms? Also, they are funds of funds, the expense ratios are getting compounded. But I do know Fidelity has some low expense ration TG Funds, too bad my employer doesn't offer those for 401k :/
Overall great video so far, but i'm just a little bit confused about them being 'more expensive' than the underlying funds it holds... Maybe its changed in the last 2 years but most of the retirement date funds I see they are the lower cost option. They also often have different share classes than the regular mutual fund (less expensive). i.e. vanguard or fidelity or trow will give themselves cheaper versions of the fund to place in the retirement date fund. I think what were missing here is that vanguard and fidelity basically offer artificially low fees for a few of their index funds as a loss leader attracting people to start investing with them. They don't make any money off of their 0% fee for the index funds so just because the retirement date fund is higher than 0.01% doesn't mean its not a good product. Same reason that getting a Costco hotdog that they offer at a loss doesn't mean you shouldn't buy their 5 pound bag of chicken that they do make money on. Also I agree on them being too conservative sometimes, but its sort of weird you show the 10 year treasury or GOV bonds as the only option that they have for bonds. corporate bonds and long term bonds basically always have much higher rates so its not like those bond funds ever have a year where they make 1 or 2 percent. And the funny thing about the returns you showed is that it wasn't the bond portion of the portfolio holding them back so much, it was the international equities. Intl equities massively underperformed. but prior results don't show future returns and you can't reasonably base your future investment plan on past returns. this past decade s&p did extremely well but thats not to say intl won't outperform next decade. and small caps may also outperform too. I don't think it would be smart to base the next 40 years of life savings only in an S&p 500 index fund simply because its been on a tear.
I have a question. You said, even when the market crashes, the target fund must sell and keep gliding to its target asset ratio. However, at the moment of crush, the fund must buy more stocks to keep its target ratio? Rather than sell them to glide down. To say, rebalancing takes place automatically by buying low and hold them in its allocation. If this does not happen, they must be far below from its target ratio during the market crash. Do I miss something? By the way, I agree with you on the hefty expense ratio of many target funds.
Waste of money, too high of expense ratios, also way to conservative on bonds way too early and missing out on compound interest later on. S and P 500 always bring 2-3% more everytime. That’s 250-300k more.
Thank you. Excellent explanation and so true. At 80 years of age, I still have a good % in Equity, but as the market is so high, I have converted 30% in cash and know I am not going up or down with that, but I feel more comfortable and can get back in as I feel it is time. I had looked at target funds but your message has clarified that I should not. I much prefer Funds compared to stock.
@@mariog7682 , SCHK is a great ETF! If you want to learn about index fund investing, i recommend the Little Book of Common Sense Investing. Another good beginner book to investing is Unshakeable by Tony Robbins.
You have covered this topic before. I think you should talk about the rotation into bonds that one should do when close to retirement. If someone is 5 years away from retirement they can't take the volatility of the market, that is where bonds are good. The 10% a year is a long term rate, but it is highly variable.
@@JakeBroe Hey Jake... Your videos are great and I'm so glad I stumbled across them. I'm less than a year from retiring. I have a company 401K and pension that I'll be rolling over. I was thinking of going with Fidelity, but because of your video (comparing Fidelity, Schwab, and Vanguard), I believe I'm now going with Vanguard. So, I really hope you follow up on your idea to do a retirement video. I'm interested in hearing some investment strategies for people IN retirement who don't want a lot of risks, but still want to grow their wealth. Thanks.
Doesn't really matter in a retirement account as long as you stay in stocks (either large cap, small cap, or international). I personally am just in a simple, low-cost S&P 500 index fund in my retirement account. Once I turn age 55, I'll look at it and decide if I want to rebalance it then.
@@markhayden4386yes it makes senses. I've been researching and I'll look into the IPS because that is new to me. Love the way i learn something new from people. That you for your insight!!!!
Put micro camp ETFs and small cap growth ETFs in your traditional ira. Those type of ETFs usually pay a smaller dividend, and when I get taxed, I rather get taxed on a fund where I received less dividends. All of this requires active management and can be very tedious for someone that works a 9 to 5 job, hence why I am a fan of Target date funds. Different Strokes for different folks.
Hey Kevin! America's largest companies (MSFT, FB, AAPL, GOOGL, ADBE, AMZN) are pretty much taking over the world and foreign companies are having trouble competing with them. Older western democracies have too much regulation and developing countries have too much corruption... so I just don't see an international index fund outperforming the S&P 500 anytime soon. If that changes, then I'll make a video about it!
Hello jake. I have a question I currently have fidelity 2045 Target date funds open couple years ago. After watching this video I want to move basically exchange to FXAIX. Question is should I exchange when the market is down or do it when market do better, when exchange with other fund do I loose any money ? I’m also thinking about opening the vanguard VGT and drop some money is that a good place to drop 50 k. Much appreciated.
Great video! I currently have a 457 and 401k with target date funds through my employer. Is it possible to change those to a total stock market index fund? Would there be a fee to do so? thanks!
Hey J Thack! That all depends on who provides your employer sponsored 401k. You need to log on or maybe submit a request somewhere. But if they offer a low cost total stock market or S&P 500 index fund, that is really all you need in a retirement account.
Hey Jake Great vid again. I do agreee with what you say. I also learned and know what i want, But with Charles Schwab to auto invest in seperate index fund you would need 100 minnium per fund. I already try to put as much as i can in my companys 403(b). so it leaves me only some extra to enter in my Roth which I use the target. I also had 4 index funds when i started but i prefer auto invest and come back six months later to a year. i prefer the out of sight out of mind perspective becuase i would go crazy if i had to buy all the time. Once its get big i might split it up the targe date to what investing should be. I dont care for Total Stock Market only beucase i see the Small cap ones might not recover. which I think affects the total What to do you think of the Charles Schwab Markt Funds (Equity, Growth, Balance, conservative)?
Hi Jake. For those that buy target date funds and are doing better with other investment would you look to just sell them for other investments or would you buy the new investments after there has been a downturn in the market? I could have sold some weeks ago and bought my new investment at a lower price. Im probably better going for the higher return investment over the targdt date funds but just checking to see if you had an opinion.
I like how you speak the truth about these target date funds. I remember your video on the new and supposedly improved TSP Lifecycle Funds. And......still trash LOL
When the Target fund sells your stocks to buy bonds does this have a tax consquence? I have shunned the Target funds for no other reason that the fees are higher.
Target funds are not the answer for anyone younger than 50. My advice is if you are younger than 50, do Sp500 index 100%. After 50, you can decide how to rebalance.
I like Jake and his enthusiasm but you might want to take this video with a grain of salt. I do agree that he's not a financial advisor, I know this because the financial advisors I've seen charge $200+ per hour and this video was free. There are more things missed here than I have the energy or inclination to cover. I'm guessing the cumulative bond knowledge of most of this audience wouldn't fill a thimble and if you're younger then your number of decades of financial experience is limited so you may not have been investing when stocks sucked but bonds pulled in over a 30% return. Back in the day people would buy round lots of stock. I recall paying over $500 commission to buy 1,000 shares at a discount broker but, that's all that was available. Today we can buy 0.0269 shares of whatever for free. Keep in mind, a retirement account is different than a regular brokerage account which may be different than a Family Limited Partnership which you might have one day which also highlights the fact that general investing and wealth management are different things. For all you DIY'ers, when is the last time you rebalanced your portfolio? Does Glass-Steagall mean anything to anyone here? probably not. Don't think that you're seeing the entire iceberg from one 17 minute video.
Sound good Scott! You can buy the bonds, I'll stick to a simple low cost total stock market index fund for the next 30 years. Let's re-group then and compare whose retirement account performed better!
Good explanation of Target Retirement Funds... I'm still confused though, on what effect an INCREASE in interest rates has on my Bond Index Fund. Share price increase or decrease? thanks, again.
When I started with Fidelity about month half ago, I invested only in one fund, FXAIX and thats what i am holding only, it is bad? Though in Roth now that I have watched ur videos I am holding three, same fxaix , total market and fidelity nasdac. Any thoughts?
FXAIX is a great fund! If you want to be in a total stock market fund as well or instead that is also good. They perform about the same! Low cost and well diversified!
I don't understand why Fidelity target funds have so high fee ? My Fidelity Freedom 2050 Fund is 0.75%, I thought fees for these kind of funds should be low.
Hi Jake very good video!! I have an old 401k with down $18k and now sitting at about $126k you think is a good idea to rollover this account into a traditional IRA with the account been down that much and get rid of the target date fund 2040 or wait until it recovers? What's your opinion(not an advice)👍 thank you for all the information you give us!!
Hey Juan! I answered this in the Q&A video, but yes, don't worry about rolling it since you are just going from an index fund to another index fund. Doesn't matter that the account is down since you are buying right back in while the market is down. Cheers!
Hey Jake. What would you recommend to invest into for a Roth IRA? VOO or VTI? I have come across BND & VXUS too but I would like to hear your thoughts. I am in my later 20's btw. Thanks.
Definitely do not do any bonds! I just recommend VOO with dividends reinvested. Definitely don't sell if the market has a pull back! Just buy and hold forever and you can't lose!
Hi Jake, i have been trying to teach myself retirement investment last 6 months. Could you please make video about how to invest after 50 years old? I was going to rollover my husband old 401k to IRA account’s Dated fund and now I don’t know 🤷♀️ what to invest!?
put my 20 year old in a TDF and 3 zero fee funds because he's NOT into investing right now but ill be darned if he saves zero and solely depend on social security later in life. maybe later he will get the investing knowledge but its just not there so automate to TDF is best.
These are the only options that my employer offers 🥴 I have the vanguard 2050 . The only reason I have it there is because I get a 4% match . This 2050 is 0.15😭
@@BigBoyOtero actually there is a 2065 for the gen z generation lol. I will do some research on it. But yeah the further it is the higher the stock percentage
i would contribute up to the match and open a Roth IRA and max out the contribution to that. and if u still have money to save i would then open up a taxable account. you will have wwaaaaayyyyy better option this way
@@HC_8 I think you need to consider the tax implications as well. Market seems a little volatile. In addition to match, she is also saving on marginal tax rate. She also needs to consider her goals, and current situation. @suri Medina. . . how much do you love that us yahoos are trying to plan your financial future.
holy crap! I'm checking my place for bugs. . . I have been compiling all of my 401ks from previous employers and considering rollover IRAs. . . of course, my fear is explaining to my wife how I lost part of our retirement when the markets go down. Talk about the psychology of investing. . .I'm almost willing to lose money as long as I can blame it on the fund manager vs. taking control and moving it into an index fund and some how it being my fault if the market can't keep up with the amazing pace of the last 12 months. Anyway, this video will go along way in helping y wife understand the need for us to take control. . . .I guess if something happens we can blame you. . . just kidding. continue doing the great work that you do!!!!!.
Hey Rafael! You only lose money if you sell at a loss. If another dip comes (and it will), just keep buying and holding and the market will return to all time highs again. It always does!
Actually, during the big sell off in March 2020, they would’ve had to buy stocks. Here’s why: Say you’re at a 50/50 split in 2020. $10,000 in stocks and $10,000 in bonds. If stocks plummet and you now have $5,000 in stocks and $10,000 in bonds then the TDFs have to sell off $2,500 in bonds to buy equities. Thus making it $7,500 in both equities and bonds. This is one reason why the stock market went up in April 2020. Funds (like this) must rebalance. Due to the high volatility, stocks swung wildly at the ends of quarters. April, July, October, and even January 2021 were volatile months.
To be clear, I’m not saying TDFs are good or bad. The 10% in bonds in your 20’s/30’s is ridiculous - like you said. The best and most efficient way to retire is to do it yourself. Good video overall Jake!
You are correct, and I did glance over this briefly, lol. But after the rebalance, the fund then goes back to doing what it does, slowly selling stocks to buy back bonds (especially as the stocks recover).
@@JakeBroe Very true. They sell on the way up regardless of future expectations. Btw, I’m always amazed at your commitment to responding to comments. Just an amazing job you do with your videos and the community you’ve built! Kuddos!
Even funds many years out will have at least some bonds in them and combine that with a higher expense ratio and it is a guarantee to lag the sp500 several % a year. So if people know how to handle their investments they should never touch a target date fund
Dang was about to invest in a target date fund for my IRA but i think ill go with FSKAX and just buy and hold that one fund until retirement? is this a better strategy?
My parents never invested in the stock market after my dad made a YOLO move in the 90s/00s and they retired with just cash and real estate. I have been suggesting them to get a Vanguard target date fund (in retirement) so that their money doesn't rot as much. Do you think at least in retirement, these funds are useful?
Like there are S&P or total market index fund there are also bond market index funds, for example VBTLX from vanguard, that would at least help grow their money at bond rates without having to pay the higher expense ratio for a target date fund.
@@kendowarrior99 I do VTI/VXUS for myself but it's really hard to convince older people to invest in anything other than bonds. I would think at least in retirement, the income generating funds like Vanguard lifecycle funds would be much better than me trying to wrongly convince them to cut down on their expenses to get maximum returns when they are already in their retirement.
I think target date funds are a reasonable option for any investor that doesn't want to spend the time to craft a more optimal portfolio from the underlying funds and is fine with the asset allocation / level of risk. Most people cannot stomach the volatility of a 100% stock portfolio, especially people that spent decades accumulating that wealth. For many, they won the game and they don't need to keep playing to win a little more. The three fund portfolio is good for those that are willing to take on some minor maintenance. Another thing to consider is who manages the portfolio when they become senile? Target date funds don't need a lot management.
I think index fund investing is for everyone and anyone can best be served by buying a low cost total stock market or S&P 500 index fund. Doesn't have to be anymore complicated than that.
I'm over 50 and have a target date fund where about 17% is in bonds and 8% in cash. Rather than dumping out of my target date fund entirely (which has averaged over 10% return the past three years, even last year during the pandemic), I'm considering taking 25% of the the balance and putting it in some whole market mutual fund or other stock-centric fund, thus offsetting the "safety" allocation in my retirement fund with something that could potentially perform better. Still on the fence about this. Thoughts?
Hey Craig! You have 10 years still before you can start using this money penalty free. I tell everyone on my channel that in a retirement account they should be 100% in a simple low cost total stock market or S&P 500 index fund. The bonds and cash you are holding are doing nothing for you.
Thanks for watching everyone! If you found this video interesting, you can help me out by giving this video a LIKE! Also check out some of my other videos like this one where I break down the difference between Roth and Traditional retirement accounts: th-cam.com/video/XNqe7Utouzg/w-d-xo.html
Captain Broe, this was one of the best videos you have created. I hope people learn from this and avoid target date funds.
Thanks raymond! I hope people find this video useful as well!
@@JakeBroe Why would a company liquidate an existing Fund and reinvest in a Target Date Fund?
@@JakeBroe Would it be because the company is looking to sell and be bought out?
You're so underrated!!! You tell the straight up truth. From your credit cards, to crypto, to stocks all your videos are helpful. Keep grinding😎😎
#facts Jake is 🔥
Haha, thanks Javier! I've been uploading every 24 hours for almost a year now. So the grind continues!
This might be your best video yet. I’ve seen a handful of personal finance influencers who recommend these funds for retirement saving but overlook their downsides. Learned a lot!
Thanks DD! Yeah... money managers push these because they are easy to understand and "safe" for clients. Finance influencers then push them because the professionals push them... no thought required. I actually like to question and think about stuff. Glad you found my channel!
Usually I agree with Jake, but for this one I have a different viewpoint.
The biggest reason for target date funds is for their glide path, or basically to slowing shift from stocks to bonds. This should align with your risk tolerance/ retirement.
Two points:
1. It does not always keep selling stocks to buy bonds. If the stock market is down, say in 2008, it will actually buy more stocks (when it's on sale) to keep with your asset allocation.
2. I understand the buy and hold, but when you're in retirement, majority of folks will most likely be selling to fund their retirement. it's hard for folks to have 100% in stocks. There should be some stability, and bonds give that. Therefore, in retirement, you should have some percentage of your portfolio in something stable like bonds depending on your risk tolerance, and a target date fund is a method to get there.
Still though, love the video and keep up the great work!
Thanks Alan! Yes, I agree, Target Date Funds are still useful for people who would otherwise sabotage their own retirement fund when the next panic/crash comes. But anyone watching this video has been given the truth... lol. No reason to hold bonds for 30+ years. Just buy and hold, ignore the news. If they get that, then they can handle a simple low cost S&P 500 index fund. Cheers!
Target date funds are garbage and so are bonds , pile of trash to own bonds
I agree that investing in bonds at all when you're young is not a great use of money, so being 100% in equity would be my way to go. So then maybe once you get closer to retirement age, depending on what that is for each individual, you start allocating some of your money to bonds. For example, age 25 to 50 no bonds. Then age 50 to retirement you start acquiring bonds to decrease volatility the next few years. Just my 2 cents.
@@bradywjstrongman Agreed, I think a large stable company dividend can offer 2-6% interest, government bonds offer less than 1.5%
I think Jake's comment about one size DOES NOT fit all supersedes any argument for buying them. The comparison to the astrology chart was golden!!
This is exactly spot on. Target Date Funds are designed for the person being convinced to contribute to a 401k and doesn't care to know anything about what it's doing. They are safe for those people and the majority of them don't even know they are in them because they never log in. Jake is correct, almost anything is better than these, take your money and your investments in your own hands and educate yourself.
Would you say then it's better to contribute less into a current work 401k and instead contribute higher into a Roth IRA? Or in the long run so they somewhat even out?
@@davidfranco1475 Depends if your work 401k has a match.. if so contribute up to the match. Then the rest into a ROTH. Having tax free money in retirement will be worth it.
I agree and disagree. Should everyone learn about finance? Yes, but many people don’t want to and are willing to be good instead of perfect. For those people, this is most likely the best option. Td funds eliminate many risks noobs fall prey to, they are pretty optimal from a risk adjusted return, and low cost (0.12-0.15%). The average investor from 1983-2012 earned a 2.3% according to a JPMorgan study.
Thanks TE! Cheers!
Wondering how that is going for you. Your comment reeks of living in the hype bubble. Target Date Funds are much better than trying to pick stocks or time the market.
I dont see anything wrong with them.....They hold good positions and are basically set it and forget it......
Exactly and adjust themselves according to the market!!
Jake I also want to thank you for a great discussion about bonds and how they just don’t make as much sense anymore. While that may change this was really an eye opener and I should kick myself for not realizing this myself! Please keep these awesome videos coming! Don’t stop now!
Thanks Matt! I have more great content coming soon. I promise!
Thanks, Jake, you really are the best!
Fidelity Freedom INDEX is the comparable target date fund Vanguard and Schwab. It’s 0.12% at Fidelity.
“Flaming hot garbage,” eh? I’ve been investing for decades and I don’t recall ever even hearing of these things. Good thing I have been careful! Thanks for another great video, Jake!
Haha, too provocative of language? TDFs are everywhere. Watch out! Thanks for watching Matt.
Yes, I agree with you. You must be cautious when investing. I’m starting to help a friend invest a relatively small amount of money and it certainly has me on my toes! I’ll teach him about covered calls and cash secured puts and it’s because of you that I can teach him these two types of options. Be proud, Jake, you’re going to be a multimillionaire some day!
Thank you for your honesty. It is becoming a lost art. You have saved so many people and increased their savings and quality of their retirement years. Every dollar matters. Thank you for sharing your knowledge.
Thanks Jake.
You are thinking outside the box, that's a trademark of yours. Love your thoughts about investing.
I haven't found anyone that has content like yours on youtube.
Thanks so much Bernd! I honestly just make content that I wish other people made for me, haha. I like questioning things and pulling on loose threads. Thanks for watching!
I am 100% VTI/VTSAX in my ROTH IRA and Taxable accounts but in my 401k I am in a target date fund. It was the default, it's not really terrible, the expense ratio is still incredibly cheap compared to most mutual funds, and honestly I have no idea what the other funds are in my 401k and don't feel like spending hours researching them. It's averaged 29% annually over the last 3 years. I'll eventually rebalance but they aren't terrible options for most people especially when young since it's mostly equity anyways.
One point, at least for federal employees in the TSP lifecycle funds (not sure is applies to other private target date funds in the private sector): Just because you plan to retire in a certain year, doesn't mean you are locked into that same lifecycle fund. For example, I plan to retire in 2028, but I am invested in the 2040 lifecycle fund -- I still get the gradual changeover in allocations, but at a riskier level than someone in the 2030 fund.
Two things about bonds. First, bonds held in target date funds aren't ALL going to be in government bonds. Second, folks tend to only talk about the appreciation or depreciation of bonds. However, you have to take into account they kick off interest, so it's really about the total return.
Good point. The trailing 10 year return of VBTLX is 3.53%, 5 year 5.33%, 1 year 1.34%. It's not that bad and dampens the volatility in a portfolio. They are a different tool and have their place in many portfolios.
Very true Danny!
Learn from John C. Bogle just buy the S&P 500 index fund or the total market fund then you can beat any target date funds.
I like how you explain that investing is not a one size fits all. Target funds are ignoring individual goals because not everyone starts investing at the same age and don't have the same goals.
Good video. I would also suggest people consider the international stock index. I think target date funds are reasonable for a person that doesn't want to learn much about investing, doesn't have a very high risk tolerance, is about to become senile, invests in a 401k without better options, etc. They are not the best, but they are likely better than such a person would choose themselves. The average investor earned a 2.3% annual return from 1983-2012.
Thanks Nick! Cheers!
That is one benefit of target date funds. They usually include international holdings preventing investors from betting all of their money into one country
I wish I would have realized I was in a Target Date Fund 10 years ago! I just logged in and saw my terrible returns :(
I made a video of my experience on my channel, I wish I would have found your video sooner. Thanks for the great in-depth explanation
Minor nit: Fidelity also has freedom index funds with a 0.12% expense ratio (as opposed to the 0.6% version shown).
While the fidelity freedom INDEX funds are great, I've had amazing results from having a mix of all 4 of the fidelity zero index funds in my roth ira.
@@sweis12 Those are good funds! I also use the three / four fund portfolio 😀. I think it’s best for most people.
Why do they have a fund with a .6% ratio then? haha, an actively managed Target Date Fund for 2020? That's the dumbest thing ever, lol.
@@JakeBroe Fidelity offers an option for investors who prefer passive versus active investing. The TG 2020 funds are obviously for people already retired.
Oooh, I think we finally disagree completely. "Perfect is the enemy of the good." There are plenty of people who will only "cross-shop" Target Date Funds with actively managed mutual funds with even higher fees. (Any fees of 0.15% are reasonable; yeah, you or I can do better but for most investors they will end up paying more by trying to time the market or selecting even higher fee products.) Also pretty sure most of these hold corporate bonds in addition to government bonds, so they will at least return a yield in excess of inflation for that part of the portfolio.
But I have no idea what is going on with Fidelity trying to charge 0.6% for their "Freedom 2020 Fund" - more like "Fraudulent 2020 Fund" right guys?
Yeah that’s way too expensive the Vanguard target date funds are much better
Fidelity has Freedom Index funds that charge 0.12%. The version shared in the video is the active version. I agree @ perfect is the enemy of good. I know many people who just want a good investment option that is easy and mostly auto pilot. They are average people that will retire in their 60s. I think target date funds fits some people well. Some of the older members of my extended family are using them and retiring very comfortably. Those of us that like to learn about investing, tax efficient fund placement, etc will surely do better. Additionally, this adversity to bonds is somewhat warranted but oversold. I question how many 35 year olds that spent 10 years to accumulate say 50-100k could stomach such a loss. Not all market crashes rebound in 3 months, some take years. A 65 year old that worked their whole life to save/invest 1 million dollars does not want to see a 50% portfolio drop. They won the game, they don't need to squeeze out a couple more percent. Is it optimal? Maybe not, but neither are human emotions.
Haha, I understand why these funds exist and who they are for. Just not for me and probably anyone else that wants to take the time to understand the benefits and security of a simple low cost total stock market index fund. Cheers EG!
@@JakeBroe You're right on with the bonds thing. Some boomers still tell people to invest in a savings account that pays 10% per year so that they can be millionaires in 40 years (pro tip: they don't exist anymore) holding bonds is just asking to get your money eaten away by inflation
"educate yourself, and then invest with confidence"
why do I feel like you're talking directly to me Jake? XD
Because I am always talking directly to you Emily. This whole channel is just a vlog diary to you, haha
My son and I studied investing in his senior year of homeschool. His first account was 100% VLXVX - Vanguard Target Retirement 2065 Fund because he didn't want to do any more with it. After he started a steady job he opened a Roth IRA -- 90% VTI / 10% other ETFs with ERs at 0.10 or less.
Thanks for the target fund explanation. At age 20, it does make more sense for him to exchange VLXVX for VTI.
VTI is a smash winner! You can't go wrong with VTI in a retirement account holding long term! Cheers Hemet!
@@JakeBroe What advantage does VTSAX have over VTI? I mean for a buy and hold investor. He wants a set it and forget investment. Manual purchases of VTI on payday are fine with him. That is the part he enjoys. A weekly reminder his FIRE plan is a plus. He maxed out his 2020 IRA and on track to max out his 2021 IRA before his 21st birthday.
@@hemetsonshine They are 99% the same, the difference is that with the mutual fund you can invest whole dollar amounts like $1 or $100 or $567.39, and with the index fund you can only invest by buying full shares (if you're in vanguard, i dont know if you can buy fractional shares on order brokers). Also, with VTSAX you need a minimum of $3,000 in order to buy in and the ER for VTSAX is .04%, for VTI the ER is .03%
Awesome video as always! I hope your views keep growing as everyone can benefit from the lessons you're teaching!
Thanks Nick! I hope my views keep growing as well, haha
Let me put it this way....Im 53 ... Ive managed my portfolio most of my working life and have done pretty good. perfomance wise I have beat the target date funds because I am very aggressive....HOWEVER as I transition to the end of my career (I want to retire in 10 years...) I am moving money from my aggressive/speculative stocks to things like VOO VO VTV and the schwab target 2035 fund. (Mind you I still hold sizable postions in AMZN AAPL MSFT GOOGL RC VVR NVDA XOM SWX FB UPS ARKK XLE XLF SOXL F GLD and several others ) I dont see anything wrong with shifting to BUILDING the more conservative funds until I retire while holding all the MAIN players ive built over the year (Ive gotten rid of TSLA, as an example even though I do like the company...it is in my eyes a wildcard...)...So building VOO VO VTV and SWFYX into large holdings will keeping the rest SHOULD give me a balance of diversity and dividend income where I dont "lose sleep" at night as I get closer to retirement.....Let me know what you think of my diversified plan....
The biggest reason I will not buy one is if I bought a mutual fund that follows the S&P 500 in March 1979, just left it there, and sold March 2009, the return is over 10%. As long as I’m making long bets of 30 years or more it doesn’t make sense to rebalance at all. I might buy bonds when I get in my 50s if I want to add to early retirement.
Will have to disagree here. Target date funds are much better for 90% of investors than what is normally peddled out there by financial advisors. Not everyone has time to actively manage their portfolio. I love index funds too but a target date fund will save a novice investor with a bond position from panic selling at the bottom of a crisis. Some people (who obviously don’t watch this channel) can’t stomach a 30% drawdown of their life savings over a couple weeks.
This is a great point. I agree and think many are overestimating their risk tolerance or that of others.
For sure, I understand why the industry has made these the default funds for their customers. But I am just a believer there is a better way and if people are explained the benefits of a simple low cost total stock market index fund, they can be a believer as well, haha.
Great vid Jake! I agree they are too conservative for anyone in 20s to 40s, mayb even early 50s. However, if Vanguard index minimum investment of $3K is too much, one can start off a Target date fund for $1K, then exchange fund for VTSAX, VFIAX, etc. when one reach $3K in Target date fund.
Thanks Mque! Cheers!
VT ticker would be the most simple
Rationally you are correct Jake but man is not a rational creature. When you don't have as much money losing 30% of 100K hurts but you still sleep at night. When you have a million dollars in the market and you are 60 and lose 30% 300K files out the window and you think about all that money could've done for you. The amount of money does change the way you think about your investments also the amount of time you have left on the earth plays a part. So I would not advise anyone under 50 in a target dated fund but may advise someone older who is financially secure and doesn't want to have to think about the markets. Not all investment decisions are about maximizing your return some are about capital preservation. I don't participate in a target dated fund currently.
Haha, I live my life by making the most rational decision. So I had to make this video and get the word out, but I know why these funds exist and why they are the default for so many people. Not for everyone!
Says, I am not a financial advisor and says this video is financial advice, then proceeds to give financial advice 🤣🤣
and bad advice at that.
Thank you Jake, good thing you discussed my fidelity 2050 fund. Considering how many years ahead I have to invest, I believe the withholdings in bonds is too conservative to my age. Will be calling fidelity to make necessary changes 👍
What do you recommend if Target Date Funds are only option in 401k?
Do you propose something like Dave Ramsey?
4 mutual funds, large, mid, small and international?
I agree with you, I don't like the lack of customization, I am too much of a control freak for that set up.
However, I keep being told to take advantage of my 401k, and get that match, so I am kind of stuck.
So, back to my original question...
What do you recommend for us folks who have only mutual funds available, with the majority of them being target-date funds?
Thanks, your insight is appreciated.
Best explanation I’ve found on TH-cam thank you!!!
You are very welcome Victor! Cheers!
This man is absolutely correct, excellent video.
What an incredible video Jake! my employer just moved everyone over to Fidelity TDF's and i told my immediate team the same information you just laid out in this video, far better than what i could ever do. I moved to managing my own selections and do did the 8 people on my team and i'm sure they'll come back and thank me in 29 years. The expense ratio's for the TDF v selecting your own in my research was 3x more and the funny thing is you can basically select the same funds, without the TDF wrapper you were in with the lower fees just by clicking a button.
Yep! TDFs are popular with 401ks because they are simple to understand for people who know nothing about investing. But a low cost simple total stock market index fund would serve you better over a 29 year period for sure! Just buy and hold forever.
Wow, what a good overview of the fallacy that the target date funds are
Thank you! What would you recommend to buy instead of the freedom funds? I called Fidelity and they told me to buy those. I am glad I watched your video.
I feel attacked lol I’m 26 and my entire Roth is in that exact fidelity target date fund 2050
Plenty of time to correct course, captain!
26? if i were u i would get out of it asap. do it on your own. u have no business being in bonds at your age.
Haha, well, you haven't been in them very long then! You got 34 years to course correct and make your money work for you proper! Cheers Jonae!
He is 100% correct !
Always well researched and well presented. Thanks, good info.
Thanks Jerry! I appreciate that!
If you don’t think for yourself someone else will be glad to do it for you
Interesting video. I was thinking of a target date fund for my Roth IRA. I think one reason they are expensive is the inbuilt rebalance and risk transition mechanisms? Also, they are funds of funds, the expense ratios are getting compounded. But I do know Fidelity has some low expense ration TG Funds, too bad my employer doesn't offer those for 401k :/
Jake is here to educate people good job Jake!
Thanks Xiao! Cheers!
@@JakeBroe I kinda want to do something like you but don't know the how to and confidence
Would be nice to have someone like you as a friend
Overall great video so far, but i'm just a little bit confused about them being 'more expensive' than the underlying funds it holds... Maybe its changed in the last 2 years but most of the retirement date funds I see they are the lower cost option. They also often have different share classes than the regular mutual fund (less expensive). i.e. vanguard or fidelity or trow will give themselves cheaper versions of the fund to place in the retirement date fund. I think what were missing here is that vanguard and fidelity basically offer artificially low fees for a few of their index funds as a loss leader attracting people to start investing with them. They don't make any money off of their 0% fee for the index funds so just because the retirement date fund is higher than 0.01% doesn't mean its not a good product. Same reason that getting a Costco hotdog that they offer at a loss doesn't mean you shouldn't buy their 5 pound bag of chicken that they do make money on. Also I agree on them being too conservative sometimes, but its sort of weird you show the 10 year treasury or GOV bonds as the only option that they have for bonds. corporate bonds and long term bonds basically always have much higher rates so its not like those bond funds ever have a year where they make 1 or 2 percent. And the funny thing about the returns you showed is that it wasn't the bond portion of the portfolio holding them back so much, it was the international equities. Intl equities massively underperformed. but prior results don't show future returns and you can't reasonably base your future investment plan on past returns. this past decade s&p did extremely well but thats not to say intl won't outperform next decade. and small caps may also outperform too. I don't think it would be smart to base the next 40 years of life savings only in an S&p 500 index fund simply because its been on a tear.
I never liked the idea of having bonds more then 10 years out. If people say it's a risk, it's one I'm comfortable making right now.
I agree 100% Jake! Doesn't make sense!
I have a question. You said, even when the market crashes, the target fund must sell and keep gliding to its target asset ratio. However, at the moment of crush, the fund must buy more stocks to keep its target ratio? Rather than sell them to glide down. To say, rebalancing takes place automatically by buying low and hold them in its allocation. If this does not happen, they must be far below from its target ratio during the market crash. Do I miss something? By the way, I agree with you on the hefty expense ratio of many target funds.
Great video Jake. Perfect timing for me, as I'm just moving a 401k over to an IRA. Will definitely avoid the target date funds!!
Nice move Tim! Cheers!
Don't agree at all. Target funds have their place
Their place is in the hands of boomers loving their fat 1.5% yield on bonds
Waste of money, too high of expense ratios, also way to conservative on bonds way too early and missing out on compound interest later on. S and P 500 always bring 2-3% more everytime. That’s 250-300k more.
@@jaymoar3561 vanguard has some of the cheapest expenses ratio on target date funds lol. Get outta here man
If I get out into a target date fund. Does this mean that it isn't a IRA, after that point?
Agreed! TDF are only good for those near retirement or retired.
Truth! Cheers Mr. Berry!
Thank you. Excellent explanation and so true. At 80 years of age, I still have a good % in Equity, but as the market is so high, I have converted 30% in cash and know I am not going up or down with that, but I feel more comfortable and can get back in as I feel it is time. I had looked at target funds but your message has clarified that I should not. I much prefer Funds compared to stock.
This was great info! Thank you.
Thanks so much Jae!
Very good insight Jake, thanks.
Thanks duncan! Cheers!
What about Vanguard Wellington & Wellesley it kicks butt since its inception on 7/01/1929!
Dropping knowledge, thanks for the video.
Thanks angelo! Cheers!
Not to mention the absurdly high percentage that is usually invested internationally, which has been a huge drag.
Awesome video Bro i am a big fan of you !
Thanks Oz! I appreciate that!
Thanks. That's a good argument.
About to buy a target date fund. You saved it!
Nice save Mario! You got this!
@@JakeBroe any books on how to invest or build a rudimentary beginner profile? Im just starting to invest and bought SCHK as my first ETF.
@@mariog7682 , SCHK is a great ETF! If you want to learn about index fund investing, i recommend the Little Book of Common Sense Investing. Another good beginner book to investing is Unshakeable by Tony Robbins.
Great video! Thank you so much
You are very welcome Jonathan! Cheers!
Hot garbage is an understatement! VTSAX or SWTSX would be way better options imo
Not to mention small cap and value index funds on top of that!
@@inVINCEible95 agreed!
I agree Mark! These funds are winners right here!
Well Sir, you just torpedoed my bubble......Been in a target date fund for 5 years....Guess it’s time to switch, huh?
Hey Godwin! You can't go wrong by buying and holding a low cost total stock market or S&P 500 index fund!
You have covered this topic before. I think you should talk about the rotation into bonds that one should do when close to retirement. If someone is 5 years away from retirement they can't take the volatility of the market, that is where bonds are good. The 10% a year is a long term rate, but it is highly variable.
Hey Andrew! I can take more about what people should do close to retirement. That sounds like a good dedicated video topic. Cheers!
@@JakeBroe Hey Jake... Your videos are great and I'm so glad I stumbled across them. I'm less than a year from retiring. I have a company 401K and pension that I'll be rolling over. I was thinking of going with Fidelity, but because of your video (comparing Fidelity, Schwab, and Vanguard), I believe I'm now going with Vanguard. So, I really hope you follow up on your idea to do a retirement video. I'm interested in hearing some investment strategies for people IN retirement who don't want a lot of risks, but still want to grow their wealth. Thanks.
Bonds are getting destroyed right now....
I subscribed today. great video
Awesome! Welcome to the channel Hemant! Great to have you with us!
I think dividend funds are the new bonds. I just don’t see bonds with attractable returns.
Corporate bonds might come back... but the Fed reserve has to get out of the bond market and lets rates stabilize. Cheers Ross!
@@JakeBroe Agreed. Love your videos Jake. Keep it up.
Great video, is it good to have multiple index funds or just one like the total market index fund for the main core?
Doesn't really matter in a retirement account as long as you stay in stocks (either large cap, small cap, or international). I personally am just in a simple, low-cost S&P 500 index fund in my retirement account. Once I turn age 55, I'll look at it and decide if I want to rebalance it then.
Thx for your insight 👍. Learning as i go🤪
@@markhayden4386yes it makes senses. I've been researching and I'll look into the IPS because that is new to me. Love the way i learn something new from people. That you for your insight!!!!
Put micro camp ETFs and small cap growth ETFs in your traditional ira. Those type of ETFs usually pay a smaller dividend, and when I get taxed, I rather get taxed on a fund where I received less dividends. All of this requires active management and can be very tedious for someone that works a 9 to 5 job, hence why I am a fan of Target date funds. Different Strokes for different folks.
What can you recommend if I’m 50yo. My 403 plan doesn’t have much choices.
Jake this is a great video! May I ask- why don’t you recommend investing in any international index funds?
Hey Kevin! America's largest companies (MSFT, FB, AAPL, GOOGL, ADBE, AMZN) are pretty much taking over the world and foreign companies are having trouble competing with them. Older western democracies have too much regulation and developing countries have too much corruption... so I just don't see an international index fund outperforming the S&P 500 anytime soon. If that changes, then I'll make a video about it!
@@JakeBroe thanks for the input Jake! Always appreciate your thoughts and responses!!
Hello jake.
I have a question I currently have fidelity 2045 Target date funds open couple years ago. After watching this video I want to move basically exchange to FXAIX. Question is should I exchange when the market is down or do it when market do better, when exchange with other fund do I loose any money ?
I’m also thinking about opening the vanguard VGT and drop some money is that a good place to drop 50 k.
Much appreciated.
Great video! I currently have a 457 and 401k with target date funds through my employer. Is it possible to change those to a total stock market index fund? Would there be a fee to do so? thanks!
Hey J Thack! That all depends on who provides your employer sponsored 401k. You need to log on or maybe submit a request somewhere. But if they offer a low cost total stock market or S&P 500 index fund, that is really all you need in a retirement account.
Thanks for the video
Thanks for watching Sadeq! Cheers!
Hi even if I’m 50 yo. Is it ok to place 100 percent of my 403 to s& p 500.
Hey Jake Great vid again. I do agreee with what you say. I also learned and know what i want, But with Charles Schwab to auto invest in seperate index fund you would need 100 minnium per fund. I already try to put as much as i can in my companys 403(b). so it leaves me only some extra to enter in my Roth which I use the target. I also had 4 index funds when i started but i prefer auto invest and come back six months later to a year. i prefer the out of sight out of mind perspective becuase i would go crazy if i had to buy all the time. Once its get big i might split it up the targe date to what investing should be.
I dont care for Total Stock Market only beucase i see the Small cap ones might not recover. which I think affects the total
What to do you think of the Charles Schwab Markt Funds (Equity, Growth, Balance, conservative)?
I'm also in with Charles Schwab and I invest in the Target date Index Fund 2050.
Hi Jake. For those that buy target date funds and are doing better with other investment would you look to just sell them for other investments or would you buy the new investments after there has been a downturn in the market? I could have sold some weeks ago and bought my new investment at a lower price. Im probably better going for the higher return investment over the targdt date funds but just checking to see if you had an opinion.
I like how you speak the truth about these target date funds. I remember your video on the new and supposedly improved TSP Lifecycle Funds. And......still trash LOL
Very informative. Thank you.
@Jake Broe: what are your concerns about sequence risk for a retirement portfolio allocated 100% equities?
When the Target fund sells your stocks to buy bonds does this have a tax consquence? I have shunned the Target funds for no other reason that the fees are higher.
Target funds are not the answer for anyone younger than 50. My advice is if you are younger than 50, do Sp500 index 100%. After 50, you can decide how to rebalance.
I like Jake and his enthusiasm but you might want to take this video with a grain of salt. I do agree that he's not a financial advisor, I know this because the financial advisors I've seen charge $200+ per hour and this video was free. There are more things missed here than I have the energy or inclination to cover. I'm guessing the cumulative bond knowledge of most of this audience wouldn't fill a thimble and if you're younger then your number of decades of financial experience is limited so you may not have been investing when stocks sucked but bonds pulled in over a 30% return. Back in the day people would buy round lots of stock. I recall paying over $500 commission to buy 1,000 shares at a discount broker but, that's all that was available. Today we can buy 0.0269 shares of whatever for free.
Keep in mind, a retirement account is different than a regular brokerage account which may be different than a Family Limited Partnership which you might have one day which also highlights the fact that general investing and wealth management are different things. For all you DIY'ers, when is the last time you rebalanced your portfolio? Does Glass-Steagall mean anything to anyone here? probably not. Don't think that you're seeing the entire iceberg from one 17 minute video.
Sound good Scott! You can buy the bonds, I'll stick to a simple low cost total stock market index fund for the next 30 years. Let's re-group then and compare whose retirement account performed better!
@TJ There's a lot of overlap between VOO and VTSAX tbh I think its better to sell one off and buy more of the other
Good explanation of Target Retirement Funds... I'm still confused though, on what effect an INCREASE in interest rates has on my Bond Index Fund. Share price increase or decrease? thanks, again.
When I started with Fidelity about month half ago, I invested only in one fund, FXAIX and thats what i am holding only, it is bad?
Though in Roth now that I have watched ur videos I am holding three, same fxaix , total market and fidelity nasdac.
Any thoughts?
FXAIX is a great fund! If you want to be in a total stock market fund as well or instead that is also good. They perform about the same! Low cost and well diversified!
I don't understand why Fidelity target funds have so high fee ? My Fidelity Freedom 2050 Fund is 0.75%, I thought fees for these kind of funds should be low.
I had 2025 Target Fund until recently. I changed it to Large Cap. Should I diversify? What do you suggest please? Thanks
6:10 is the greatest point
Hi Jake very good video!! I have an old 401k with down $18k and now sitting at about $126k you think is a good idea to rollover this account into a traditional IRA with the account been down that much and get rid of the target date fund 2040 or wait until it recovers? What's your opinion(not an advice)👍 thank you for all the information you give us!!
Hey Juan! I answered this in the Q&A video, but yes, don't worry about rolling it since you are just going from an index fund to another index fund. Doesn't matter that the account is down since you are buying right back in while the market is down. Cheers!
Hey Jake. What would you recommend to invest into for a Roth IRA? VOO or VTI? I have come across BND & VXUS too but I would like to hear your thoughts. I am in my later 20's btw. Thanks.
Definitely do not do any bonds! I just recommend VOO with dividends reinvested. Definitely don't sell if the market has a pull back! Just buy and hold forever and you can't lose!
Great video. Thx
Thanks Chris! Cheers!
Hi Jake, i have been trying to teach myself retirement investment last 6 months. Could you please make video about how to invest after 50 years old? I was going to rollover my husband old 401k to IRA account’s Dated fund and now I don’t know 🤷♀️ what to invest!?
put my 20 year old in a TDF and 3 zero fee funds because he's NOT into investing right now but ill be darned if he saves zero and solely depend on social security later in life. maybe later he will get the investing knowledge but its just not there so automate to TDF is best.
These are the only options that my employer offers 🥴 I have the vanguard 2050 . The only reason I have it there is because I get a 4% match . This 2050 is 0.15😭
Is there a Vanguard 2080? Kinda joking but the further you select the higher the % will be stocks.
Fidelity has something called brokeragelink and get more options. You can try lookiing if Vanguard has something like that too.
@@BigBoyOtero actually there is a 2065 for the gen z generation lol. I will do some research on it. But yeah the further it is the higher the stock percentage
i would contribute up to the match and open a Roth IRA and max out the contribution to that. and if u still have money to save i would then open up a taxable account. you will have wwaaaaayyyyy better option this way
@@HC_8 I think you need to consider the tax implications as well. Market seems a little volatile. In addition to match, she is also saving on marginal tax rate. She also needs to consider her goals, and current situation. @suri Medina. . . how much do you love that us yahoos are trying to plan your financial future.
holy crap! I'm checking my place for bugs. . . I have been compiling all of my 401ks from previous employers and considering rollover IRAs. . . of course, my fear is explaining to my wife how I lost part of our retirement when the markets go down. Talk about the psychology of investing. . .I'm almost willing to lose money as long as I can blame it on the fund manager vs. taking control and moving it into an index fund and some how it being my fault if the market can't keep up with the amazing pace of the last 12 months. Anyway, this video will go along way in helping y wife understand the need for us to take control. . . .I guess if something happens we can blame you. . . just kidding. continue doing the great work that you do!!!!!.
Hey Rafael! You only lose money if you sell at a loss. If another dip comes (and it will), just keep buying and holding and the market will return to all time highs again. It always does!
Actually, during the big sell off in March 2020, they would’ve had to buy stocks. Here’s why:
Say you’re at a 50/50 split in 2020. $10,000 in stocks and $10,000 in bonds. If stocks plummet and you now have $5,000 in stocks and $10,000 in bonds then the TDFs have to sell off $2,500 in bonds to buy equities. Thus making it $7,500 in both equities and bonds.
This is one reason why the stock market went up in April 2020. Funds (like this) must rebalance. Due to the high volatility, stocks swung wildly at the ends of quarters. April, July, October, and even January 2021 were volatile months.
To be clear, I’m not saying TDFs are good or bad. The 10% in bonds in your 20’s/30’s is ridiculous - like you said. The best and most efficient way to retire is to do it yourself. Good video overall Jake!
You are correct, and I did glance over this briefly, lol. But after the rebalance, the fund then goes back to doing what it does, slowly selling stocks to buy back bonds (especially as the stocks recover).
@@JakeBroe Very true. They sell on the way up regardless of future expectations. Btw, I’m always amazed at your commitment to responding to comments. Just an amazing job you do with your videos and the community you’ve built! Kuddos!
Even funds many years out will have at least some bonds in them and combine that with a higher expense ratio and it is a guarantee to lag the sp500 several % a year. So if people know how to handle their investments they should never touch a target date fund
I agree! Cheers Putseller100!
Dang was about to invest in a target date fund for my IRA but i think ill go with FSKAX and just buy and hold that one fund until retirement? is this a better strategy?
Hey Hugo! I think so! Just pick a low cost total stock market or S&P 500 index fund and buy and hold forever!
@@JakeBroe yea I have my roth with fidelity and I think I'll do that. I can stomach the volaitlity
What you can do is invest in all the underlining funds of a target date and save some money on expense ratios.
Sure can!
My parents never invested in the stock market after my dad made a YOLO move in the 90s/00s and they retired with just cash and real estate. I have been suggesting them to get a Vanguard target date fund (in retirement) so that their money doesn't rot as much. Do you think at least in retirement, these funds are useful?
Like there are S&P or total market index fund there are also bond market index funds, for example VBTLX from vanguard, that would at least help grow their money at bond rates without having to pay the higher expense ratio for a target date fund.
@@kendowarrior99 I do VTI/VXUS for myself but it's really hard to convince older people to invest in anything other than bonds. I would think at least in retirement, the income generating funds like Vanguard lifecycle funds would be much better than me trying to wrongly convince them to cut down on their expenses to get maximum returns when they are already in their retirement.
I think target date funds are a reasonable option for any investor that doesn't want to spend the time to craft a more optimal portfolio from the underlying funds and is fine with the asset allocation / level of risk. Most people cannot stomach the volatility of a 100% stock portfolio, especially people that spent decades accumulating that wealth. For many, they won the game and they don't need to keep playing to win a little more. The three fund portfolio is good for those that are willing to take on some minor maintenance. Another thing to consider is who manages the portfolio when they become senile? Target date funds don't need a lot management.
I think index fund investing is for everyone and anyone can best be served by buying a low cost total stock market or S&P 500 index fund. Doesn't have to be anymore complicated than that.
I'm over 50 and have a target date fund where about 17% is in bonds and 8% in cash. Rather than dumping out of my target date fund entirely (which has averaged over 10% return the past three years, even last year during the pandemic), I'm considering taking 25% of the the balance and putting it in some whole market mutual fund or other stock-centric fund, thus offsetting the "safety" allocation in my retirement fund with something that could potentially perform better. Still on the fence about this. Thoughts?
Hey Craig! You have 10 years still before you can start using this money penalty free. I tell everyone on my channel that in a retirement account they should be 100% in a simple low cost total stock market or S&P 500 index fund. The bonds and cash you are holding are doing nothing for you.
@@JakeBroe Thanks for the info!
''JBro '' crushes it in another video.
Thanks tony! Cheers!