dxmnkd316
Lucia Apologist
Re: POTUS 45.18 - Who Run Derpertown? McMasterBlaster Run Derpertown.
None of my target funds have exorbitant fees... 0.16% at Vanguard and 0.13% in my 401(k). Compare that to 0.03% in my S&P 500 index fund, 0.07% in my growth fund and small cap fund all in my 401(k). If you look at other funds like the bond (0.08%), Balanced (Wellington?? 0.18%), growth stock fund (as opposed to index fund, 0.62%), international index (0.15%), and int'l stock (0.74%), it's not out of line.
If you compare to funds like Vanguard Total Stock Market Investor Fund (0.15%, $3k min), it seems even more in line. The 0.03% S&P Index fund and the Vanguard Total Stock Market Admiral funds (0.04%, min invest is $10k) are the exceptions. Most index funds range between 0.07% and 0.15% with moderate to low minimum investments. If I have a fund at 0.04% compared to something that runs at 0.15% expenses, I'm only looking at a difference of about $1,200 ($55,600 vs. $54,400) in fees over 20 years per $10k invested assuming 9% return. Is it worth that 2% loss in return? Maybe. Depends on your risk tolerance.
At my old company, I had terrible choices for funds. Most were >0.2%, even for S&P funds. A large company will have better options similar to what I have now.
Compare that to the a target fund. It's designed to move funds from the stock market to bonds and other fixed income assets as you approach retirement for stability. If I'm 65 and retired, I might not be able to afford to lose 50%+ of the value of my 401(k) like we saw in 2007-2009. It recovered, but it took five years to get there and I lost out on the expected returns during that time. Bond index funds have been relatively stable over that same time period. In those five years, the Vanguard bond fund beat the S&P fund by nearly 20%. They haven't lost much but they also haven't gained any. It's a very conservative approach. Probably the most conservative. (Even if you stretch it out to the 10 years between 2002-2012, the bonds beat the S&P. Granted, it's probably the only time in history, but that's the price you pay for a a conservative approach.)
For instance, my S&P 500 Index Fund is 98% equity and only 1% "other", 0.97% cash, and 0.06% fixed income. 95% is domestic. It has the following top holdings:
It will keep a mix similar to that until the end of time.
Back to my case for my target fund, it's only 83% equity, a full 10% in fixed income, and 7% in other. It's top holdings:
Only 52% is domestic and it has a diverse mix of everything else.
As I move towards retirement, it will look closer to 61% fixed income, only 35% equity, and 5% other. It's top holdings:
43% of it is domestic, 41% doesn't have a location provided (likely US bonds), and only 16% international.
I'm not sure that's the best advice. The volatility and risk of these investments actually make them terrible for learning. It's impossible to do research on these kinds of stocks. Cramer has a good general rule if you want to invest in individual stocks, "One hour, per week, per stock." If you can't manage that, you can't keep up with the rapid pace of even a large-cap like Apple, much less a penny stock.
The best advice you've given is this:
There's a reason Warren Buffet has it in his will that what's left in his estate after charitable contributions upon his death will go 90% into an index fund and 10% into bonds. He has a famous bet with any hedge fund that if they can beat the S&P500 over 10 years, he'll give them $1 million.
So yes, if you want to keep your money in the market as you retire, an index fund is a wonderful option. But if you're like me and want a more conservative approach when you retire, a target fund is just as good. It all depends on your tolerance for risk and how much you want to actively manage your funds. Could I invest entirely in S&P index funds until I'm something like 5 years out from retirement and then switch them myself to bonds either over time or all at once? Absolutely. I probably should since I'm a bit more active in my approach. But if you're the average moron who doesn't know anything about 401(k)s and funds, it's not a bad choice.
And one word of caution about backdoor Roth IRA conversions. You have to know what you are doing or you'll face serious fees and penalties.
This has a better explanation:
Worth the risk? Maybe. But you have to know what you're doing and you have to keep very good records.
TL;DR: Target funds are NOT the same as index funds. S&P500 index funds will give you better performance, but carry greater risk.
None of my target funds have exorbitant fees... 0.16% at Vanguard and 0.13% in my 401(k). Compare that to 0.03% in my S&P 500 index fund, 0.07% in my growth fund and small cap fund all in my 401(k). If you look at other funds like the bond (0.08%), Balanced (Wellington?? 0.18%), growth stock fund (as opposed to index fund, 0.62%), international index (0.15%), and int'l stock (0.74%), it's not out of line.
If you compare to funds like Vanguard Total Stock Market Investor Fund (0.15%, $3k min), it seems even more in line. The 0.03% S&P Index fund and the Vanguard Total Stock Market Admiral funds (0.04%, min invest is $10k) are the exceptions. Most index funds range between 0.07% and 0.15% with moderate to low minimum investments. If I have a fund at 0.04% compared to something that runs at 0.15% expenses, I'm only looking at a difference of about $1,200 ($55,600 vs. $54,400) in fees over 20 years per $10k invested assuming 9% return. Is it worth that 2% loss in return? Maybe. Depends on your risk tolerance.
At my old company, I had terrible choices for funds. Most were >0.2%, even for S&P funds. A large company will have better options similar to what I have now.
This is mostly incorrect. An index fund will invest in stocks that mirror the index they are targeting. For instance, if they are an S&P 500 index fund, they're going to try to match the S&P 500's performance, mostly with the largest market cap stocks and some mid-cap stocks.
Compare that to the a target fund. It's designed to move funds from the stock market to bonds and other fixed income assets as you approach retirement for stability. If I'm 65 and retired, I might not be able to afford to lose 50%+ of the value of my 401(k) like we saw in 2007-2009. It recovered, but it took five years to get there and I lost out on the expected returns during that time. Bond index funds have been relatively stable over that same time period. In those five years, the Vanguard bond fund beat the S&P fund by nearly 20%. They haven't lost much but they also haven't gained any. It's a very conservative approach. Probably the most conservative. (Even if you stretch it out to the 10 years between 2002-2012, the bonds beat the S&P. Granted, it's probably the only time in history, but that's the price you pay for a a conservative approach.)
For instance, my S&P 500 Index Fund is 98% equity and only 1% "other", 0.97% cash, and 0.06% fixed income. 95% is domestic. It has the following top holdings:
Code:
Apple Inc 3.54 % of fund
Microsoft Corp 2.51
Amazon.com Inc 1.81
Facebook Inc 1.68
Johnson & Johnson 1.68
Exxon Mobil Corp 1.61
JPMorgan Chase & Co 1.53
Berkshire Hathaway Inc 1.52
Alphabet Inc 1.30
Alphabet Inc 1.28It will keep a mix similar to that until the end of time.
Back to my case for my target fund, it's only 83% equity, a full 10% in fixed income, and 7% in other. It's top holdings:
Code:
Commodity Index Fund 3.90% of fund
Apple Inc 1.14
Microsoft Corp 0.78
Short-Term Investment Fund 0.61
Short Term Investment Fund 0.57
Simon Property Group Inc 0.56
Exxon Mobil Corp 0.53
Amazon.com Inc 0.52
Johnson & Johnson 0.52
Berkshire Hathaway Inc 0.51Only 52% is domestic and it has a diverse mix of everything else.
As I move towards retirement, it will look closer to 61% fixed income, only 35% equity, and 5% other. It's top holdings:
Code:
Global Treasury exUS Screened USD Hedged Fund 35.27% of fund
Commodity Index Daily Fund 4.08
US Treasury 0.125% 15-Apr-2020 1.16
US Treasury 0.125% 15-Apr-2019 1.01
US Treasury 1.125% 15-Jan-2021 0.95
US Treasury 0.125% 15-Apr-2021 0.94
Federal National Mortgage Association TBA 0.93
US Treasury 0.625% 15-Jul-2021 0.89
US Treasury 0.125% 15-Jan-2022 0.86
US Treasury 1.250% 15-Jul-2020 0.7543% of it is domestic, 41% doesn't have a location provided (likely US bonds), and only 16% international.
I'm not sure that's the best advice. The volatility and risk of these investments actually make them terrible for learning. It's impossible to do research on these kinds of stocks. Cramer has a good general rule if you want to invest in individual stocks, "One hour, per week, per stock." If you can't manage that, you can't keep up with the rapid pace of even a large-cap like Apple, much less a penny stock.
The best advice you've given is this:
There's a reason Warren Buffet has it in his will that what's left in his estate after charitable contributions upon his death will go 90% into an index fund and 10% into bonds. He has a famous bet with any hedge fund that if they can beat the S&P500 over 10 years, he'll give them $1 million.
So yes, if you want to keep your money in the market as you retire, an index fund is a wonderful option. But if you're like me and want a more conservative approach when you retire, a target fund is just as good. It all depends on your tolerance for risk and how much you want to actively manage your funds. Could I invest entirely in S&P index funds until I'm something like 5 years out from retirement and then switch them myself to bonds either over time or all at once? Absolutely. I probably should since I'm a bit more active in my approach. But if you're the average moron who doesn't know anything about 401(k)s and funds, it's not a bad choice.
And one word of caution about backdoor Roth IRA conversions. You have to know what you are doing or you'll face serious fees and penalties.
This has a better explanation:
Worth the risk? Maybe. But you have to know what you're doing and you have to keep very good records.
TL;DR: Target funds are NOT the same as index funds. S&P500 index funds will give you better performance, but carry greater risk.
