target date funds

Just wondering what peoples thoughts are on target date funds. My mother-in-law is rolling over a 401k of about 70k. She would rather not go see and advisor and buy loaded mutual funds. She is thinking about investing in a Vanguard target date fund.

Vangaurd is a very well respected firm. Author Levitt, former SEC Chairman, praised them highly in his book Take it on the Street. The target date fund simply means the allocation will be in line for someone who plans to retire in 10, 20, 30 years, etc. It would probably be a blend of stocks, bonds, cash, etc.

At my firm, TRP, we have great target date funds, with low expenses. The other good thing, you have access to several closed TRP funds–that are great choices–inside that target date fund!

The 2 I have been looking at at TRP and Vanguard. I am an advisor, but I don’t want to put my mother-in-law into loaded mutual funds. I also don’t want to be responsible for poor returns and have that come up during christmas time when the family is all together. She knows a little about investing and asked me what I thought about target date funds. I think it would be a good, low cost choice for her. I was hoping to get others opinions as well.

Any asset allocated fund would work. I know ING for instance has a conservative/moderate/aggresive allocation fund that one can buy into. I would not assume liability for selecting an index fund, bond fund, etc for her.

As they were coined when they (target date funds) first came out, they are a “one-stop-shop” place for investing. Just my opinion…

I know a lot of people feel that these funds under-allocate international holdings. One thing she is thinking about is putting $65k in the 2020 fund and 5k in the Vanguard Total International fund just to weight international a little more.

If she is not excited about making investment decisions on her own (and just because we are doesn’t mean she should be), then a Target Date Fund isn’t a bad place to go: they do the rebalancing and gradual asset allocation shifts for you. I happen to think that ETFs and Target Date Funds are probably the most useful innovations to have hit the financial market in the last 10 years or so. I was not aware of underallocation to international equities in target date funds, but it seems plausible. Maybe she would want somewhere between 10-15% in an international equity fund, a little less if she is closer to retirement.

The questions that should be asked are probably not about the fund, but about your mother-in-law (although I totally agree that there is never a situation in life in which I would suggest that someone pay a load for a mutual fund). Does your mother-in-law have some credible reason why she needs the volatility roll-down of a target-date fund? I think these are best when used for some very definable need (like college) rather than some projected risk tolerance path over the next 10 or 15 years. It’s a tax-free account so she can muck with allocations all the time depending on her changing life circumstances. I would also be a little wary of investing in something that is going to have decreasing vol at a time when vol is really high (“Bet it all on black and put what’s left in a money market account”). BTW - I put my mother’s money in Vanguard [blah] Growth funds for the automatic rebalancing and no hassle investing.