I tell people who are scare of doing their own investing to just put 100% of their contribution into a vanguard target fund and just leave it there
If every working person who has a 401k, 403b or 457b plan just invest in a Target Date fund as you suggest, they would be so much better off than all of the other strategies combined. Taking how Elon Musk, CEO of Tesla Motors, Inc., thinks when he says that it will be illegal for humans to drive cars in the future, I think it a similar situation will develop concerning having humans manage their own finances or others. Humans make too many mistakes or it's too expensive to hire a professional, and the pros make mistakes too. The way technology is improving, I envision an investing world so technologically advanced that investment products and services will be 100% combined. Now service and products are 99% separated.
The 1.0% is the Target Date approach with index funds and are the beginning of that integration. Robo investing is another approach. It's catching on and it will take another five years. At which time, I can just put my portfolio in one of these programs and it will do EVERYTHING automatically, calculate dividends and cap. gains for taxes, rebalance, tax harvesting, backdoor Roth conversions, distribution plan in retirement, contribution plan and projections during the working years, predict how long my portfolio will last taking money out, etc. There are separate programs that do that now, but it is not integrated just yet. I am sure there are some in the beta stage at the moment. Releasing them to the investing public is a huge risk without adequate testing for ease of use, and taking consideration of all types of individual investor's unique financial situations. Plus the industry would not want this as it might impact their business model of keeping the investing process complicated and intimidating, when it isn't AT ALL!
Vanguard will welcome this new technology because it will require their passive strategy. And it's so incredibility simple! Vanguard's $4 Trillion has already impacted Wall Street and 20 million clients seem to understand.
Once again, the Target Date Fund is sooooo simple! My 80 something Italian Grandparents could understand even though they died in the 1930s at the Wisconsin farm where I grew up and never spoke English!
Sorry, I had to show off my grandparents. Aren't they cute?:
Exciting times are ahead,
Love the grandparents pic! Thanks for sharing.
Here are my questions about Target funds:
Do you think they re-allocate often enough?
Is the extra cost worth it for someone just starting out?
I have a friend who is using a Target fund, upon my advice, because she has absolutely ZERO interest in educating herself about investing. She has about 15 years left before retiring. In her case, I definitely think it is the way to go.
But I do like an even cheaper alternative:
Vanguard Total Stock Market Index Fund (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Fund (VBMFX)
But that requires, obviously, reevaluating.
(By the way, less than a year ago, I was the absolutely clueless investor that most teachers are. This blog has been amazing. I am no pro...but I have learned sooooo much!)
But I digress!
So, more thoughts on Target Funds?
I am invested in Vanguard through Aspire, so there is that extra fee to consider, also. Still, I feel am so much better off than I was.