Free Markets Work

In the ‘Wall Street Journal Sunday’ edition as part of the Salt Lake Tribune April 14, 2013 paper (page E5), Karen Damato listed a number of Target Date Funds (TDFs) with their Q1 2013  and 3 year returns. It allowed readers to compare 2010, 2020, 2030 and 2040 TDF returns against those of four or five firms. Most did well over the 3 month and 3 years as listed. Ms Damato made the suggestion that if you expect to retire in 2030 “…but think your year-2030 fund is too stock-heavy, consider shifting into the same firm’s fund for 2025″. Aside from the fact that no 2025 funds were listed, I consider it bad advice.

Suppose you were going to retire in 2030 at age 65; you probably will live in retirement for 20-30 years. The end of your 40-50 hour work week is not the end of neither your life nor your investment life. Thirty to 40 years ago, people retired at 65 and died at 72. It happened to my father. The advise then was, at retirement, convert equity investments to bonds. That is what TDFs do. They get more conservative as they approach the “date” and move out of stocks and into bonds. Bonds will not support a life style for 20-30 years unless you have tons of them.

Target Date Funds have gotten very popular in recent years because they are accepted by the Department of Labor as meeting some of the investments that 401k plans must offer to participants. When you get within 5-7 years of retirement, I suggest you meet with an adivisor who can help you plan for the next 30 years. Retirement is the start fo the rest of you life.