Ben, I have been enjoying your newsletter for a while. I do have a comment about TDF. For many nearing retirement, especially those who lack a strong company pension, losing 10% is very scary.
In 2008, most 2010 target-date funds lost much more than 10% with some losing close to 30%. Using Morningstar's data on 2010 target-date funds, the average loss was 22.5%.
A person nearing retirement with a $500K retirement savings using the above example. If this person had been invested in the “average” 2010 target date fund back in ‘08, He would have experienced a $112,300 loss and seen his nest egg drop to $387,700 or worse. That is a big hit so close to retirement time.
That reduced amount (loss) would be subject to Sequence Risk or Reverse Dollar Cost Averaging if any money was needed or there was an RMD.
Additionally, the glide path is skewed through being riskier to overcome fee drag and keep the appearance of getting better returns and beating inflation. Joe Zingone, PhD economics, CPA (retired)
Great advice, thank you
Ben, I have been enjoying your newsletter for a while. I do have a comment about TDF. For many nearing retirement, especially those who lack a strong company pension, losing 10% is very scary.
In 2008, most 2010 target-date funds lost much more than 10% with some losing close to 30%. Using Morningstar's data on 2010 target-date funds, the average loss was 22.5%.
A person nearing retirement with a $500K retirement savings using the above example. If this person had been invested in the “average” 2010 target date fund back in ‘08, He would have experienced a $112,300 loss and seen his nest egg drop to $387,700 or worse. That is a big hit so close to retirement time.
That reduced amount (loss) would be subject to Sequence Risk or Reverse Dollar Cost Averaging if any money was needed or there was an RMD.
Additionally, the glide path is skewed through being riskier to overcome fee drag and keep the appearance of getting better returns and beating inflation. Joe Zingone, PhD economics, CPA (retired)