![Jill on Money [ Archive]](http://images.squarespace-cdn.com/content/v1/59efbd48d7bdce7ee2a7d0c4/1510342916024-TI455WZNZ88VUH2XYCA6/JOM+Blue+and+White.png?format=1500w)
When it comes to target date funds, what's the right strategy? Should you be using one fund or multiple funds with different years?
Have a money question? Email me here.
Please leave us a rating or review in Apple Podcasts.
"Jill on Money" theme music is by Joel Goodman, www.joelgoodman.com.
We're kicking things off this weekend with Susan from Chicago who is in the process of reevaluating her 401(k) and is wondering which target date fund she should be using? Should she even be using a target date fund? Or are there better alternatives?
Next up was Katrina from Alabama who is trying to game plan for retirement. Up until now almost everything has been saved in traditional 401(k) plans...should she and her husband start using the Roth feature?
The robots are coming, the robots are coming!!
Okay, so maybe we’re not yet living in a world that looks like the movie Terminator, but it’s safe to say that changes are coming to the workforce as we know it. Robots, artificial intelligence, and driverless cars are no longer things of the distant future. They are with us today and will become increasingly common in coming years, along with virtual reality and digital personal assistants.
That’s what we’re talking about today with Darrell West, a decades-long connection of mine who is vice president and director of Governance Studies and the founding director of the Center for Technology Innovation at the Brookings Institution. In his latest book, The Future of Work: Robots, AI, and Automation, West explores the current state of the workplace, how technological innovation will disrupt it and why government policy needs to change to help workers adapt to it.
If companies need fewer workers due to automation and robotics, what happens to those who once held those jobs and don't have the skills for new jobs? And since many benefits are delivered through employers, how are people outside the workforce for a lengthy period of time going to earn a living and get health care and social benefits?
Throughout the pages of this book, West argues that society needs to rethink the concept of jobs, reconfigure the social contract, move toward a system of lifetime learning, and develop a new kind of politics that can deal with economic dislocations.
West presents a number of proposals to help people deal with the transition from an industrial to a digital economy:
It’s a fascinating read about what faces us in the days ahead...a discussion that should take place sooner rather than later.
Have a money question? Email me here.
Connect with me at these places for all my content:
https://twitter.com/jillonmoney
https://www.facebook.com/JillonMoney
https://www.instagram.com/jillonmoney/
https://www.linkedin.com/in/jillonmoney/
http://www.stitcher.com/podcast/jill-...
"Jill on Money" theme music is by Joel Goodman, www.joelgoodman.com.
Have a finance related question? Email us at askjill@betteroffpodcast.com. We love feedback so please subscribe and leave us a rating or review in iTunes! Connect with me at these places for all my content: http://www.jillonmoney.com/ https://twitter.com/jillonmoney https://www.facebook.com/JillonMoney https://www.instagram.com/jillonmoney/ https://www.linkedin.com/in/jillonmoney/ https://soundcloud.com/jill-schlesinger http://www.stitcher.com/podcast/jill-on-money http://betteroffpodcast.com/ https://itunes.apple.com/us/podcast/better-off-jill-schlesinger/id431167790?mt=2 "Better Off" theme music is by Joel Goodman, www.joelgoodman.com.
If you ever take a look at the investments in your retirement plan chances are you'll see a bunch of target-date fund options. Sometimes people think they're the best option...kind of like one stop shopping. And sometimes they are. But sometimes they aren't, which is what Suzen from Chicago found out on the latest BONUS call.
If you ever take a look at the investments in your retirement plan chances are you'll see a bunch of target-date fund options. Sometimes people think they're the best option...kind of like one stop shopping. And sometimes they are. But sometimes they aren't, which is what Suzen from Chicago found out on the latest BONUS call.
“Better Off” is sponsored by Betterment.
Have a finance related question? Email us here or call 855-411-JILL.
We love feedback so please subscribe and leave us a rating or review in iTunes!
Connect with me at these places for all my content:
https://twitter.com/jillonmoney
https://www.facebook.com/JillonMoney
https://www.instagram.com/jillonmoney/
https://www.linkedin.com/in/jillonmoney/
http://www.stitcher.com/podcast/jill-...
https://itunes.apple.com/us/podcast/b...
"Better Off" theme music is by Joel Goodman, www.joelgoodman.com.
The concept of target date funds (TDFs) seemed like a swell idea when they were introduced in the 1990’s. Beleaguered retirement plan participants no longer needed to put themselves through the head-scratching process of selecting the “correct” allocation or asking their equally clueless co-workers what funds to use. Instead they could outsource the decision-making to a money management company, which would rebalance the portfolio periodically and adjust the risk in the account, as the participant neared his or her desired retirement age. This is sometimes referred to as a “glide path”. Conceptually, target date funds were popular enough that the government soon allowed plan sponsors to make them the default investment option for anyone who enrolled in a retirement fund. This was an attempt to combat the large number of participants who sat in cash for years because they had not selected an asset allocation. The ease of target date funds explains why their use has exploded: According to the Investment Company Institute, there was $618 billion invested in TDFs at the end of 2013, up nearly four-fold from $160 billion in 2008.
Still, a few problems have arisen since TDFs have matured. First, until the financial crisis and stock market crash, many participants had no idea that the risk in these funds could be significant. For example, the current allocation of the Fidelity Freedom 2030 Fund is 86 percent in stocks and 14 percent in bonds. For a 50-year old who thinks that she is investing in a balanced portfolio, that’s an allocation that could take a big downside hit if the stock market were to drop.
It should also be noted that the fees for many of these funds could be steeper than index investments that are often offered alongside them. And then there is the problem of target date fund misuse. According to a recent study from Financial Engines, an independent investment advisor, many workers who are investing in target-date funds are not using them as intended, ultimately lowering their investment returns.
The study found that more than 60 percent of workers who hold money in target-date funds also invest in other funds, which undermines the all-in-one benefits for participants. This target-date fund misuse is hurting investment returns: The study found that, on average, workers who were partially allocated to target date funds had median annual returns that were 2.11 percent lower, net of fees, than individuals exclusively using target date funds.
In addition to the fees, risk and misuse, there is another reason to delve into TDFs: they approach retirement money management in two different ways. The first is called a “to” glide path, where the manager reduces risk to the lowest level on the target date of your retirement. That means that if you were retiring in 2020 at age 70, the fund would have the lowest allocation into risky assets, like stocks or commodities, and the highest in fixed assets. Mega manager Blackrock adheres to the “to” philosophy, as do many independent investment advisors, who are most concerned with downside risk for retirees.
The other management style employs a “through” glide path, which assumes that you will live many years after your retirement date. As a result, the assets are invested to keep pace with inflation and often remain invested for growth. The "through" glide path aims to combat the risk that you outlive your assets. Fidelity, Vanguard, and T. Rowe Price use "through" glide paths.
Michael Goodman, President of Wealthstream Advisors in New York City encourages retirement investors to “understand the glide path your fund utilizes and how it fits into your plan and risk tolerance.” While he is a bit more partial towards the “to” path, he also noted that some plans only offer the “through” version. As a result, investors should “check in every so often on the glide path to make sure it still fits your personal time horizon.”
For such an “easy” investment solution, target date funds are not as simple as they were intended to be!