UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next
Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75814  
Subject: Re: Targeted Retirement Funds Date: 4/18/2008 11:08 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
They tend to be conservative in their asset allocation but you are taking care of that by going with an extended date.

In a taxable account the constant rebalancing may generate additional capital gains taxes.

Most of them don't have a fixed percent of each asset class that try to keep constant like 80% stocks and 20% bonds, but may change the asset allocation based on their managements best guess of which way the markets are headed. For example it might have an 80/20 mix today and six months from now they may have chosen to change it to 75/25 mix. This isn't necessarily a bad thing, but you should check it occasionally so that you know what you have.

Part of what you are buying is bond funds. Bond funds behave very differently than individual bonds. For example if the bond fund has an average interest rate of 5% and an average term of 10 years, if interest rates go up to 6%, then you will loose a pretty good chunk of money. If instead you had a 10 year bond at 5% it doesn't matter how interest rates change as long as you hold it for the full ten years. (This is a bit overly simplistic) With interest rates in the low single digits and talk of inflation, I don't feel too warm and fuzzy about bonds and even less so about bond funds so I would tend to focus shorter term bonds, but with a target retirement account you don't have any control of the average duration of the bonds you are getting.


Greg
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement