Comments on: Target Retirement Funds for Short-Term Goals

By: Zook

Zook — Thu, 03 Jul 2008 17:32:36 +0000

I like the idea of using a target date fund for other than your retirement, but the hangup comes with holding the target fund in a taxable account. Inside a 529 plan, with an 18-year horizon, I think it makes sense. Inside a IRA/401k I think it makes a ton of sense for retirement as well. I think when a solid company comes out with an ETF, then we might have a better ground to stand on.

I currently hold a target fund and also have additional funds among my portfolio. No one says that you can only have ONE target date fund and be stuck with a certain percentage, that may be to low for you, in international. If you are starting out, it makes cents to remain invested in a target fund, but as you grow, why not add an international holding to the target fund if you want to be in a specific asset allocation?

By: Andys

Andys — Thu, 03 Jul 2008 16:01:30 +0000

Your retirement is forty years away, so you must be between 25 and 30 yrs old! Wow, given your blog’s prominence and apparent knoweldge in the PF area – great job. I am in my early 30’s and have recently started a personal finance blog and still have a way to go to be financially free. Great to see someone of your age so far ahead of the ball!

In regards to retirment funds, a lot of thier allocation components is generated based on computer modelling and a big factor is the time horizon (hence the target part). I would be cautious in using them for other shorter term purposes because you may not get the desired results. Also in the current market climate using past returns is dangerous. Finally, you need to think of the tax implications. 529 offers tax benefits and no penalties for using the funds for education. A retirment fund (espically if in an IRA) will have taxes and penalities if withdrawn early.

By: jim

jim — Thu, 03 Jul 2008 02:57:53 +0000

Ceo: I didn’t until you mentioned it, though not much is available on Vanguard.com (mostly because it was created 6/26/08)… I’ll keep an eye out.

By: Ceo Reom

Ceo Reom — Thu, 03 Jul 2008 01:52:02 +0000

Interesting point.

Speaking of Vanguard, have you heard about its new Total World Index Fund? Do you happen to have any more information on it? Is it like the Total Stock Market and International put together?

By: HP

HP — Wed, 02 Jul 2008 19:33:16 +0000

Another issue is the fact that target-date funds for retirement is assuming a spend-down period of 25-35 years or so. As you get closer to the target date, the allocation may be too aggressive if you’re planning on using it for college expenses (maybe only five years or so).

But, you have the right idea. Some 529 plans offer target-date funds specifically for college savings that assume a spend-down period that is more appropriate. You will find that the portfolio is accordingly much more conservative at the target date than a target-date retirement fund.