Comments on: Target Retirement Funds: Perfect For After 401k & Roth IRA?

By: Swim Upstream to Wealth

Swim Upstream to Wealth — Wed, 31 Oct 2007 00:25:38 +0000

Target Retirement funds are great if you are unsure how to invest your money. They provide solid diversification at a low cost. However, you won’t get some very valid asset classes by using these funds. Specifically, REITs, commodities, inflation protected and foreign bonds are usually ignored.

By: AJ

AJ — Tue, 30 Oct 2007 20:53:58 +0000

Just to keep you posted:

Thanks for the comments! I ended up just buying more of the TR 2050, for the reasons mentioned above.

Happy investing!

By: Meg

Meg — Tue, 30 Oct 2007 20:52:49 +0000

Well, he doesn’t mention any other savings besides a “full” emergency fund. But does he have enough cash to buy his next car? An engagement ring? A home? Anything else he might need/want in the next 2-5 years? He doesn’t want to set himself up to have to liquidate a stock mutual fund in order to buy those things.

Assuming he really does have enough cash for everything he might want in the next 5 years, I would also recommend the VGTR2045. Although he might want to consider the VG LifeStrategy Growth fund as well. It’s very similiar to the TR2045 except that the asset allocation won’t change over time–and it’s a little more aggressive with only about 10% in bonds.

By: Patrick

Patrick — Tue, 30 Oct 2007 17:11:40 +0000

I think it is a good plan for simplicity’s sake, but as someone mentioned, you have to take into account future needs because the plan’s allocation changes with time. If you are happy with those changes, then that’s fine. If you aren’t happy with those changes, you have to consdier how to reallocate to meet your needs. For your retirement funds, it is not an issue because you will not owe taxes on a ny gains until you withdraw your funds. But for taxable accounts, rebalancing could be an issue. To avoid the process of selling and paying taxes, you could just leave it as is and place future investments into a different fund to balance it how you want. But, within the first few years I wouldn’t think most people would want to make too many major changes to their allocation if everything is in a fund they are happy with.

By: saladdin

saladdin — Tue, 30 Oct 2007 16:06:15 +0000

Tia,
I never have been to Malaysia but I glad to see that “fetch” is not just a southern word.

saladdin

By: Tia Stevens

Tia Stevens — Tue, 30 Oct 2007 08:44:40 +0000

Hi Guys,
I’m from Malaysia, staying in Kuala Lumpur. We do have shares but shares in Malaysia do not move fast enough to make an impact on small investment. However, after saying that it is definately better then keeping in the back.

The inflation rate is about 4.1% and our fixed deposit is only earing 3%. The rest is all eaten up by inflation.

Our choice of making money is still Property. Yes, that’s right, landed property.
For every 1USD is equivalent to RM3.50. We buy good location, do it up, put it on the market. A good location property can help you to easily fetch minimum 100 to 300%. By the way, I’m a real estate agent myself. Most of the foreigners or expatriate will buy good unit for investment and rental too.

Cost of living here is pretty affordable. A take away meal called nasi lemak can be as cheap as RM1.20 which is 0.34cents. Can you get a meal for USD 0.34 cent?

Ecomomy is stable, no hurricane, no earthquake, no tornando, good political country which is democratic in nature. Our neighbour is Singapore and Thailand. Check Malaysia out and we are a multi racial country with plenty of Chinese, Indians and Malay plus a lot of expatriate living here as a second home. We are very tolerant of each other culture, food and believes………..

Any one been here before????

By: Tim

Tim — Mon, 29 Oct 2007 18:52:44 +0000

the problem with the here logic, is that he is thinking of only about the three funds he is currently thinking about purchasing. He needs to think about his whole portfolio, which includes existing 401k/IRAs/cash, when determining asset allocation. So, the $9k isn’t going to make your whole asset allocation 1/3, 1/3, 1/3, unless you already have that breakdown for the rest of his portfolio. determine what your asset allocation is, and adjust the $9k towards the fund class that will balance out your portfolio.

By: Dan

Dan — Mon, 29 Oct 2007 17:04:44 +0000

Out of curiosity, when do you hope (or plan) to retire? If you invest in a target fund like this and hope to get out of the game before 60, what happens to all these investments?

By: Bob

Bob — Mon, 29 Oct 2007 14:55:29 +0000

While I really don’t have an issue with this idea, it may cause some issues down the road.

Given that AJ wants a set allocation spread between domestic/international/bonds, he could decide on whichever TR best matches this allocation and go with it. The issue I see in the future however, is the TR allocation changes over time, which may cause the allocation to veer from what AJ wants. Another option could have been the Life Strategy family. They have a fixed allocation that doesn’t change, invest mostly – but not wholly – in index funds, but they don’t have international exposure, so they’re disqualified from AJ’s possibility list.

If the investment time horizon is 5 years or less, and the total account balance is going to stay rather low, then I’d say go for it – good idea to improvise your way around funding three accounts. But if the money is going to be invested for a longer period of time and/or the account balances will grow to a sizable amount – then you’ve got issues with an allocation that doesn’t match your preference and having to liquidate – possibly paying sizeable capital gains tax bills – to divest and re-invest into your preferred allocation. Of course, you could keep this fund and invest new dollars into another fund, but I’d find that rather cumbersome…