not a savvy investor, here.

according to my 401k returns, my current election which is a target date fund (2050) has had the following returns with an expense ratio of 0.54%...

13.85% - 1 yr
3.77% - 3 yr
5.19% - 5 yr
7.14% - 10 yr


Whereas another offering, the S&P 500 fund has the following returns with an expense ratio of 0.05%:

21.54% - 1 yr
10.08% - 3 yr
9.86% - 5 yr
11.87% - 10 yr


Looking at all this, it seems pretty apparent that I should make a change but wanted to ask if I'm missing something. The target date fund has me more diversified but at 38 yrs old, is this too conversative?

It's a little scary to be all-in on the S&P but I would assume the reality is that our economy really is anyway.... meaning, if the top 500 went south the ripple effect would be so bad that it wouldn't matter that much where we're invested.

Should I make the change? Thoughts?

TIA!

Don't put all of your eggs in one basket.

It's not a fair comparison. The last time I checked, the vanguard target 2050 was roughly 50% domestic equities, 40% international, and 10% fixed income.

this was my thoughts.... what is the advantage to having the international stocks and bonds? Just more diversification?

what say you said:

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this was my thoughts.... what is the advantage to having the international stocks and bonds? Just more diversification?

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Yes, more diversification. But international stocks have significantly underperformed US stocks, and I don't see that changing anytime soon. Bonds are good for when you're older and closer to retirement, they are more conservative and provide monthly dividends.

Neither to be honest. You are young.....I would go with 70% large cap 20% Mid cap, 10% small cap. Worry about going conservatives with BOND allocation when you are in your 50s.


Note: I am just a random person on the internet. Do you your research.

It sure is. I made a total stock mutual fund without realizing it.

OP, making a decision on just your 401K in the absence of thought about your broader portfolio doesn't really make any sense. Is your 401K a small percentage of your net worth? Is it all you have? If it is not, where are your other funds invested?

I have a few percent in target date funds but have always researched and found in books and online that they are not the best investment vehicles.

1. they usually have higher load fees and other fees
2. they are usually trailing the S&P and Dow Jones

on the other hand, if you simply want to protect your principal from decreasing in the next inevitable downturn of the equity markets, the target date funds will do that better than having individual equities.

so it makes sense the closer you are to retirement, the more you have in bonds and fixed income securities.

the target date funds from the major index groups (Schwab/Vanguard/Fidelity/etc) aren't going to have load fees and their expense fees are very low. These are passive index funds.

ppl commonly default into target date funds with the appeal that they 'rebalance' over the years without realizing their composition is way heavier international and bonds than most would self elect in their younger years, I realized that a few years ago and used the 2020 crash to aggressively move all my target date holdings into total market indexes, had never intended to hold bonds or that much international

I'm currently in a target 2045. I just looked and see these options. Any recommendations on something a little more aggressive?

If '02 is your college class, I would probably bump up to 55, or even 60.

If class of 02 I would dump it all into the 500 index, or most of it at least, then counter it with some TDF for 2060. Probably wouldn't touch much else (although the TDF essentially has that total bond index underneath).

bam02 said:

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I'm currently in a target 2045. I just looked and see these options. Any recommendations on something a little more aggressive?

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If you want something more aggressive (i.e., no bonds), then you can start with S&P 500 and Total International.

The combination of both at a 60/40 split approximates market cap weights and is a good default position for 100% equity

And that combo is not much different than a 2060 TDF either I would imagine, even without the Bonds.

AggiEE said:

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Petrino1 said:

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what say you said:

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this was my thoughts.... what is the advantage to having the international stocks and bonds? Just more diversification?

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Yes, more diversification. But international stocks have significantly underperformed US stocks, and I don't see that changing anytime soon. Bonds are good for when you're older and closer to retirement, they are more conservative and provide monthly dividends.

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US stocks have mostly outperformed recently due to two factors:

1) Valuation expansion
2) Currency strengthening

Neither of these factors is persistent. Lower valuations of international and a higher dividend yield offsets slightly higher earnings growth.

With valuations being much higher now for US stocks (vs a decade prior when international and US were more similar), there's a much higher hurdle rate for US to outperform.

The recent past is not prologue. Performance chasing and concentrating into what was the best performing asset class last decade typically won't be the next decade's best performing asset class. Almost every major institution forecasts higher expected returns for international over the US, including Vanguard. Paying twice as much for earnings is a hard hurdle to overcome.

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100% AMERICA BABYY

Thanks, yall!

Chipotlemonger said:

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And that combo is not much different than a 2060 TDF either I would imagine, even without the Bonds.

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Yep you can switch to a later TDF year for added simplicity especially if you want to increase the glide path to bonds

TDF's are an underappreciated choice especially for those that desire simplicity and diversification, as long as the TDF has low fees (which Vanguard does)

Brian Earl Spilner said:

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AggieT said:

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Don't put all of your eggs in one basket.

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That's why S&P 500 index funds exist.

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Given recent moves in the magnificent 7 stocks, the S&P is a lot less diversified than normal. I prefer the equal weight S&P at this point if the goal is diversification.

Agreed. For 60%-80% of investors, TDFs are likely just fine. The issue is they hear from some in the finance world that it's not the strongest investment choice and that they shouldn't use it. I think this can cause some confusion and hesitancy.

We're all posters on a university board for discussing business & investing here. We are not an accurate sample of the country by any means. Even if you tell a normal person what is in the TDF and that they should just do the underlying investing themselves, the mechanics of that are not straight forward if you don't have some kind of financial acumen.

FWIW, I have some money in TDF funds. However it's very far from the majority of my funds. I guess I do it to go along with more conventional market indexes for my own personal peace of mind, for whatever that's worth. I'm in a long TDF date fund though and don't have much in it, so it's pretty close to fully market index type investing. Very very minimal bond exposure.

Kansas Kid said:

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Brian Earl Spilner said:

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AggieT said:

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Don't put all of your eggs in one basket.

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That's why S&P 500 index funds exist.

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Given recent moves in the magnificent 7 stocks, the S&P is a lot less diversified than normal. I prefer the equal weight S&P at this point if the goal is diversification.

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The market cap weighting serves a good purpose. Puts more in winners and less in losers.
I like it.

bmks270 said:

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Kansas Kid said:

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Brian Earl Spilner said:

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AggieT said:

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Don't put all of your eggs in one basket.

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That's why S&P 500 index funds exist.

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Given recent moves in the magnificent 7 stocks, the S&P is a lot less diversified than normal. I prefer the equal weight S&P at this point if the goal is diversification.

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The market cap weighting serves a good purpose. Puts more in winners and less in losers.
I like it.

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History says otherwise. The reason is actually similar to what you said. The market cap weighted index gives you overweight to the historical winners but the up and coming winners have almost no weight especially when they are first added to the index. Last year was a period where market cap was a better performer without a doubt but if you buy the market cap index now, you are buying the Big 7 at elevated valuation levels.

"The S&P 500 Equal Weight Index, which RSP tracks, has outperformed the S&P 500 Index based on rolling monthly periods over the past 3, 5 and 10 years. Dating back to inception in 2003, the S&P 500 Equal Weight Index outperformed the S&P 500 Index by 0.98% on an annualized basis. ". Note: This data was through 2022 so after 2023, it would be a lower differential.
https://www.realizeyourretirement.com/comparison-sp-500-index-to-sp-500-equal-weight-index/

definitely a lot of recency bias on this thread (and board in general).

I'm guilty of the same but trying to get more diversified and not chase the recent winners.