Target funds are portfolios that turn more conservative as you age, without you lifting a finger.
The trouble is, you got to pay for someone to do it for you.
How much are you paying for the service?
A lot. Let's take a look at 2 examples.
Example 1.
BlackRock's LifePath 2040 has a projected 10-year expense of $2,478 per $10,000 invested.
If right now you are at age 40 and you put $300,000 in it, in 10 years you would have paid BlackRock $74,340. Do you get better return with this service? In the past 5 years its average return was only 1.9%. What do you get from its service? A gradually declining portion of your portfolio invested in the stock market, that's it!
Example 2.
Vanguard is known for its low cost approach to investment, indeed its Target Retirement 2040 fund has a 10-year cost of only $230 per $10,000 invested. But why pay someone else $230 when you can do it by yourself?
The Vanguard Target 2040 invests in the following index funds right now:
If you have $100,000 to invest, you can open a Vanguard account and achieve the same Target 2040 fund's results, but only with a 10-year cost of $109 per $10,000 invested!
The trouble is, you got to pay for someone to do it for you.
How much are you paying for the service?
A lot. Let's take a look at 2 examples.
Example 1.
BlackRock's LifePath 2040 has a projected 10-year expense of $2,478 per $10,000 invested.
If right now you are at age 40 and you put $300,000 in it, in 10 years you would have paid BlackRock $74,340. Do you get better return with this service? In the past 5 years its average return was only 1.9%. What do you get from its service? A gradually declining portion of your portfolio invested in the stock market, that's it!
Example 2.
Vanguard is known for its low cost approach to investment, indeed its Target Retirement 2040 fund has a 10-year cost of only $230 per $10,000 invested. But why pay someone else $230 when you can do it by yourself?
The Vanguard Target 2040 invests in the following index funds right now:
- 62.7% in Vanguard Total Stock Market Index Fund (VTSAX)
- 27.2% in Vanguard Total International Stock Index Fund (VTIAX)
- 10.1% in Vanguard Total Bond Market Index Fund (VBTLX)
If you have $100,000 to invest, you can open a Vanguard account and achieve the same Target 2040 fund's results, but only with a 10-year cost of $109 per $10,000 invested!
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