Can you remember what class we learned about target date mutual funds? Neither can I. Your company’s 401(k) advisor if you even have one, probably said something along the lines of,
“If you’re the kind of person who doesn’t look at the stock market every day. Investing into target date funds is a convenient way for you to save for retirement.”
1) Most people don’t look at the stock market every day
2) Convenience doesn’t mean it’s your best option
Now, this is not saying that target date funds aren’t a viable option for some of you, but if you want to be different, you’re going to have to invest in ways that don’t require you to float down the mainstream.
According to many economists who manage Billion dollar endowments for Universities around the country, target date funds are:
1) A one in the same approach
2) Automatically Change
3) Have higher fees
4) Decrease risk too quickly
5) Overly Diversified
Yet, when it comes to investing our hard-earned money, we listen to the façade of “Financial Advisors” who tell us how to invest money that is in their best interests, not yours. And when it comes down to it, if there was a way to make your money grow faster, but protects your money from the highs and lows of the market, who wouldn’t sign up for that?
Don’t believe me? Let’s take a look at the experts who wrote the book Lifecycle Investing. They say that even when you’re well into your late 50s, you should be invested primarily in stocks. When you’re in your younger years, it actually pays to be 200% to 300% invested in the stock market.
Why is that? We’re taught from a young age that taking on a lot of risk is bad. Well, it has to do something with time diversification.
As Warren Buffett has been quoted,
“Diversification is protection against the ignorant.”
He is only referring to the number of investments you have in terms of position, not time. Time diversification is more important than your holdings because if you invest too much of your net worth at the wrong time, it can be 10-20 years before that money fully recovers. Ain’t nobody got time for that.
This is what separates the good investors from the investors that are entrusted with managing billions of dollars of money. So, unless you’re going to commit yourself to a lifetime of learning, it pays to have someone manage your money so that you can enjoy a quality of life that will make you smile.
Joshua Krafchick CRPC®, EA