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I invested in a Vanguard life-cycle fund for my Roth IRA, but was wondering if people invest in life-cycle funds for general investing...
Anyone have experience with this?
You have come to the right forum. Life-cycle funds are good. Vanguard is an excellent managing firm as well. When you go with a life-cycle fund it will be an all encompassing fund and will adjust based upon the cycle. 2020, 2030, 2040, etc.... As it nears its cycle it will adjust. It has a conservative approach. It might not give you the best results. You could do better yourself if you read through some of the other threads here.
You will need to tell everyone your age and how much tolarence to volitility you have. That will be important.
for someone with limited knowledge about investing and who does not want to learn i think target date funds are..... (drum roll)
the worst way to go about it out of all the ways possible.
why? because any fund that has a disregard for what is happening in the world and strictly buys assets based on my age is nothing i want to own.
think of the target date funds now that are maturing and are approaching an investors retirement.
know what most of those assets will be in ? bonds, nice risky bonds ,thats where . at a time you should lighten up on bonds they are loading you up without any concern for where we are in the interest rate cycle.
with interest rates having no where to go but up after there 36 year bull run each 1% rise will mean about an 8% loss in the fund.
these retirees will freak. most have never experienced a bond bear market. in fact none of us have.
these funds are holding what i would consider to be the riskiest asset of all .unlike those of us who can switch gears and move out of bonds when the crap hits the fan the target date funds by design have no where else to go. it can be a blood bath .
the 2nd reason i dislike them pertains to the younger investors. being generally purchased through dollar cost averaging these kinds of funds are not the best for doing that. they work much better with a lump sum then averaging in over time.
what happens is as time goes on , and as you get more and more money to invest you are buying shares at higher and higher prices as time goes on.
your money is purchasing less and less shares as prices rise. now throw in the fact the fund is cutting back equity allocations as time goes on and you can end up way more conservative then the fund was designed to be and not giving you a big enough bang for your buck.
i am not saying avoid them as they are nice simple creatures and they are still better then doing nothing . but i am saying they would be my last pick.
my first pick would be a portfolio of index funds if available that met my risk level and just rebalance once a year.
or i would prefer a good balanced fund with a fund manager who had leeway to lighten up on the longer term bonds if need be.
Last edited by mathjak107; 02-18-2013 at 04:28 PM..
When bonds were in a bull market they worked fine. Time made the stock portion work out just fine but we are approaching the end of the bond markets run.
The risk in bonds falling is far greater going forward then rising..
Since it is more so the financially ignorant that will be the ones in these funds the older folks may be the ones trapped in a ship ready to sink with no clue .
You can't ignore risk and the world around you as you age.
What is less risky at one point of the cycle can be very risky at other points
maybe my brain is still slow, but why is everyone saying bonds is not a decent investment for the portfolio right now?
I am only 34 and have 20% in bonds and 80% in stocks. Basically just like the 80/20 split.
But for learning purposes why is bonds not a good investment now. Maybe I need some studying bond market investing to understand what makes a positive and negative return.
Here is the target fund I am considering for my ROTH IRA I will start in about 2 months.
They only use 3 index funds and appears simple enough.
What is wrong with someone just investing in this target fund as time goes on?
Thanks
There is nothing wrong w/what you are doing. This is a 3 fund portfolio (total stk market/total int'l/total bond) that many bogleheads/diehards use. No slicing and dicing here. Its very simplistic and bottom line, will outperform a majority of investors over the long term. That's all your looking for. Yes, there will be some fat tails w/higher returns, but we can't predict who those will be beforehand!
The issue w/target retirement funds that some question is the timing/allocation to bonds. Yes, the future doesn't look good for some types of bond returns, however no one knows exactly when those bond returns will really underperform...(it could be another 30 yrs, no one knows for sure). The purpose is to balance out equities...You just really need to know whether the time frame these certain funds start shifting allocations will work for you.
the tide may have already turned on bonds . the last 2 months have seen them start to fall . actually most bond funds are now down ytd.
i am just about ready to start shedding some of my all bond portfolio. it was a great run while it lasted .
so far the drop in value wiped out all the interest we got this year .
Last edited by mathjak107; 02-19-2013 at 03:23 AM..
You have come to the right forum. Life-cycle funds are good. Vanguard is an excellent managing firm as well. When you go with a life-cycle fund it will be an all encompassing fund and will adjust based upon the cycle. 2020, 2030, 2040, etc.... As it nears its cycle it will adjust. It has a conservative approach. It might not give you the best results. You could do better yourself if you read through some of the other threads here.
You will need to tell everyone your age and how much tolarence to volitility you have. That will be important.
I'm 28 and I plan to retire around 2040 (56)
I plan to be aggressive and I think I can stomach the hits (if they happen). I want big returns and am willing to take that risk.
I have a roth ira and gen. account at Sharebuilder.
I do not have a lot of money upfront (about 1,500), but plan on investing atleast 300 for my Roth and 100 for my general accounts through Automatic Investing.
I hear a lot of good/bad things about life cycle funds. I really love the LC idea because frankly the market seems intimidating for new investors. Vanguard (2045 vtivx) seems like one of the better companies too.
Any advice or opinions would be appreciated!
Thanks all
Last edited by fieldsy1024; 02-19-2013 at 06:54 AM..
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