Target date funds are great options, and I think should be the default option for workplace retirement savings plans.*
I think the potential advantages are:
-- One size fits most; it will never be the optimum allocation but it will be better than most alternatives and provides guardrails
-- Reduces decision paralysis
-- Takes care of itself when life gets in the way and you can't
-- Reduces temptation to tweak or act on fear or greed
As an aside, I like the idea of a 3-fund portfolio, but I think this forum can overestimate the ability and willingness of the general population to self-manage one. My mega-public university system surveyed employees' 403b accounts and found that a large proportion of the accounts were 100% cash because the employees never specified investment instructions. The response was to put contributions into the TDF for their age band unless the employee specified something else. They also culled the number of investment options (mostly the actively managed alternatives to the core index funds) to reduce complexity and decision paralysis.
I think the potential advantages are:
-- One size fits most; it will never be the optimum allocation but it will be better than most alternatives and provides guardrails
-- Reduces decision paralysis
-- Takes care of itself when life gets in the way and you can't
-- Reduces temptation to tweak or act on fear or greed
As an aside, I like the idea of a 3-fund portfolio, but I think this forum can overestimate the ability and willingness of the general population to self-manage one. My mega-public university system surveyed employees' 403b accounts and found that a large proportion of the accounts were 100% cash because the employees never specified investment instructions. The response was to put contributions into the TDF for their age band unless the employee specified something else. They also culled the number of investment options (mostly the actively managed alternatives to the core index funds) to reduce complexity and decision paralysis.
Statistics: Posted by Doctor Rhythm — Wed Aug 21, 2024 6:20 pm — Replies 7 — Views 437