Comments on: Lifecycle Funds: Look But Don’t Touch

By: Jeremy

Jeremy — Sat, 18 Jun 2011 15:55:41 +0000

Theresa, it’s hard to say without knowing the makeup of the funds, but generally speaking the target date funds are just going to consist of a stock index and a collection of bonds to create a suitable mix for your age. So if you already have stocks and bonds in the rest of the portfolio the target fund is just going to largely have the same investments and just cloudy your true asset allocation a bit. So because you’d still have money in the S and I funds along with the 2030 your total asset allocation would be weighted heavier on stocks as a whole. Not that there’s anything wrong with that, but if your idea was to closely match what the 2030 looks like then having the additional funds wouldn’t accomplish that.

By: Theresa

Theresa — Sat, 18 Jun 2011 14:19:42 +0000

Jeremy,
I am 45 and plan on retiring at 67. I work for the Federal Government and right now I have a TSP Account of about 43,000. It is split equally in percentage between a G, C, S, and I Fund. I was thinking of taking the G and C and putting that 50% into a 2030. I know absolutely nothing about investing and this is the only investment in my retirement besides what I will get monthly when I retire through the VA and Social Security. Do you think this is smart or am I overlapping too much? I am only investing 5% at the moment but would like to increase to 10% in the near future. Can you give me any advice?

By: Andy

Andy — Fri, 20 Apr 2007 18:58:53 +0000

It’s problematic to count savings as part of your overall asset allocation. If you have some expense (say, a car) that uses up $10k of your $12k savings, you would have to sell some amount of equities to rebalance.

And many people save for the short to mid-term as well. In that sense 70/30 may not be aggressive at all.

By: broknowrchlatr

broknowrchlatr — Thu, 19 Apr 2007 11:06:37 +0000

My case is similar to Adam’s

In my 401k, the options are average. I have about $35k in T.ROWE PRICE 2040 (TRRDX). They have other T.ROWE PRICE life-cylces at 2010, 2020, and 2030. They have a few good emerging markets funds and one good Vangaud Equity index. I have about $10k in those other finds.

Outside the 401k, I have about $40k in IRAs. Part of that ($20k) is still in TRRDX (I rolled it over from 401k). But, there is another $20
$8k Small cap
$8k Mid Cap
$4k International

So, I am simply taking the best option in my 401k and then using other funds to weight it more toward the areas I want more exposure to. TRRDX is a solid performing fund. But, it just doesn’t have the mix I want. So, I make that correction. As wit ADAM, I don’t touch the lifecycle fund.

By: Jeremy

Jeremy — Wed, 18 Apr 2007 21:21:33 +0000

Adam, in your case I think this works quite well. Like you mentioned, you have a core holding and don’t touch it and then actively manage some more specialty areas such as international and emerging markets.

The key is that you understand the role of the lifecycle and realize there is some overlap while still investing accordingly.

Unfortunately many of the less sophisticated investors who are using these funds don’t really understand the underlying investments and can really mess up their portfolio.

I’m with you though, I have a large core holding of an asset allocated fund and then use part of my portfolio for more active investing or experimenting with more specialty type of investments to fill some of the gaps.

By: Adam

Adam — Wed, 18 Apr 2007 20:02:21 +0000

Good post, I agree that Lifecycle funds are great additions to retirement plans and especially for people with little investing knowledge they should be the default.

In my case I want to be able to improve my rate of return slightly by shifting around my investments. So I but 50% of my 401k into a Lifestage and I don’t touch it. With the other 50% I more actively invest it, currently weighted towards emerging and foreign markets and small-cap stocks. I know there is some overlap but I’m willing to accept it.

Right now I have:

401k (Retirement with 80% of total)
50% Lifestage 2045
10% TRP growth stock
10% DPIEX
10% GMCEX
10% RERFX
10% Bond fund

ETFs (Lazy Portfolio with 15% of total)
33% VTI
33% EFV
33% VIPSX

I guess I’m willing to take advantage of Lifestage funds but also want to be able to “touch” others.