Vanguard Institutional Total International Stock Market Index Trust – Do NOT Buy Target Date Funds – Here is Why
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What Is a Target-Date Fund?
Target-date funds are mutual fund or exchange-traded funds (ETFs) structured to grow assets in a way that is optimized for a specific time frame. The structuring of these funds addresses an investor’s capital needs at some future date—hence, the name “target date.” Most often, investors will use a target date fund to apply to their onset of retirement. However, target-date funds are more frequently being used by investors working towards a future expense, such as a child’s college tuition.
How a Target-Date Fund Works
Target date funds use a traditional portfolio management methodology to target asset allocation over the term of the fund to meet the investment return objective. Named by the year in which the investor plans to begin utilizing the assets, target-date funds are considered to be extremely long-term investments. For example, in July 2017, Vanguard launched its Target Retirement 2065 products. Given that the funds have a targeted utilization date of 2065 that gives them a time horizon of 48 years.
A fund’s portfolio managers use this predetermined time horizon to fashion their investment strategy, generally based on traditional asset allocation models. The fund managers also use the target date to determine the degree of risk the fund is willing to undertake. Target-date portfolio managers typically readjust portfolio risk levels annually.
Fidelity Freedom Funds
Fidelity Freedom 2020 Fund
Fidelity Total Market Index Fund
Vanguard Target Retirement Funds
Vanguard Target Retirement 2020 Fund (VTWNX)
Vanguard Target Retirement 2050 Fund (VFIFX)
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Schwab Target 2020 Index Fund SWYLX
Schwab Total Stock Market Index Fund
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