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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 dateβ€”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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#TargetDateFunds #LifecycleFunds #RetirementInvesting

This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

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  1. Jake Broe
    July 31, 2021 at 11:23 am

    Thanks for watching everyone! If you found this video interesting, you can help me out by giving this video a LIKE! Also check out some of my other videos like this one where I break down the difference between Roth and Traditional retirement accounts:

  2. Jimmy Riddle
    July 31, 2021 at 11:23 am

    I'm a novice investor and held various ETFs, and Index funds, I bought into a 2035 target retirement fund and I can tell you the last 2 year returns have beaten all of my other funds, including the S&P500, now I realise they'll back off into bonds, but that fund hasn't done badly of late for sure.
    Jake, my target date could be around the time the USA becomes the next Greece and largest proportion invested in the USA, should I be concerned?

  3. Nick Barber
    July 31, 2021 at 11:23 am

    TD's might be lazy but they are not flaming hot garbage.

  4. Daniel Mountjoy
    July 31, 2021 at 11:23 am

    One point, at least for federal employees in the TSP lifecycle funds (not sure is applies to other private target date funds in the private sector): Just because you plan to retire in a certain year, doesn't mean you are locked into that same lifecycle fund. For example, I plan to retire in 2028, but I am invested in the 2040 lifecycle fund — I still get the gradual changeover in allocations, but at a riskier level than someone in the 2030 fund.

  5. Victor Villa
    July 31, 2021 at 11:23 am

    Best explanation I’ve found on YouTube thank you!!!

  6. Suru Dog
    July 31, 2021 at 11:23 am

    Target funds are not the answer for anyone younger than 50. My advice is if you are younger than 50, do Sp500 index 100%. After 50, you can decide how to rebalance.

  7. Marc Moebis
    July 31, 2021 at 11:23 am

    I wish I would have realized I was in a Target Date Fund 10 years ago! I just logged in and saw my terrible returns πŸ™
    I made a video of my experience on my channel, I wish I would have found your video sooner. Thanks for the great in-depth explanation

  8. Taco Cruiser
    July 31, 2021 at 11:23 am

    This is not financial advice but….do what i say.

  9. Young Bae Kim
    July 31, 2021 at 11:23 am

    I have a question. You said, even when the market crashes, the target fund must sell and keep gliding to its target asset ratio. However, at the moment of crush, the fund must buy more stocks to keep its target ratio? Rather than sell them to glide down. To say, rebalancing takes place automatically by buying low and hold them in its allocation. If this does not happen, they must be far below from its target ratio during the market crash. Do I miss something? By the way, I agree with you on the hefty expense ratio of many target funds.

  10. Anthony Sipes
    July 31, 2021 at 11:23 am

    Great video Jake, I completely agree. TGFs are too cookie cutter. They're supposed to "rebalance" but the rebalancing is already set ahead of time. They don't rebalance properly as needed as one part of your portfolio gets out of wack. If a part shoots too high obviously you want to sell part off and add in money to the lower producing portions . TGFs don't do that . They don't focus on your individual needs as they give everybody the same changes.

  11. Jonathan Fletcher
    July 31, 2021 at 11:23 am

    Great video! Thank you so much

  12. Vidya Jayaraman
    July 31, 2021 at 11:23 am

    Interesting video. I was thinking of a target date fund for my Roth IRA. I think one reason they are expensive is the inbuilt rebalance and risk transition mechanisms? Also, they are funds of funds, the expense ratios are getting compounded. But I do know Fidelity has some low expense ration TG Funds, too bad my employer doesn't offer those for 401k :/

  13. RPDBY
    July 31, 2021 at 11:23 am

    well argued and explained

  14. NEMoretime
    July 31, 2021 at 11:23 am

    Hi Jake. For those that buy target date funds and are doing better with other investment would you look to just sell them for other investments or would you buy the new investments after there has been a downturn in the market? I could have sold some weeks ago and bought my new investment at a lower price. Im probably better going for the higher return investment over the targdt date funds but just checking to see if you had an opinion.

  15. obu gabriel
    July 31, 2021 at 11:23 am

    Thank you Jake, good thing you discussed my fidelity 2050 fund. Considering how many years ahead I have to invest, I believe the withholdings in bonds is too conservative to my age. Will be calling fidelity to make necessary changes πŸ‘

  16. Matt Jensen
    July 31, 2021 at 11:23 am

    This might be your best video yet. I’ve seen a handful of personal finance influencers who recommend these funds for retirement saving but overlook their downsides. Learned a lot!

  17. Wackzingo
    July 31, 2021 at 11:23 am

    I am 100% VTI/VTSAX in my ROTH IRA and Taxable accounts but in my 401k I am in a target date fund. It was the default, it's not really terrible, the expense ratio is still incredibly cheap compared to most mutual funds, and honestly I have no idea what the other funds are in my 401k and don't feel like spending hours researching them. It's averaged 29% annually over the last 3 years. I'll eventually rebalance but they aren't terrible options for most people especially when young since it's mostly equity anyways.

  18. Nicholas Jasmine
    July 31, 2021 at 11:23 am

    Don't agree at all. Target funds have their place

  19. KoreanPolish*G-Man
    July 31, 2021 at 11:23 am

    Hey Jake Great vid again. I do agreee with what you say. I also learned and know what i want, But with Charles Schwab to auto invest in seperate index fund you would need 100 minnium per fund. I already try to put as much as i can in my companys 403(b). so it leaves me only some extra to enter in my Roth which I use the target. I also had 4 index funds when i started but i prefer auto invest and come back six months later to a year. i prefer the out of sight out of mind perspective becuase i would go crazy if i had to buy all the time. Once its get big i might split it up the targe date to what investing should be.

    I dont care for Total Stock Market only beucase i see the Small cap ones might not recover. which I think affects the total

    What to do you think of the Charles Schwab Markt Funds (Equity, Growth, Balance, conservative)?

  20. Hemant Shah
    July 31, 2021 at 11:23 am

    I subscribed today. great video

  21. Emily Foreman
    July 31, 2021 at 11:23 am

    "educate yourself, and then invest with confidence"

    why do I feel like you're talking directly to me Jake? XD

  22. Joshua Johnson
    July 31, 2021 at 11:23 am

    Fidelity Freedom INDEX is the comparable target date fund Vanguard and Schwab. It’s 0.12% at Fidelity.

  23. Dolly Agba
    July 31, 2021 at 11:23 am

    Thank you this is the most educational video. It came to me at the right time because I was trying to invest in fidelity freedom fund for me and my mother. It surely cleared it up for me. Thanks alot

  24. Chris Bednar
    July 31, 2021 at 11:23 am

    I like how you speak the truth about these target date funds. I remember your video on the new and supposedly improved TSP Lifecycle Funds. And……still trash LOL

  25. K Mque
    July 31, 2021 at 11:23 am

    Great vid Jake! I agree they are too conservative for anyone in 20s to 40s, mayb even early 50s. However, if Vanguard index minimum investment of $3K is too much, one can start off a Target date fund for $1K, then exchange fund for VTSAX, VFIAX, etc. when one reach $3K in Target date fund.

  26. duncan1622uTube
    July 31, 2021 at 11:23 am

    Very good insight Jake, thanks.

  27. Oz- Wealth
    July 31, 2021 at 11:23 am

    Awesome video Bro i am a big fan of you !

  28. Chris Cole
    July 31, 2021 at 11:23 am

    Great video. Thx

  29. Winter Oaks
    July 31, 2021 at 11:23 am

    Okay, I've had a Vanguard target fund as a Roth IRA for about 15 years because that's what my parents said to do, what do I do? Am I able to sell these shares and buy something else? Aren't you heavily penalized if you do that? I am the definition of the ignorant person who didn't know anything about stocks and just wanted to set it and forget it, but now I want to take some control.

  30. PulverizerA
    July 31, 2021 at 11:23 am

    Many are limited in their employer's 401k fund offerings and if you want to get your match money from them, a target date fund may be best choice available. If you pick the target date 10 – 20 years out further from when you actually plan to retire, then that can ease some of the bond issues.

  31. tony tony
    July 31, 2021 at 11:23 am

    ''JBro '' crushes it in another video.

  32. Larry
    July 31, 2021 at 11:23 am

    These funds have their place and calling them "flaming hot garbage" is a tad bit emotional. Given that the overwhelming weight of evidence historically is that the USA's recent outperformance of international will not last and is an extremely rare historical anomaly, a well diversified Target Date Fund 2060+ from Vanguard or Schwab (with expense ratios at 0.08%, that start almost entirely as a very good mix of domestic/developed international/emerging market equities) makes it incredibly easy for most people (who are lazy!) not to screw up their retirement balance. More than probably a good target date fund 2050+ from one of the big three will outperform your advice of solely investing in the S&P 500 as a long term hold. There is a good academic paper titled "Target Date Funds and Portfolio Choice in 401(k) Plans" by Olivia S. Mitchell. With a 1.2 million investor sample size it showed that Target Date investors outperformed the custom allocation investors by 2.3% per year with lower volatility. Empirical proof that most likely Target Date Funds really aren't "flaming hot garage", but good enough for large swathes of people.

  33. Tim Feather
    July 31, 2021 at 11:23 am

    Great video Jake. Perfect timing for me, as I'm just moving a 401k over to an IRA. Will definitely avoid the target date funds!!

  34. debora trujillo
    July 31, 2021 at 11:23 am

    Great video, is it good to have multiple index funds or just one like the total market index fund for the main core?

  35. Scott Dukowitz DC
    July 31, 2021 at 11:23 am

    I like Jake and his enthusiasm but you might want to take this video with a grain of salt. I do agree that he's not a financial advisor, I know this because the financial advisors I've seen charge $200+ per hour and this video was free. There are more things missed here than I have the energy or inclination to cover. I'm guessing the cumulative bond knowledge of most of this audience wouldn't fill a thimble and if you're younger then your number of decades of financial experience is limited so you may not have been investing when stocks sucked but bonds pulled in over a 30% return. Back in the day people would buy round lots of stock. I recall paying over $500 commission to buy 1,000 shares at a discount broker but, that's all that was available. Today we can buy 0.0269 shares of whatever for free.
    Keep in mind, a retirement account is different than a regular brokerage account which may be different than a Family Limited Partnership which you might have one day which also highlights the fact that general investing and wealth management are different things. For all you DIY'ers, when is the last time you rebalanced your portfolio? Does Glass-Steagall mean anything to anyone here? probably not. Don't think that you're seeing the entire iceberg from one 17 minute video.

  36. Bernd Knoedler
    July 31, 2021 at 11:23 am

    Thanks Jake.
    You are thinking outside the box, that's a trademark of yours. Love your thoughts about investing.
    I haven't found anyone that has content like yours on youtube.