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Portfolio > Mutual Funds > Target Date Funds

Target Date Funds

By Richard Hoe

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Are target date funds a good idea?  In theory, yes. The deal is this — you have a 20-year investing horizon and so you begin the journey with 100% equities and over the years you add more and more bonds (and subtract equities) so that, at the end, you are 90-100% bonds.

The problem is that in 2008, everything was lousy. Well maybe not everything. Managed futures were okay. Some precious metals and some industrial commodities were good. See what I’m saying? Diversity is the key and — if you merge growthy things with bonds, but don’t add alternatives, commodities, flex funds and maybe even timber, you may not be okay. To me, diversity is always in fashion. And non-correlation is stylish, too.  

Regarding non-correlation, did I mention 2X bear market ETFs and funds? The folks at FINRA and the SEC seem to be upset about these leveraged babies; hence, our broker-dealers are having their cages rattled. Me? I love 2X bear stuff. When the market goes up, they go down. When the market goes down, they go up. While they may not the 2X target, I’m happy with 1.6X, 1.8X  or whatever I get. I’m looking for diversity and non-correlation.

Would I use a significant position of 2X bear ETFs or funds? Of course not, but I love the non-correlation and the fact that I won’t go down as much when the market is in a southward mode (and, of course, I won’t go up as much when the market is humming northward). On the other hand, since 2007, one of my portfolios using 2X bear has averaged a fairly level and stable, better than 12% average return. So, what’s wrong with that? I just wish FINRA and the SEC would get some real investment people on board, guys and gals with finance degrees, or CFAs, CFPs or ChFCs who understand our world. 

Have a fabulous week and do something nice and random for someone who does not expect it.

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