What You Need to Know
- Creative Planning's Peter Mallouk created a Twitter storm by dissing target date funds.
- Investors should allocate assets based on their goals, not their age, he says.
- While some of his followers agreed, others argued that TDFs are a good, if imperfect, option for investors with little experience.
Creative Planning CEO Peter Mallouk threw down the gauntlet Wednesday when he tweeted that although target date funds are popular investment vehicles in 401(k)s, “That’s unfortunate because they’re a terrible choice for most people.”
He added that asset allocations should be based not on one’s age, but on one’s goals.
“What’s bad (much worse than I think most realize),” he stated in a later tweet, “is using age to choose a broad allocation and ending up with much larger allocation to bonds than the appropriate target. Hinders goals.”
But his TDF slam then set his Twitter feed abuzz.
“The majority of US investors will do just fine investing retirement savings in low-cost target date funds from Vanguard or Fidelity,” fintech consultant Bill Winterberg replied. “They don’t need to be shamed for doing it.”
To which Mallouk responded, “No one is shaming anyone. I applaud anyone investing in their 401(k) and taking advantage of a match, tax free growth and compounding. I also want to help them make better decisions with their money. There are better choices.”
Others jumped into the fray. “If I’m following your responses correctly, you seem to be saying they’re actually a pretty good option, just not the best,” user @NateRothstein tweeted. “Specifically b/c they tend to allocate to bonds vs. equity than they should in the current environment.”
Mallouk responded: “Yes, but the over-allocation to bonds is far more detrimental to the participant’s goals than most realize.”
Mallouk noted: “What I do like about them is the ‘set it and forget it’ part and low cost (usually). But the investment mix itself is far too often not a great fit.”
Regarding the age goal, user @StolpyStolps tweeted: “Sure, but most people don’t have the knowledge base required to translate a their goals into a proper allocation. Obviously age is a mediocre proxy for a person’s total financial picture, but it’s at least a start and better than the average person would do on their own.”