Friday, March 22, 2013

Target Funds

A target fund is an asset allocation fund that varies the allocation based on how close you are to retirement.  As an example, we will look at FidelityFreedom 2045 Fund (FFFGX).

The Summary tab provides the Morningstar Snapshot summary which says it has an expense ratio of 0.76%.  This is on the high side, but not terrible.  The minimum investment is $2500.  The turnover rate is 24%.  This is kind of high.  Turnover costs money in trading costs.  The YTD return is 5.62% (For comparison, the S&P 500 is up 8.4% YTD).

The Performance & Risk tab does not tell me much.  Beta is an interesting number.  At 0.98, it is less volatile than the rest of the market.

The Ratings tab is not particularly encouraging.  It got 3 out of 5 stars and was #1,278 out of 1,992 on 1 year performance.

The Composition tab is very interesting.  It is made up of 62% equities (mostly large cap), 9% commodities, 22% international equities, and 15% bonds (mostly risky, moderate duration bonds).

The Fees and Distribution & Commentary tabs are not particularly interesting.

Now we will look at Vanguard Target Retirement 2045 Fund (VTIVX).

As a comparison, the expense ratio is 0.18%, the minimum investment is $1000, and the turnover ratio is not mentioned.  The YTD return is 6.53%. It is composed of 63% equities, 27% international equities, and 10% bonds.  There is remarkably less information than the Fidelity site.

Now we will look at T. Rowe Price Retirement 2045 Fund (TRRKX)

The year to date return is 5.9%, Morningstar ratings are great, 61% equities, 29% international equities, 8% bonds, 2% cash, and the expense ratio is 0.78%.

As you can see information is presented in different ways and an apples-to-apples comparison can be confusing.  Sometimes you will have to drill down to look at the composition of the underlying funds.  In retirement accounts, you will often be limited to what your company offers.  You can get around this by rolling your retirement funds over, but this can be a hassle.

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