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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