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Posts Tagged ‘Target Date Folios’

Target Date Strategies Over The Last Five Years

Posted in 401(k), Asset Allocation, Diversification, Long-term investing, Mutual Funds, pensions, Retirement, Risk, tagged , , , , , , , on January 29, 2013 | Leave a Comment »

The intent of target date strategies is to provide investors with fully-diversified portfolios that evolve appropriately as investors age.  Target date funds have enjoyed enormous growth over recent years, not least because the Pension Protection Act of 2006 allows employers to direct retirement plan participants into these funds as the default investment option.  Consultancy Casey Quirk projects that target date funds will hold almost half of all assets in 401(k) plans by 2020.

Target Date Folios are an alternative to traditional target date funds, launched on the Folio Investing platform in December of 2007.  These portfolios now have more than five years of performance history.  Prior to the design of the Folios, a detailed analysis of target date funds suggested that they could be considerably improved.  The Folios were designed to provide investors with an enhanced target date solution.  In this article, I will discuss the design and performance of the Folios and target date mutual funds over this tumultuous period.  The risk and return characteristics of these funds and Folios provides insight into the effectiveness of different approaches to portfolio design and diversification.  (more…)

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Folio Investing Celebrates Its Target Date Folios’ Five-Year Record of Outperformance

Posted in Diversification, ETFs, Investors, Long-term investing, Low Cost Investing, Regular Investing, retirement planning, Risk, Uncategorized, Volatility, tagged , , , , , , , on January 24, 2013 | Leave a Comment »

Folio Investing’s Successful ETF-Based Alternative to Legacy Target-Date Funds Offers Superior Diversification, Risk Targeting and Flexibility; Firm Seeks Distribution Partner to Broaden Availability

Folio Investing announced today that, over the five years since they were brought to market in December 2007, its Target Date Folios have significantly outperformed traditional target-date funds. The Folios have provided both higher returns and lower volatility than the competing funds during this tumultuous period. (more…)

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Falling ETF Fees and What They Mean

Posted in Asset Allocation, Bonds, Diversification, ETFs, Markets, tagged , , , , , , , , , on January 7, 2013 | Leave a Comment »

Vanguard has just reduced the expense ratios of 24 of its ETFs.  The reductions are fairly substantial.  What I noticed, in particular, is that the reductions include sector-specific ETFs.

The Vanguard Energy ETF (VDE), the Vanguard Information Technology ETF (VGT), the Vanguard Telecom ETF (VOX), and the Vanguard Utility ETF (VPU) each now have 0.14% expense ratios vs. 0.19% previously.  While the expense ratios of these funds were already low, the new expenses are 26% lower than before. (more…)

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Sector Watch: Municipal Bonds

Posted in 401(k), Asset Allocation, Bonds, ETFs, pensions, Retirement, retirement income, retirement planning, Risk, Taxes, Uncategorized, tagged , , , , , , , , , , , , , on November 19, 2012 | Leave a Comment »

Municipal bonds are issued by states and municipalities and typically have tax advantages relative to other fixed income assets.  In general, income from muni bonds is tax exempt at the federal level and at the state level for investors living in the issuing state.  Municipal bonds have historically been favored by investors in high tax brackets who, of course, derive more benefit from the tax exemptions by virtue of being in the highest tax brackets. (more…)

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Saving and Investing for Retirement: Part Three

Posted in Active Investing, Asset Allocation, Bonds, Diversification, ETFs, financial planning, Investors, Long-term investing, Market Timing, Mutual Funds, Retirement, retirement income, retirement planning, Stock Investing, Volatility, Wealth, tagged , , , , , , , , , , on September 26, 2012 | 2 Comments »

Realities of Investing: Part Three of Our Special Five Part Series

In the various calculations that project retirement portfolio accumulations through time (such as the two discussed in the previous article), there are assumptions about how investors will allocate their savings and how those investments will perform.  In the case of the Fidelity study, no specific asset allocation is provided that would achieve the assumed risk-free 5.5% annual return.  In the Ibbotson study, the authors assume that investors hold a combination of a stock index fund and a bond index fund that progressively allocates less to stocks and more to bonds as investors get older.  The Ibbotson study also assumes that the stock index (the S&P 500) will have an average annual return of 10.96% per year and that the bond index will have an average return of 4.6% per year.  The Ibbotson study ignores expenses associated with investing. (more…)

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The End of ‘The Cult of Equity’?

Posted in 401(k), Active Investing, Asset Allocation, Bonds, Diversification, ETFs, financial planning, Income Investing, Long-term investing, Market Outlook, Retirement, retirement income, retirement planning, Risk, Stock Investing, Wealth, tagged , , , , on August 20, 2012 | 2 Comments »

One of the defining features of the last twenty years has been a persistent and fairly continuous belief that investing in the stock market was something of a sure road to wealth.  The downturns in the stock market in the aftermath of the Tech bubble and, more recently, in the financial crisis, have shaken investors’ faith in the maxim that stocks are inevitably a good bet.  The tendency of people to take it as an article of faith that equities will, ultimately, deliver high returns has been referred to as ‘the cult of equity.’  Two recent articles by experts that I respect propose that this phenomenon is dead or dying. (more…)

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The Power of Effective Diversification: Part II

Posted in Asset Allocation, Diversification, ETFs, Financial Advisors, financial planning, Investors, Leverage, Long-term investing, Market Outlook, Market Timing, Markets, Retirement, retirement income, retirement planning, Uncategorized, Volatility, Wealth, tagged , , , on August 17, 2012 | 4 Comments »

Last week, I posted an article discussing how diversification is one of the most misunderstood concepts in investing. In today’s post I continue with the second half of this two-part series titled, “The Power of Effective Diversification.”

In Part I of this article, I discussed the difference between naive diversification (holding lots of stuff in a portfolio) and real diversification (combining assets in a portfolio to create risk offsets).  I also showed how a well-diversified portfolio can maintain the ability to participate in market rallies while still mitigating risk.  In Part II, we will explore what an effectively diversified portfolio looks like today. (more…)

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The Power of Effective Diversification

Posted in Active Investing, Asset Allocation, Behavioral Finance, Bonds, Diversification, financial planning, Investors, Long-term investing, Low Cost Investing, Market Outlook, Market Timing, Markets, Passive Investing, Retirement, retirement income, retirement planning, Risk, Stock Investing, Uncategorized, Volatility, Wealth, tagged , , , , , on August 10, 2012 | 7 Comments »

Diversification is one of the most misunderstood concepts in investing.

If you read a good explanation of the strategy, you’ll learn that the goal of diversification is to combine different investments that tend not to be driven by the same factors in the economy. So when one investment lags, the others in the portfolio gain ground (or at least will be unaffected)

For example: Combining gasoline stocks with bicycle manufacturers in your portfolio. When gasoline is cheap, people drive more and bike less. When gasoline prices start to rise, people usually cut back on their driving and start biking to work. Either way, your portfolio is now less exposed to the risk of a downturn in demand for either bicycles or gasoline. (more…)

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Proving the Value of Risk Management in Retirement Planning

Posted in 401(k), Asset Allocation, financial planning, Investors, Long-term investing, Retirement, retirement income, retirement planning, Risk, Stock Investing, Uncategorized, Volatility, Wealth, tagged , , , , on June 29, 2012 | 2 Comments »

The Wall Street Journal’s recent article, “Same Returns, Less Risk” discusses different approaches to managing portfolio risk while maintaining exposure to potential returns available from stocks and other riskier asset classes.  

 If you are a Portfolioist reader, you know that we’ve written about the importance of risk budgeting in the past (see, “Risk Budgeting: A Critical Tool for Portfolio Management”). You also know that we believe that risk budgeting is an important part of successful long-term investing. That’s why we constructed our line-up of Target Date Folios using a risk budgeting approach—and this stands in stark contrast to the strategy used in more traditional Target Date Mutual Funds that generally use static asset allocations that don’t adjust their risk allocations in volatile market conditions. (more…)

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How Much Risk Should A 65-Year-Old Take?

Posted in 401(k), Active Investing, Asset Allocation, Behavioral Finance, Diversification, financial planning, Income Investing, Investors, Long-term investing, Market Timing, Markets, Retirement, retirement income, retirement planning, Stock Investing, Wealth, tagged , , , , , , , on June 19, 2012 | 5 Comments »

Stacy Schaus, Executive Vice President at PIMCO and her colleague, Ying Gao, recently wrote a white paper titled, “Loss Capacity Drives 401(k) Investment Default Evaluation” that tackles some of the most important issues in retirement planning. The white paper discusses the development of asset allocation strategy over an investor’s working years and into retirement. (Schaus has worked on this problem for years and has written a book called Designing Successful Target Date Strategies for Defined Contribution Plans: Putting Participants on the Optimal Glide Path on this topic).

While the white paper covers a number of elements of the life cycle asset allocation problem, I’d like to focus on one in particular: How much can a 65-year-old investor approaching retirement really afford to lose? (more…)

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