Implications of Mixing Target Date and Non-target Date Strategies
David Dierking Sep 19, 2017
In case you are wondering whether mutual funds are right for you at all, you should read why mutual funds, in general, should be a part of your portfolio.
Who Are These ‘Mixed’ Investors?
Investors who mix TDFs and non-TDFs generally do so for a few reasons. Mixed investors also tend to be more sophisticated in nature. These folks keep part of their portfolio in TDFs as a long-term strategy, but also choose non-TDFs to take advantage of opportunities they see to outperform the market. Some mixed investors come as a result of employer actions. Many companies make matching contributions in employee stock, for example, and that can skew how they are directing their own investments.
Know why custom target-date funds can be a better option than the traditional ones here.
The Case for Committing to TDFs Only
TDFs are also built to be cheap. Providers of these funds generally understand that fees are one of the biggest hindrances to achieving investment goals. Add-ons to target-date funds, especially actively-managed funds, can come with high fees, further hindering the ability of an investor’s overall portfolio to maximize returns.
Check out our target-date fund section to remain up to date with the trends in this space.
When Mixing TDFs and Non-TDFs Could Make Sense
Close market watchers might eye a potentially undervalued asset class or sector of the market and wish to overallocate to it in an attempt to juice returns. This can really only be accomplished with a non-TDF, since TDFs generally execute little to no active management within their portfolios. Along the same lines, investors might wish to tilt their portfolios toward either the more aggressive or conservative side depending upon market conditions or personal risk preferences.
The asset allocations of TDFs can vary significantly across providers despite having the same target date. If you don’t like the allocation of the fund with your target date, you can either switch to a TDF with a different target date, if one is available, or add an equity or fixed income fund to your portfolio to adjust the overall risk level.
Either way, mixing TDFs and non-TDFs can be a means of adjusting the portfolio to meet your specific goals and risk tolerances.
The Bottom Line
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