Boring is Good: Index-Based Target Retirement Funds
Why Small Companies Choose Vanguard Funds
We all want to be the apple of someone’s eye. But when it comes to your 401k, most investment companies simply focus on the love they have for your wallet.
One of the primary concerns our clients at Employee Fiduciary have is getting employees to save in a 401k. Understandably, employees may be a bit confused and intimidated for a variety of reasons. Investing can seem complicated - and risky - so why bother? Especially when so many people need their entire paycheck to get by.
That’s why index based target retirement date funds are so important and why so many of our clients choose them for investments in their 401k plans for small business. These funds make the asset allocation decision for investors based on the length of time the investment is expected to be held. For example, a younger investor who is many years away from retirement will have a larger percentage of stocks represented in their investment portfolio. Although stocks are subject to greater short-term price changes, they will return more over time -- a risk that makes sense for someone who may not retire for another 30 years. In investing, nailing the appropriate asset allocation may not be the only consideration, but it is far and away the most important.
So which target date retirement funds to use?
At Employee Fiduciary, we’ve observed that our clients display a preference for target date funds built with passively managed index funds for two important reasons:
- Costs are low
- Investors have clear expectations of performance
Among our clients, index-based Vanguard target retirement funds are very popular. Client feedback is pretty consistent - they have very clear expectations on cost and performance, and the Vanguard investments meet those expectations with boring consistency. The Frugal Fiduciary likes the sound of boring in investing - it sounds like “success.”
The vast majority of our clients know they want low cost investments when they choose to work with us. Getting those low costs and helping their employees overcome the major stumbling block to retirement planning at the same time is a frugal “two-fer.”
Let me know what you think and drop your comments below.
About Greg Carpenter
Greg Carpenter founded Employee Fiduciary in 2004. With 29 years of experience in accounting and finance, Greg has brought his expertise to a variety of advisory, senior and executive management roles. Greg has worked for a national accounting firm, a Fortune 500 plan sponsor, a major brokerage firm, and he served as the CEO of a major 401k TPA firm. He is a CPA and earned his BA from Yale and his MBA from The University of Chicago Booth School of Business.