Target Date ETFs Are Here - The Simplest Investment?
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- Опубликовано: 28 окт 2023
- Target date ETFs are here. Previously you could only get a target date fund in the form of a mutual fund. Now the enormous asset manager BlackRock has launched the industry's first lineup of target date ETFs.
// SUMMARY:
Anne Ackerley, Head of Retirement at BlackRock, commented that “This product innovation will make saving for retirement even more accessible at a time when Americans are less confident about their retirement readiness than ever before.” According to a study from BlackRock themselves, 40% feel off-track to retire. The iShares® LifePath® Target Date ETF Suite can instill a renewed retirement confidence in those who don't know where to begin.
I've long maintained that target date funds are unfairly maligned. The knee-jerk criticism of many pundits and novices are that target date funds are too conservative because they put young investors in broadly diversified asset classes and namely total bond market funds. The flawed logic in “100% stocks while young” aside, we know empirically that most investors overestimate their tolerance for risk, only realizing so when they panic sell during a severe market crash.
Vanguard found that their TDF investors tend to outperform even their DIY index investors over the long term because TDF's remove the behavioral aspects like tinkering, biases, and performance chasing.
iShares is already a powerhouse of an ETF provider, and their asset allocation ETFs like AOR, AOK, etc. provide single fund solutions for well-diversified, multi-asset portfolios. This new suite of LifePath® Target Date ETFs goes one step further in providing funds that automatically adjust asset allocation and rebalance as time passes, all inside an ETF wrapper.
This marks an important milestone in the innovation of financial products, as previously this sort of offering was only available in the mutual fund structure. Notably, these funds are also very affordable with an average expense ratio of about 0.10%, or 10 basis points.
Target date funds take more risk early and adjust to a more conservative allocation over time. When the target retirement date is reached, the fund will transition into the iShares Target Retirement ETF for retirement income.
The LifePath suite will use iShares ETFs inside.
Read the blog post here: www.optimizedportfolio.com/is...
#retirementinvesting #etfs #investingnews
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What do you think of these new target date ETFs from iShares?
I'm glad they exist for folks who don't have the means to access a 401k and want a hands off approach. Personally, I'm fine with my 100% stock allocation while keeping emergency cash on the side. That could change though, the bit you mentioned about Vanguard's target date holders outperforming DIY index investors caught my attention. Thank you for the video.
@@richardshipe4576 Thanks for watching, Richard!
@@user-tm1kb3fq4m A target date ETF is likely more suitable for the beginner who may not understand the mechanics and risks of something like NTSX.
@@user-tm1kb3fq4m As noted, at the retirement date it switches to the iShares Retirement ETF.
Not entirely sure what you mean. A lot people "cashing out at the same time" doesn't affect the share price of index funds, especially here with a fund-of-funds product.
Broad index funds like VTI and VXUS remain just fine when people take their RMD's every year.
Index funds simply track an index and hold a large basket of securities.
Hi John, your RUclips and website content is great; please keep making it.
If I could suggest some possible content topics:
1) Defined Outcome ETFs
2) Collateralized Loan Obligation (CLO) ETFs
3) how to consider and measure risk beyond volatility, i.e. addressing Buffett’s comments that volatility does not measure risk
Thanks! On that last one: www.optimizedportfolio.com/risk/
Fantastic- THANK YOU 👏👏
Thanks! :)
amazing. i love it!!
Excellent!
Yes - keep up the great videos. My wife says you talk fast but I told her you've edited out the pauses to make it smoother! I'm trying to put together a 5 fund portfolio with 1debt etf (tips, TLT, high yield corporate bond, etc.) but I just saw the new blackrock etf BINC and interested on your take.
Thanks, Tom! Tell her people used to complain that I was too slow. Go watch some of my oldest videos. Thankfully YT lets you adjust the playback speed.
I watch on 2x for this reason, actually. Whenever the setting returns to default, I often think the creator sounds drunk. 😅
@@xaldath4265 I usually do 1.25x for podcasts I'm listening to. What do you find to be the optimal speed for my videos?
Like them. A great option for people to match workplace retirement strategies with IRA's and taxable accounts.
Two questions: Why did they go with "active" funds? They seem passive and inexpensive enough but I fear that label alone will scare some. How can we anticipate the tax treatments for these? Will there be capital gains as the funds rebalance through a glide path or no because the ETF wrapper will prevent those re-investments from becoming gains/distributions?
Good questions. Probably best to consult the prospectus.
Hey I've watched all your videos and I really agree with your views but a really important topic is missing: rebalancing. What is your view on it? Do you rebalance once a year at a set time interval? Do you rebalance when it goes out of whack whenever you check? Do you not rebalance at all like Boogle?
On another note, how about deposits for investing your monthly income? Do you deposit more into lagging assets to keep the balance in check, or do you split the deposit according to the target no matter what the balance is at the moment?
Thanks! Haven't done the video yet: www.optimizedportfolio.com/rebalancing/
Deposits go to underweight assets to maintain overall AA.
I have a general question, when investing in target date funds and you reach your “goal/fund end date” do you need to sell the fund or can you withdraw whether it may be 2%, 4% or 6% to live off of investments, in addition do these funds pay dividends to live off of? I’m really intrigued…
Great question. No need to sell. You'd just withdraw from it as needed. They also pay dividends, yes.
TDFs are generally considered only good for tax sheltered accounts. Is this true for the Blackrock funds?
Already explicitly mentioned this in the video. Tax efficiency is a sliding scale, not a binary yes/no.
i'll still be using VT and BNDW for myself, so i can decide which accounts to hold different types of asset classes in, but I always recommend indexed target date retirement funds to beginners. This might give me new ticker symbols to recommend
Makes sense.
What happens to a TDF when it reaches the target year? What are my options then?
As I noted in the video, it converts to the iShares Retirement ETF. You could also simply sell and buy whatever you want.
Interesting question: given the specified date aspect, might these funds hold their bonds to maturity...?
No. They're still just holding iShares bond ETFs inside.
@@OptimizedPortfolio Aww missed opportunity (total return possibilities aside). Thx!
Even tho it's an ETF I would imagine the income from the bond fixed income funds are still passed through at ordinary income tax rates. So I don't really see a benefit here other then maybe reduced risk of capital gains distributions compared to mutual funds
Indeed. That probably about sums it up. And lower fees compared to most TDF mutual funds.
Are there any issues with holding a Target Date ETF in a taxable account?
No aside from being less tax efficient than a typical single-asset cap weighted index fund like VTI, for example.
im a big fan of target date funds
Me too! :)
I’ve been searching high and low for this ETF ITDF. Is this ETF ok for a taxable brokerage?
Yes. Tax efficiency is a continuum, not a binary yes/no.
@@OptimizedPortfolio thank you for your reply. Answers to these new ETFs aren’t easy to find.
@@joshuaryan8694 Glad I could help!
only investing in US large caps is suboptimal imo. The 2% small caps is practically nothing. I would like to see a total US market fund more instead.
Other than that great. Also the low amount of bonds compared to Vanguard starting prett high.
Agreed, though even a total US market fund would be only 6% small caps. At a 50% weight, that makes it 3%. So it's not too far off from MCW there.
@@OptimizedPortfolio but that leaves ~10% mid-caps not included?
True@@stiffeification
Not for me until I'm in the wealth preservation phase.
Thanks for watching!
I think you misunderstand what target date funds do
@@richardshipe4576 nope. I invest 100% in VTSAX for wealth accumulation and plan to ista target date fund for wealth preservation.
Target date ETFs are the embodiment of what the great Peter Lynch (former manager of the famous Fidelity Magellan Fund in the 80's) called "Diworseification". In other words, investments so broad and scattered that the results will invariably become mediocre financial mush. The fund will always be a blend of some winners diluted by laggards and losers, so the returns will be modest at best. You could do worse, but you could do a lot better being an active, knowledgeable investor with strict money management rules. At least the dumb and lazy in society have some kind on an investment vehicle available.
Proper diversification means always being disappointed in some aspect(s) of the portfolio. TDF investors tend to outperform the "active" tinkerers precisely because they are "lazy" and don't touch things or try to time the market. I'll take guaranteed "modest" returns over a low probability of a high return any day, and I tell my clients the same thing.
@@OptimizedPortfolio I agree that "tinkerers" are bound to lose in the long run, but diligent, prudent investors working with good tools will beat the market over the long haul. I know too many folks over many years, myself included, who have proven this point. I agree there should be a good portion of one's portfolio in conservative investments, but one can do a lot better with a mix of funds like JEDI, SPYI and SGOV and many others than with a target date ETF or mutual fund. I worked in a firm for 21 years where target date funds were heavily promoted. The bottom line was they all stunk up the joint.
@@kurtsalm2155 Absolutely not guaranteed that "diligent, prudent investors working with good tools will beat the market over the long haul." Highly unlikely, in fact. That's sort of the whole point. Again, I would suggest looking at the research on the % of people who beat the market and how the average index investor underperforms the market.