🔍
Target Date Funds Explained - Best Investment for Millennials?💰⏳📈📉 - YouTube
Channel: Chatty Grandpa
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hi it's trip again after having a very
good week and I invite you to leave
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comments down there under the video
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today's video is about what I consider
the target date funds to be the the
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simplest best default meant for
millennial investors for those of you
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saving for retirement I'm not a
financial advisor so I'm not making any
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money from this
I just felt led to make this video for
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you if you don't know what to do with
your money or if you need some time to
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figure it all out the best thing I think
anybody can a young person can do is to
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is to just pick a target date fund and
they're becoming much more popular with
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you Millennials - I have a few notes
here as I've said that I've that I need
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to follow to get through this target
date funds are also known as lifecycle
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funds and they're they're actually
mutual funds which are a targeted fund
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is a mutual fund which is made up of
other mutual funds so you have the main
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target date fund up here and then that
target date fund has AZ Holdings
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consisting of of other mutual funds or
ETFs usually since ETFs didn't have very
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low expense rights now they start off in
the target date fund when you buy it if
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you're say in your 20s it has a higher
allocation of stocks than it does of
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bonds or cash and it sets itself in what
they call her glide path so that the
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amount of stocks decreases as you get
into your thirties forties fifties and
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sixties and Beyond because
you can take more risk when you're
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younger than when you're older so the
proportion of you start off with a very
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low proportion of of cash and bonds
because these are the are the least
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risky investments and those tend to
increase as you get older your twenties
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thirties forties fifties and beyond so
they start off the target date fund for
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your particular age starts off ative I'm
theory with with a relatively aggressive
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risk factor and it becomes more
conservative over time when the target
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date is actually reached that is that is
when you'll be mostly invested in bonds
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in cash and fewer stocks the most the
so-called experts so you should always
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have a proportion of stocks in your
portfolio at any age because that's
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where most of the growth has tended to
come from in the past the target date
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funds are or one-time decision funds you
buy the you buy the target date fund and
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then you're basically set you don't have
to do anything else because this time
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goes on the the target date fund will
morph into a different kind of fun with
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a different holding of stocks in the
bonds and cash so what are the pros and
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the cons of this type of fund first of
all number one is they're low
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maintenance no then you almost like all
young all young people are busy with
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their lives and maybe families I have
their their children that either their
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husbands so their wives are working too
so you'll have a lot of time to spend on
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investing and becoming an expert on all
of this you need to keep it simple and
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the target date funds do the rebalancing
for you so each year that goes by the
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proportion of the stocks decreases
gradually and the cash and the bonds
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increases gradually and the average
investor may simply not be may not be
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knowledgeable enough her habit is a hard
the time to to make these adjustments on
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their own the target day funds are
basically set it and forget it
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the second big advantage of target date
funds is the low minimum investment if
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you were trying to if you were trying to
buy funds to match all the different
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asset classes it might take a few
hundred dollars or even a thousand two
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thousand dollars to replicate each of
those funds but with a target date fund
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you just have one minimum investment
amount to make and that takes care of
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all the problem of having a buying and
managing these individual funds the
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third major advantage of the target date
funds is the low fees now my target date
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funds first came into being they did
have some egregious fees and them they
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were a lot of them were pretty high
because they had not only the individual
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fees of them all the funds that the
target date fund invested in but on top
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of that you had a fee for the target
date fund a management fee that they
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would charge but they've done a lot a
lot better now these target date funds
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a lot better they're keeping the fees
variable
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none of this feature just minuscule very
low like they've been point to or point
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three tenths of a percent and also if
you if you try to invest and say you
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have five or six funds individually as I
said before you have the problem of the
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of having the expertise or the time to
make these adjustments it leads into the
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next big advantage these firms are an
easy way to diversify I've already
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touched on that I hope I'm not ever over
talking some of these points but I know
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to a lot of you this is kind of this is
something new that you don't really have
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the knowledge
I love knowledge about the target they
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fund this and all these other mutual
funds and target date funds will
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commonly hold a variety of these
investments of different asset classes
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the reason for have different to have
different asset classes is so they don't
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all move at the same in the same way
during any market cycle now when we had
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to the Great Recession of 2007 to 2009
or 10 it seemed that everything fell all
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at once so there's nothing perfect but
generally over many times in history
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foreign stocks have moved separately
then US and domestic stocks so that if
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the US stock market was going down then
there could there was safety to be found
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in foreign stocks and the same with
large cap stocks that is large company
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stocks they they might be falling at the
same time that small caps
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cocks smaller companies that their their
stocks are rising so you should have
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different asset classes these these
target date funds are owned by large
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companies small companies mid-cap
companies that is average medium sized
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companies they'll cash different kinds
of cash Treasuries bonds bonds for
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instance Treasury bonds corporate bonds
there's a bonds of companies gentle
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bonds which are liberated bonds which
which generally paid much higher
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interest in than safer bonds you hold a
lot of these kinds of different
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investments and even some of these
target-date funds will hold alternative
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investments like what they called REITs
rei t-- real estate investment trusts so
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you have a a real estate component there
too okay
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the last big disadvantage of a rather an
advantage of o of these funds I've
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already covered that too is the asset
allocation adjustments the rebalancing
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and as I said that's whether the target
fund will make all that will make the
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adjustments for you among these these
funds that the target date funds own
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fund owns it will decide based on
whatever fun target date fund you're in
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say like you're in one that's a four
twenty thirty year olds it will reduce
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the amount of stocks over time by
rebalancing among the the funds that it
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owns and it will gradually increase the
amount of bonds
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as you as you age bonds and cash maybe I
didn't cover this well enough but you
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see each of these ETFs are these funds
that the that the target date fund owns
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one of those ETFs might what would be
just for for stocks one would be for
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bonds one would be for will
international foreign stocks you might
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have a separate ETS for a large medium
and small and small cap stocks and then
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the rei t-- to read the real estate
stocks so the target date fund takes all
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that work out of you having to sit down
with each of these individual ETFs and
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rebalance that anybody can learn to do
this it's not rocket science as they say
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but you may not feel comfortable doing
that especially when you're just
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starting out so a target date fund does
all of this for you but nothing is
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perfect so there are also disadvantages
I'll go over some of those never the
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main ones one disadvantage is that you
are living longer of course that's a
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good for you individually if you're
living longer and you're any good help
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but you see these the target date funds
depending on the company that owns the
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phone whether it's a Vanguard fidelity
or whoever their target date funds will
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vary from one company to another
so one target day fund might have might
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have you ending up with maybe 20 or 30%
of your of your assets in stocks when
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you get older and a different company
might have you ending up with 40 or 50%
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when you get older well if people are
going to live if you all insist upon
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living
then you need to probably consider a
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target date fund that has a higher
percentage of stocks at the beginning
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and even a relatively high percentage of
stocks at the end as opposed to bonds
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and cash another disadvantage of target
date funds is the glidepath the
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difference between between different
funds and I kind of already talked about
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some of that the more stocks that you
have the more risk you're going to have
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that's just it just kind of goes along
with it naturally so as I said when when
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you start out with some of these target
dates fans they might have a they will
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have a higher percentage of stocks than
than other funds from another company
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will have and really this should have
been when I was making these notes the
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first the first disadvantage about the
living longer and the glidepath could
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have been the same the same point
it's all about covered it ad nauseam
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like this in tax efficiency if you buy a
target date or any kind of mutual fund
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outside of a qualified plan that's what
they call a retirement plans if you buy
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it outside of a like an IRA or 401k or
403b that is you be holding in a regular
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taxable account then you're going to
have higher taxes than you would in the
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in the tax deferred a tax deferred
account like a 401k or a tax-free
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account like a Roth like a Roth IRA is
you can when the fund buys and sells
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companies it's gonna trigger capital
gains that is the increasing value of
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those individual companies and worse yet
the the bonds in the cash will throw off
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investments to look they'll off with our
funds not investments there with her off
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interest which would be taxed at a
higher rate than capital gains and being
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taxed on being taxed on the current
income that way he's just a killer so it
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depends on where you hold these funds as
to how as to how much taxes you will pay
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and it's better to hold them in a tax
advantaged account whether it's tax-free
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like a Roth or whether it's tax deferred
like a like a 401k
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so when you get down to it the bottom
line of all of what I've talked about it
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said Atari indeed founders if it's a
very good default never brainer
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investment for you consider everything
else too but when you're just starting
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out the target day fund might be that's
the way to go as you have if as you have
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so many obligations to your to your work
life in your family and just having
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alive apart from trying to read a lot of
investment books and figure all this out
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you have time to do that later if you
want to but there's nothing wrong with
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just keeping the target day fund for the
rest of your life and there are a lot of
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different companies that offer these
funds you have to look at you need to do
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your research and and pick some good
ones but some of the better ones I think
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and I'll give you some games as a place
to start although I'm not necessarily
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recommending any of these some of those
companies in the past that have had
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pretty good target date fence
I've read about her the Vanguard
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fidelity tiaa-cref dimensional Blackrock
and JP Morgan so hope these are some
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things that you'll consider and that
will help you I thought about doing more
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of these personal finance type videos as
opposed to reading poetry or eating and
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reviewing foods because I would like to
be able to help people with as I can
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especially young people but I just see
what kind of response that I get because
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these things are kind of difficult to
put together much more than those other
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kinds of
of ASMR type videos but I I guess this
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about des didn't please feel free to
leave comments down below recognize that
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there are many different things you can
invest in I'm just trying to give you a
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a default investment when you're
starting out but there's no reason you
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can't keep this these target date funds
for your entire life and unless there's
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some huge calamity they listen my meteor
destroys the earth or people get into
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power who got to spend all your money
and ratchet up the debt even more or
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unless there's a nuclear war then I
think target they finns would be
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something good to consider strip now
I'll see you later
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