Heard in the Village: August 2010

Target date funds became a topic this month in the village when the July 24– 25, 2010 issue of the Wall Street Journal had an article on them. Some article phrases were:

“…"target date” funds aim to take the complexity out of investing for retirement,"

“Target-date funds are designed for investors who hope to retire around a certain date-say 2025-and don’t want to fuss with changing their allocations of stocks, bonds and cash by themselves. Instead, the fund becomes more conservative as the retirement date nears.”

“Because the asset allocations of individual target funds can vary widely, it’s important to pick a fund family whose asset mix closely resembles your risk tolerance.”

The villagers were upset because they felt that the article was leading people into a questionable product. Contrary to Wall Street marketing, villagers feel Investors DO HAVE TO DO SOME WORK OR MONOTORING if they want to preserve and grow assets. They have to have some awareness and responsibility for their investments or they deserve what they get in returns. Some nice formula or allocation will not prevent losses when the markets go down.

Investors need to adjust allocations to the market’s direction as it progresses through its market and economic cycle. Wall Street and Washington think the economic cycle can be contained by their policies or hedges. 2008 proved that arrogant thought worthless but the financial world still tries to perpetuate it. The market behaves differently as it reacts to changing economic, political, geopolitical and other events. Rising market are times to profit; falling market times to preserve and protect your gains. Different strategies are needed to achieve both.

Their point was it is the risks in the market that need to be considered. The market doesn’t care what investors risk tolerances are, age or when they retire. Wall Street is leading people to believe investing doesn’t need watching because they can do it for them or investors don’t want to do the work required to protect and grow their assets anyway.Target date funds can work well in up markets but don’t when it meets up with the harsh realities of bad events. The villagers knew it was watching their investments that would grow their assets and not some product created to give the illusion of safety.

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