Hitting or Missing the Target: Why Target Date Mutual Funds May Not Be On Target For You.

ABOUT THIS EPISODE

How can you tell if you are on target with your retirement? This type of "default" mutual fund may not be on-target any longer. Listen today as financial expert, John Browning, explains how these types of mutual funds may not be right for you.  

Welcome to the build your life podcastwith John Browning. Build your life as a relaxed and unedited conversation with financialexpert in number one Amazon bestselling author, John Browning Jones, the founder ofGuardian Rock Wealth and serves clients across the United States. John's the author ofthe book build a life, not a portfolio, a guide to your financialfuture based on your personal values, which you can purchase on Amazon, orstay around to the end of today's show and I'll tell you how to geta free copy mailed right to your door. I'm Michael The lawn, your hostfor the next few minutes as we chat with financial expert and business ownerJohn Browning. Well, hello, John Browning, welcome to your podcast.Or how are you today? I am doing fantastic. The Sun is shiningand everything's everythings us. You're going, okay, that's great a day I'min. I'm in Little Rock, Arkansas.

We've got springtime weather. It isfabulous. I just want to bottle it up and keep it. Yeah, you know what? I just love the as it starts to get warmafter after cold winter and even cold some cold days towards the end of springas well. Yes, nice a bro I broke out the golf shirt todayand bring any yeah, that's right, that's good. Hey, speaking ofBrady, to go, I've got a question for you, kind of offtopic, and I'll get get there. Have you ever done any archery?Yeah, used to do that all the time. Yeah, did you?Okay, all right, I've done a little bit in my day. Not, not, not a ton, but I was thinking about you know,and an archer you're shooting for a target, right, and the Bulls eye,and then you got the different rings and you're trying to hit that targetand sometimes, most of the time, I missed by you, but atleast you got something to aim at right, when you know whether or not youhit the target or not. Yes, that's what I want to talk abouttoday, not archery, but in in terms of finances and what youdo for people, helping them build a...

...portfolio so that they can live thelife they want. I want to talk about hitting or missing the target andspecifically around what's what you're going to explain to us our target date, mutualfunds and why they may or may not be on target for you. Right. So that's that's exactly right. Yeah, well, do me a favor andexplain them to me, and I'm sure as you do that you'll explainit to some other listeners, because that was a relatively new phrase for me, a new concepts. So help me understand what a target date mutual fundis first, and then how do you know whether or not it's right?Gotcha, and you know, a target date mutro funds became popular or probablyfifteen years ago, something like that, maybe maybe even twenty. You knowthings. You know, as I get older, things tend to shorten upon that front. But they they became...

...very popular and they were pretty effectiveand the idea behind them is that, you know, they were easy.Everybody likes easy. Right, absolutely, and, as a matter of fact, in your k often, if you didn't make a selection in terms ofwhat you want to do invest in, they would do that for you andthey would generally select target date mutual funds, and what that means is they'll takethe target date of your retirement and they design a mutual fund for,say, two thousand and twenty one or two thousand and thirty three, orwhatever it is when you're likely to retire, and what they do is they investin the equity market for a portion of that fund and then the fixedincome market or the bond market for the rest of that fun and as itgets closer to that target date, the...

...ratio of fixed income moves higher andthe the equity portion moves lower because in general the equity market is more volatilethan the fixed income market and as you get closer to retirement, generally speaking, you're looking to reduce your risk and maybe increase your income as you getcloser to that date. So that's what they were made for. Okay,that makes sense. So they automatically adjust to a spit to a predefined targetdate, which typically would be your retirement date. And and that's an arbitrarynumber anyway. Right, yeah, exactly. I mean a lot of people thatI know of plan to retire earlier later and just doesn't work out.Something happens, they decide they want to retire earlier or they said I kindof like this job, I'm going to keep going. So right, okay. So that that so many people, if I heard you right inside therefor one Kay, if they didn't,...

...if they did, it specify something. This was kind of the default setting for many one K programs is ais a target date, neutral fun HMM. Okay, so that now that,now that we know kind of what that is, how do we knowif that's if I'm on target? I don't know. I don't know ifit's right for me, I guess. Is the question I'm trying to askright yeah, and it's a it's a great question, one that everybody,I think, should be asking. And the problem today in the something thatwe've talked about before on this podcast, is that she mixed income or thebond market, is no longer performing in the way in which it once didwhen these funds were first introduced. And it kind of goes to the goesto the idea that you do want to make things as easy as possible,as simple as possible, but not simpler, okay. And and when you whenyou utilize an automatic, automatic formula...

...to do anything, you have tokeep in mind that at some point, because things are changing around that modeland that formula, that it may not continue to work as planned. Andthat's really what's happening, I believe, with these target they neutral funds,is that many people don't realize that fixed income is no longer providing that downsideprotection that it once did, because interest rates are much lower and by mathematicaldesign, a bond has a real trouble going to a negative interest rate.And then when it does go to a negative interstrate and and a bond goesto a negative interest rate, when the price rises to a point where theincome doesn't make up the difference. Right so right, once that how hasonce that happens, it's it's no longer providing a fixed income and as we'veseen over the past year or so, especially with the Treasury market in shortterm rates, we found that it's not.

You know, fixed income is noteven keeping pace with expected inflation. So in terms of real return you'reactually in a state of negative real returns when you consider inflation and you're utilizingfixed income. And so when there's not room for fixed income to rise inprice, then how is it going to provide downside protection to your overall portfolio? EFFECT WHAT HE'S DECLINE IN PRICE? Okay, yeah, that's a rhetoricalquestion, but the answer is it's really not right. And not only that, but it's also not providing much fixed income anymore. So it's something toconsider if you are sitting there and you're thinking that you're in pretty good shapebecause years ago you invested in target day mutual funds and just fired and forgotright, and those funds are continuing to do what they said they would do. They're not doing anything wrong, but...

...they may not be functioning as theywere designed to do when they were first put into practice. Mm Wow.So if I have one of these, I may not even know I haveone of these. Right, that's possible, but it is. But yeah,I mean if I, if I, if your listeners are like me,I just don't look at the stuff very often, John. I setit up once in it just goes and so it's probably a good thing Iand I presume that if I look at my statement, it's not going tosay target date mutual fun. It's going to have some some funky name thatI don't understand. So I need to call you right called called John,and say here's what I got. It might it might still be okay forme, is what I'm trying to say. It might still be okay. Imight be on target. ADDS are I might be off target, Imight be out of the Bulls I because a lot of things have changed sincesince those things got set up. Not just market conditions, but I meanjust lots of things have changed. So...

...right, that that's exactly right andso. And actually in many cases they are, or right on your statement. But so many people don't really look at those statements or if they do, they look at the bottom line numbers. Oh, it's growing, that's good, we're done, toss of trash or put in the file or whatever. But they actually often do say target date mutual fund or, you know, whatever the name of the company is, Target Date Mutual Fun Thousand and thirtythree or whatever year it was that was chosen for you or you chose. Okay, you're right. A lot of people don't realize that they haven't, because it's those people who maybe didn't make the election. So the companymade it for them, right, and they ended up with these things andthey don't even know they happen. It's certainly better than not saving anything atall. Absolutely, yeah, be on target. Right, ASA, don'thear it say these are bad things. There're it's just part of a it'spart of a portfolio, right, and it's all that John Talks about howyou want to build a life, not just a portfolio, because that's notwhat it's about us, the portfolio that...

...helps you run your life and liveyour life and plan your life. So you may have one of these andit might be close, it might need tweaking, it might need changed,it might not need anything at all. So for what I'm hearing, Imean it's just just be cause you have one. Is it just is.Now let's let's see how that target date neutral fun plays. How is Iguess, how's it performing, because you were talking about the different ways ofthing, and how's it performing in relation to your specific portfolio? Because it'sreally and you're all yeah, because that's the real answer. And that's whyyou know, we say it all the time that you know this thing.You're not given financial advice on this thing because you can't, because you don'tknow their goals in their plans and all of that. That's why people needto reach out and just have that conversation with you and begin a dialog togo okay, here's where we are and here's what we have, and youcan sift and sort through all of the paperwork and things and probably and halfthe time, figure things out, because it gets he it's complex, atleast it does for me. Yeah,...

I just we do every day.We look at those of that paperwork and we can determine things and you know, half the time it's kind of like when you take your card to ato the mechanic, and you've been looking at it for hours and he looksat it for five and as all, here's your problem right here. Yeah, and you're like nast every day. Yeah, you like there's five hundred. Thank you, yes, but anyway, so target date, mutual ones.I now know what those are. I can now have a conversation withsomebody at a party and get myself in big trouble. But I know thatthey're not good or bad, they just are and they need to be.If you have one, it just needs to be part of your portfolio,and that portfolio is all about what how you what life are you trying tobuild? How are you living your life today? What do you want tolive in the future? How does this fit? And there are lots ofother very, you know, dynamic and sometimes complex aspects to it that Johncan in his team can can help you...

...just walk through figure out so thatyou can build a great life that's that's supported and funded by a well,I'll say well balanced portfolio. I don't invest right. Phrase, well designed, well balanced portfolio. Yeah, well, yeah, that and that, andthat's the whole thing. So Guardian rockwealthcom. You can go there andfind John's information, request to copy of his book, schedule a call withhim, a zoom call or a phone call, and just have some dialogaround things like this. Because there, I guess, the thing that hitme today John, as we were talking, I came into this conversation not reallyunderstanding what a target date mutual fund is, and then the light bulbcame in and said, I wonder how many other things there are out therethat I don't know what they are, but you do, because you dothis all day, every day, and so many times we hear the mediaand we think, Oh, I know what I need to do. Right, I've got a Bible study with two...

...doctors in it, and they're likeyeah, people come into my office saying, okay, doc, here's what Ihave, I've been to Webmd I, here's what I have, here's theprescription I need. Please fill it, and they're like yeah, it doesn'twork that way. For you know, ten year, ten plus years,to learn what how to diagnose. YESS IND has not figured that outyet. They haven't, but I'm sure you you probably hate that. Everyone so out summer says you want John. I've been Oliver, I been watching. Here's what I want to do, Blah, blah, blah, andyou're like time out. What are your goals? HOW DOES THAT FIT? Because I you know you're not an e Tradecom your you're somebody who putstogether something not nothing wrong with it, a Triana, but you've got it. You've got to sit down with somebody who will talk with you and knowyou and help you figure out your goals and where you trying to accomplish,to build that portfolio that's going to support your life. That's what it's allabout. So just let me encourage reach out to John Browning, Guardian Rockwealthcom schedule a call with him and begin...

...that dialog with him so that hecan help you build a life, not a portfolio, to make sure thatyou are going to not only be on target, but you're going to hitthe bulls eye when it's time for you to return. How about that?Sounds good. All right, John Browning, thank you so much for another greatepisode and enlightening my eyes and helping me learn a little bit more.That's what you that's what you're so good at. Thank you, sir,great good to see you again. Money really is a big part of ourlives, and John Browning can help you and your family learn how to keepmoney in the proper perspective. It's important, but it's only a tool that couldhelp you build the life that you want. If you like, JohnEmilie a free copy of his book build a life, not a portfolio.Go to John's website, Guardian rockwealthcom, and click the contact US link andsend your request. John Will Mell a copy of his book right to yourdoor absolutely free. Thanks for listening to...

...building your life podcast with John Browning. Be Sure to subscribe to this podcast so each new episode will be sentto you automatically when it's released. Have a terrific day.

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