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

We've got springtime weather. It is fabulous. I just want to bottle it up and keep it. Yeah, you know what? I just love the as it starts to get warm after after cold winter and even cold some cold days towards the end of spring as well. Yes, nice a bro I broke out the golf shirt today and bring any yeah, that's right, that's good. Hey, speaking of Brady, to go, I've got a question for you, kind of off topic, 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 target and sometimes, most of the time, I missed by you, but at least you got something to aim at right, when you know whether or not you hit the target or not. Yes, that's what I want to talk about today, not archery, but in in terms of finances and what you do for people, helping them build a...

...portfolio so that they can live the life they want. I want to talk about hitting or missing the target and specifically around what's what you're going to explain to us our target date, mutual funds 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 and explain them to me, and I'm sure as you do that you'll explain it 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 fund is 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 probably fifteen years ago, something like that, maybe maybe even twenty. You know things. You know, as I get older, things tend to shorten up on that front. But they they became...

...very popular and they were pretty effective and 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 of what you want to do invest in, they would do that for you and they would generally select target date mutual funds, and what that means is they'll take the target date of your retirement and they design a mutual fund for, say, two thousand and twenty one or two thousand and thirty three, or whatever it is when you're likely to retire, and what they do is they invest in the equity market for a portion of that fund and then the fixed income market or the bond market for the rest of that fun and as it gets closer to that target date, the...

...ratio of fixed income moves higher and the the equity portion moves lower because in general the equity market is more volatile than 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 get closer 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 target date, which typically would be your retirement date. And and that's an arbitrary number anyway. Right, yeah, exactly. I mean a lot of people that I 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 kind of like this job, I'm going to keep going. So right, okay. So that that so many people, if I heard you right inside there for 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 a is a target date, neutral fun HMM. Okay, so that now that, now that we know kind of what that is, how do we know if that's if I'm on target? I don't know. I don't know if it's right for me, I guess. Is the question I'm trying to ask right 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 that we've talked about before on this podcast, is that she mixed income or the bond market, is no longer performing in the way in which it once did when these funds were first introduced. And it kind of goes to the goes to 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 when you utilize an automatic, automatic formula...

...to do anything, you have to keep in mind that at some point, because things are changing around that model and that formula, that it may not continue to work as planned. And that'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 downside protection that it once did, because interest rates are much lower and by mathematical design, 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 goes to a negative interest rate, when the price rises to a point where the income doesn't make up the difference. Right so right, once that how has once that happens, it's it's no longer providing a fixed income and as we've seen over the past year or so, especially with the Treasury market in short term rates, we found that it's not.

You know, fixed income is not even keeping pace with expected inflation. So in terms of real return you're actually in a state of negative real returns when you consider inflation and you're utilizing fixed income. And so when there's not room for fixed income to rise in price, 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 rhetorical question, 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 to consider if you are sitting there and you're thinking that you're in pretty good shape because years ago you invested in target day mutual funds and just fired and forgot right, 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 they were 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 have one 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 set it up once in it just goes and so it's probably a good thing I and I presume that if I look at my statement, it's not going to say target date mutual fun. It's going to have some some funky name that I 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 for me, is what I'm trying to say. It might still be okay. I might be on target. ADDS are I might be off target, I might be out of the Bulls I because a lot of things have changed since since those things got set up. Not just market conditions, but I mean just lots of things have changed. So...

...right, that that's exactly right and so. 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 thirty three 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 company made it for them, right, and they ended up with these things and they don't even know they happen. It's certainly better than not saving anything at all. Absolutely, yeah, be on target. Right, ASA, don't hear it say these are bad things. There're it's just part of a it's part of a portfolio, right, and it's all that John Talks about how you want to build a life, not just a portfolio, because that's not what it's about us, the portfolio that...

...helps you run your life and live your life and plan your life. So you may have one of these and it might be close, it might need tweaking, it might need changed, it might not need anything at all. So for what I'm hearing, I mean 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 I guess, how's it performing, because you were talking about the different ways of thing, and how's it performing in relation to your specific portfolio? Because it's really and you're all yeah, because that's the real answer. And that's why you 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't know their goals in their plans and all of that. That's why people need to reach out and just have that conversation with you and begin a dialog to go okay, here's where we are and here's what we have, and you can sift and sort through all of the paperwork and things and probably and half the time, figure things out, because it gets he it's complex, at least 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 a to the mechanic, and you've been looking at it for hours and he looks at 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 with somebody at a party and get myself in big trouble. But I know that they'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 to build? How are you living your life today? What do you want to live in the future? How does this fit? And there are lots of other very, you know, dynamic and sometimes complex aspects to it that John can in his team can can help you...

...just walk through figure out so that you 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, and that's the whole thing. So Guardian rockwealthcom. You can go there and find John's information, request to copy of his book, schedule a call with him, a zoom call or a phone call, and just have some dialog around things like this. Because there, I guess, the thing that hit me today John, as we were talking, I came into this conversation not really understanding what a target date mutual fund is, and then the light bulb came in and said, I wonder how many other things there are out there that I don't know what they are, but you do, because you do this all day, every day, and so many times we hear the media and 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 like yeah, people come into my office saying, okay, doc, here's what I have, I've been to Webmd I, here's what I have, here's the prescription I need. Please fill it, and they're like yeah, it doesn't work that way. For you know, ten year, ten plus years, to learn what how to diagnose. YESS IND has not figured that out yet. They haven't, but I'm sure you you probably hate that. Every one so out summer says you want John. I've been Oliver, I been watching. Here's what I want to do, Blah, blah, blah, and you'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 puts together 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 know you 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 all about. So just let me encourage reach out to John Browning, Guardian Rock wealthcom schedule a call with him and begin...

...that dialog with him so that he can help you build a life, not a portfolio, to make sure that you are going to not only be on target, but you're going to hit the 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 great episode 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 our lives, and John Browning can help you and your family learn how to keep money in the proper perspective. It's important, but it's only a tool that could help you build the life that you want. If you like, John Emilie 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 and send your request. John Will Mell a copy of his book right to your door 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 sent to you automatically when it's released. Have a terrific day.

In-Stream Audio Search

NEW

Search across all episodes within this podcast

Episodes (128)