Quote:
Originally Posted by petegz28
The target fund is a mix of stocks, bonds and cash. The asset allocation is proportionate to what they deem is "right" for your current age. As you get closer to retirement the fund will become more and more conservative.
The SP500 fund is just that. It's 100% stocks. Most people fall in love with the return of the SP500 and lose site of proper asset allocation.
The downside is if you go 100% SP500 you are in nothing but stocks. So if the SPX goes down 20% you go down 20% because you have nothing else to cushion or otherwise stabilize your portfolio.
I will give you a hint: 90% of people with proper asset allocation will rarely outperform the SP500 unless you are very young and pretty much in all stocks.
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Yeah, there's nothing wrong with index funds over a target date fund, but you need to know a bit about what index funds you've got. Schwab actually has target date index funds, which are kind of the best of both worlds IMO, but you can do basically the same thing on your own with just a handful of index funds.
Google around about a "three fund lazy portfolio" to give you the gist.