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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That’s what I thought, but here’s my thing. If the S&P crashes and goes down the tubes by 50% aren’t we all screwed no matter what? Your managed fund is going down with it.
Sure you’ve got some bonds and a few international assets, but A large portion of my target fund is in stocks.
December is a great case study. It was the worst performance in a decade. The S&P went from 2,924 to 2,4447 (16.25% drop). Hell my target fund dropped more! It went down 17%!
I guess that’s why I’m such a big fan of this possibility. We went though hell after 9/11, 2008 and as recently as last December and it always bounces back stronger every single time. In almost 100 years, the S&P has done nothing but go up.
Meanwhile my target fund barely moves.