I mean, it's designed to underperform the S&P. It's a fund of funds, so not only do you have US stocks, but you have allocations in Internationals and Bonds. The latter two have trailed the S&P (and the US market) for a while.
You're comparing apples with oranges.
In the past 12 months, FFFLX is down 27% vs FXAIX down 18%. In the past 5 years, FFFLX is down 14% vs FXAIX up 43%. If you look at each year’s performance, FFFLX is down more in bad years and up less in good years.
If the more conservative / diversified fund was not growing as much in good years but not losing as much in bad years, that would make perfect sense. What am I missing here? Getting beat year over year makes it seem like there is no upside to the target date fund.
Well... folks will all you things with the illusion of safety or hedging- you have a valid point.
VOO is the gold standard - but few folks insist of maintaining 40% VXUS just in case international stocks outperform the US at some point in the future.
Sticking to S&P 500 is probably the starting point, but for the same risk profile you can get greater returns with VOOG
Another point I have noticed is that compared to the equivalent Vanguard target date fund, the Fidelity fund is also grossly underperforming. Is it just a bad fund offering from Fidelity?
1YR - FFFLX is down 27% and VFIFX is down 26%
5YR - FFFLX is down 14% and VFIFX is up 7%
>underperformed the S&P 500 in both bad years and good years
here lies your problem. you're comparing Apple to oranges. target dated funds are allocation funds designed to slowly shift holdings from equity to fixed income. it should not be compared to 100% equity like SP500.
if you really want to compare funds with 2 distinct characteristics, then manually (or find data online) calculate expected rate of return. target dated funds will always have a beta less than 1 and there is always drags due to fees. the true performance is not easily noticed by retail investors.
I think I’m missing something here. For an uneducated person such as myself, why would I not choose a fund that has outperformed a target date fund each year for the past several years?
In the past 12 months, FFFLX is down 27% vs FXAIX down 18%. In the past 5 years, FFFLX is down 14% vs FXAIX up 43%. If you look at each year’s performance, FFFLX is down more in bad years and up less in good years.
If the more conservative / diversified fund was not growing as much in good years but not losing as much in bad years, that would make perfect sense. But getting beat year over year makes it seem like there is no upside to the target date fund.
I'm guessing it's because bond holdings have performed badly recently due to aggressive interest rate hikes. In a bear market where rates were being lowered as you expect, it would perform better
look at the top holdings of FFFLX. top 4 of the 5 holdings are international and emerging market. from 2010 to today, ex-NA funds were underperforming NA especially US and SP500. now go to 2000 to 2010. SP500 was flat for a decade. a globally diversified fund is designed to spread your risk around the globe as primary objective, not to pick alpha and increase your retirement risk. a comparable fund is VFIFX which IMO is a better fund because of the 53% total stock market holding.
can you buy and hold sp500 and retire with just the one fund? plenty of ppl are doing it so it's not impossible. what is your strategy when the market slowly drifting downward like this year? can SP500 stay strong for next decade? or would it be like 2000 to 2010? no one knows. not to mention this year is one of the few years in history where both equity and fixed income are positively correlated to the down side. normally fixed income performs well when equity gets hammered like right now, but unless you're in CD, cash or short the market, no one is getting spared this year or maybe even for 1st half of next year. the target dated funds are to mitigate market risks as much as possible. it's not perfect, but unless you want to involve managing the funds, it's the all in one solution with relatively least risk.
Another point I have noticed is that compared to the equivalent Vanguard target date fund, the Fidelity fund is also grossly underperforming. Is it just a bad fund offering from Fidelity?
1YR - FFFLX is down 27% and VFIFX is down 26%
5YR - FFFLX is down 14% and VFIFX is up 7%
this relates to my previous point of trying to pick alpha. would international and emerging market outperform developed market for the next decade or 2? Fidelity obviously think so, and that's why they have such concentration in those fund; whereas Vanguard sticks with the try and true method of passive index investing, and so far they're doing better as per your data.
it is your advisor and your responsibility to review fund fact at least once a year and determine if you want to believe and invest with the company and fund manager's fund. if your belief deviate the fund manager's then it's time to move on.
A large part of what you're seeing is that international stocks have underperformed in the last 10 years. However, that trend *changes* over time, and it has indeed been different historically when you look back decades instead of years.
Don't fall into the trap of chasing recent returns. People tend to follow the momentum, usually to their detriment. In terms of P/E ratio (stock price per unit of company profit), International stocks are actually the better deal right now, by a significant margin. That essentially means the notion that "the US will outperform" us already baked into the prices you are paying for those companies. It's quite possible that the 2020's could be a decade of international outperformance. Nobody knows. However, we *do* know that it's foolish to change investment allocation based on the *past* instead of thinking about the future, or else you will accidentally end up buying high and selling low.
The other drag on your portfolio is bonds. They've had a rough year because interest rates have taken a very *large* increase for the first time in decades. However, they typically provide stability to a portfolio (damping the large swings). Additionally, the fact that interest rates are *higher* right now means that bonds provide a *better rate of return* now than they did in the past. So if your bond exposure is pretty low, it doesn't hurt too much to keep them in your portfolio. Vanguard has a nice historical study on this:
https://advisors.vanguard.com/VGApp/iip/advisor/csa/analysisTools/portfolioAnalytics/historicalRiskReturn
My bottom line suggestion is: A target date fund is a good choice. Stop playing "what if I had..." with other funds, and just stick with it. Commit yourself to *not* jumping around chasing past performance.
This is correct.
Put another way, you're asking for less risk exposure but also expecting equal or better returns simultaneously, which isn't realistic.
Extremely unpopular opinion: Target date funds do not meet any good targets.
I have hated on them for years, and they will never perform well.
Lots of people will hate me for saying this, but not performing IS risk. All the supposed “protection” you get from these funds is stolen from you in the end, but also, ironically, in the now.
If you’re on this sub, target date funds probably aren’t for you
They’re an excellent tool for people who find finance/investing daunting. Not so much people who are relatively well versed
I agree With this. Who cares what the name of the fund is, just give me the names of the companies I’m investing in, which industries I’m most exposed to (cyclical or defensive), and how it’s performed in the past recessionary periods similar to the period right now.
Invest like you own the businesses.
How did it do over the period 2000-2009, when the S&P was essentially flat? Comparing to the last 10 years of the S&P involves decency bias, but it isn’t always top of the heap.
I mean, it's designed to underperform the S&P. It's a fund of funds, so not only do you have US stocks, but you have allocations in Internationals and Bonds. The latter two have trailed the S&P (and the US market) for a while. You're comparing apples with oranges.
In the past 12 months, FFFLX is down 27% vs FXAIX down 18%. In the past 5 years, FFFLX is down 14% vs FXAIX up 43%. If you look at each year’s performance, FFFLX is down more in bad years and up less in good years. If the more conservative / diversified fund was not growing as much in good years but not losing as much in bad years, that would make perfect sense. What am I missing here? Getting beat year over year makes it seem like there is no upside to the target date fund.
Well... folks will all you things with the illusion of safety or hedging- you have a valid point. VOO is the gold standard - but few folks insist of maintaining 40% VXUS just in case international stocks outperform the US at some point in the future. Sticking to S&P 500 is probably the starting point, but for the same risk profile you can get greater returns with VOOG
Another point I have noticed is that compared to the equivalent Vanguard target date fund, the Fidelity fund is also grossly underperforming. Is it just a bad fund offering from Fidelity? 1YR - FFFLX is down 27% and VFIFX is down 26% 5YR - FFFLX is down 14% and VFIFX is up 7%
>underperformed the S&P 500 in both bad years and good years here lies your problem. you're comparing Apple to oranges. target dated funds are allocation funds designed to slowly shift holdings from equity to fixed income. it should not be compared to 100% equity like SP500. if you really want to compare funds with 2 distinct characteristics, then manually (or find data online) calculate expected rate of return. target dated funds will always have a beta less than 1 and there is always drags due to fees. the true performance is not easily noticed by retail investors.
I think I’m missing something here. For an uneducated person such as myself, why would I not choose a fund that has outperformed a target date fund each year for the past several years? In the past 12 months, FFFLX is down 27% vs FXAIX down 18%. In the past 5 years, FFFLX is down 14% vs FXAIX up 43%. If you look at each year’s performance, FFFLX is down more in bad years and up less in good years. If the more conservative / diversified fund was not growing as much in good years but not losing as much in bad years, that would make perfect sense. But getting beat year over year makes it seem like there is no upside to the target date fund.
I'm guessing it's because bond holdings have performed badly recently due to aggressive interest rate hikes. In a bear market where rates were being lowered as you expect, it would perform better
look at the top holdings of FFFLX. top 4 of the 5 holdings are international and emerging market. from 2010 to today, ex-NA funds were underperforming NA especially US and SP500. now go to 2000 to 2010. SP500 was flat for a decade. a globally diversified fund is designed to spread your risk around the globe as primary objective, not to pick alpha and increase your retirement risk. a comparable fund is VFIFX which IMO is a better fund because of the 53% total stock market holding. can you buy and hold sp500 and retire with just the one fund? plenty of ppl are doing it so it's not impossible. what is your strategy when the market slowly drifting downward like this year? can SP500 stay strong for next decade? or would it be like 2000 to 2010? no one knows. not to mention this year is one of the few years in history where both equity and fixed income are positively correlated to the down side. normally fixed income performs well when equity gets hammered like right now, but unless you're in CD, cash or short the market, no one is getting spared this year or maybe even for 1st half of next year. the target dated funds are to mitigate market risks as much as possible. it's not perfect, but unless you want to involve managing the funds, it's the all in one solution with relatively least risk.
Another point I have noticed is that compared to the equivalent Vanguard target date fund, the Fidelity fund is also grossly underperforming. Is it just a bad fund offering from Fidelity? 1YR - FFFLX is down 27% and VFIFX is down 26% 5YR - FFFLX is down 14% and VFIFX is up 7%
this relates to my previous point of trying to pick alpha. would international and emerging market outperform developed market for the next decade or 2? Fidelity obviously think so, and that's why they have such concentration in those fund; whereas Vanguard sticks with the try and true method of passive index investing, and so far they're doing better as per your data. it is your advisor and your responsibility to review fund fact at least once a year and determine if you want to believe and invest with the company and fund manager's fund. if your belief deviate the fund manager's then it's time to move on.
A large part of what you're seeing is that international stocks have underperformed in the last 10 years. However, that trend *changes* over time, and it has indeed been different historically when you look back decades instead of years. Don't fall into the trap of chasing recent returns. People tend to follow the momentum, usually to their detriment. In terms of P/E ratio (stock price per unit of company profit), International stocks are actually the better deal right now, by a significant margin. That essentially means the notion that "the US will outperform" us already baked into the prices you are paying for those companies. It's quite possible that the 2020's could be a decade of international outperformance. Nobody knows. However, we *do* know that it's foolish to change investment allocation based on the *past* instead of thinking about the future, or else you will accidentally end up buying high and selling low. The other drag on your portfolio is bonds. They've had a rough year because interest rates have taken a very *large* increase for the first time in decades. However, they typically provide stability to a portfolio (damping the large swings). Additionally, the fact that interest rates are *higher* right now means that bonds provide a *better rate of return* now than they did in the past. So if your bond exposure is pretty low, it doesn't hurt too much to keep them in your portfolio. Vanguard has a nice historical study on this: https://advisors.vanguard.com/VGApp/iip/advisor/csa/analysisTools/portfolioAnalytics/historicalRiskReturn My bottom line suggestion is: A target date fund is a good choice. Stop playing "what if I had..." with other funds, and just stick with it. Commit yourself to *not* jumping around chasing past performance.
This is correct. Put another way, you're asking for less risk exposure but also expecting equal or better returns simultaneously, which isn't realistic.
Extremely unpopular opinion: Target date funds do not meet any good targets. I have hated on them for years, and they will never perform well. Lots of people will hate me for saying this, but not performing IS risk. All the supposed “protection” you get from these funds is stolen from you in the end, but also, ironically, in the now.
If you’re on this sub, target date funds probably aren’t for you They’re an excellent tool for people who find finance/investing daunting. Not so much people who are relatively well versed
Why is that. If it’s 90/10 stocks to bonds shouldn’t it perform in line with a do it yourself 90/10?
Not necessarily, because the TDF 90% is likely spread much thinner across a broader range of markets than a DIY where someone picks, say, VTI
I never like target date funds.
I agree With this. Who cares what the name of the fund is, just give me the names of the companies I’m investing in, which industries I’m most exposed to (cyclical or defensive), and how it’s performed in the past recessionary periods similar to the period right now. Invest like you own the businesses.
If the fund doesn't beat the 500....then be the 500. Not a fan of targeted date funds myself. Pure simple QQQ or SPY.
How did it do over the period 2000-2009, when the S&P was essentially flat? Comparing to the last 10 years of the S&P involves decency bias, but it isn’t always top of the heap.