Target Retirement Funds Increasing International Exposure

The January 2010 issue of SmartMoney magazine had a nice little article Target-Date Funds Retool — Again about how those all-in-one Target Retirement funds that nearly all 401k plans have now are almost all increasing the percentage of stocks that are international. They all say this not performance-chasing, but at the very least it’s sentiment-chasing. People just aren’t all that confident in an predominantly-US portfolio anymore. I like the quote “Were you wrong before, or are you wrong now?”.

In any case, the online version left out my favorite part of the handy graphic, so I scanned it in here:

Vanguard announced back in October that it was also following the herd and increasing international exposure for its funds, and a quick look on the Vanguard Target 2025 fund shows the international holding at 20.8% as of 12/31/10. Seems like they are rolling out the change gradually.

I’m always on the fence on these funds. If having one fund keeps people from jumping from one fund to another, these funds can be a net positive. I like simplicity. But you have to watch out for high costs because that will eat away at your return. On the other hand, you can construct your own retirement portfolio out of just a few funds now, and not have to watch these guys follow each other around. Even the Vanguard Target 2025 fund only has 3 funds inside of it.


  1. Thanks for the informative post. I noticed this change in my personal 2050 account.

    I too am not a fan of these funds. Takes away a lot of the control that I like. Reason I own it now is because I invested it during college. Once it hits 10k, I’m planning on splitting the funds.

    I’m 23, so this fund has been great for simplicity. But it’s time to start spreading my money around.

    I’d love to hear other people’s opinion on the retirement funds, yay or nay.


  2. Jon – check out for fund and porfolio questions

  3. Thanks for the link skow! I’m actually a boglehead myself haha (young one at that). Really love those forums.

  4. -Jon, My personal opinion on these target date funds is that they are a great option for any do-it-yourselfer who doesn’t try to get too tricky or who doesn’t have the time, KNOWLEDGE, or energy to pick a portfolio himself.

    The problem with many investors is that they pick certain investment options on a whim and a prayer with no specific plan in mind.

    A decent TDF–if held and not tinkered with–will probably do much better than an emotional investor who mistakenly believes he/she can manage a portfolio on their own and then makes untimely decisions out of fear or greed.

    These funds are also a great allocation option for those with less than $25k or so to invest.

  5. Yes Jack, it’s been great for simplifying my portfolio thus far. Currently, I have 10k in my target 2050 Roth and 5k in my 401k. I’m huge into minimalist living and this fund has been great for that.

  6. My girlfriend’s 100% in target retirement funds, both in her Roth IRA and her 401 plan. Vanguard and SSgA, both low expense ratios. She has no interest in tinkering with her portfolio, and this suits her well.

    Meanwhile, I left Fidelity’s target retirement plan in 2005 with the disgusted realization at how much I was paying for a fund with so many other funds in it that it may as well be a bunch of index funds. Ever since, I’ve split my allocation among the low-ER index funds in the plan and rebalance whenever it gets out of whack by 5% or more. I don’t mind a little tinkering and customization if it saves me unnecessary expenses.

    Diff’rent strokes for diff’rent folks.

  7. I’m looking at the fidelity freedom 2050 vs the spartan 500 index. It says the Freedom says net expense ratio 0% and then prospectus is .84%. Then it shows an expense on the Spartan of .10%. This should be easy, but I want to make sure I’m not missing something here. Freedom .84% vs Spartan .10%, should be easy math which one you come out ahead on, right?

  8. -Patrick, I’m afraid you are kind of comparing apples and oranges here. The Spartan 500 is simply an index fund that basically tries to mirror the S&P 500 (an index of simply the 500 largest U.S. companies). It is a passive and large fund and thus expenses are very low.

    On the other hand, the Freedom 2050 is actually a target date fund that holds well over a dozen assorted actively and a few passively managed funds within this single fund. This fund also has a nice chunk of international exposure (nearly 30 percent) and a little bit in bonds. So, there is a lot more going on in this fund than in the Spartan Index funds and thus a considerably higher annual expense ratio.


  9. Jack,

    It can be argued that there is so much going on in the Fidelity Freedom funds that the domestic, international, and fixed income components together act as closet index funds. With this line of thinking, you’d be better off making your own allocation using assorted Spartan index funds if available to acheive similar exposure with a much lower average expense ratio.

    See this recent post by Jonathan:

  10. I’m waiting for my portfolio to get a bit larger so I can split up the funds into Vanguard admiral shares. So far they’re in a TRF too.

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