Against Target Date Funds (Part 3)

Going back to the beginning, why bother with target date funds (TDFs)?

TDFs do offer convenience but as discussed in the June 2016 AAII Journal, they are not without controversy. Few things reducing to simple, select categories can be well-tailored (think target date and speed to target allocation) for the masses. Even more in doubt is whether TDFs offer better annualized returns or a lower standard deviation of returns. If you have seen such a study in support of TDFs then please let me know.

What we have here sounds like a product being sold without any supporting evidence. If this occurs in the current era of evidence-based medicine then a physician may be sued for malpractice. As a pharmacist, when customers asked me about over-the-counter products not backed by research, I told them straight-up: it’s just marketing and advertising.

Marketing and advertising accounts for too much of the financial industry. Related talks/seminars often feature a financial professional who presents on market outlook (useless unless s/he has a functional crystal ball), about some product (e.g. fund or ETF), or about a relatively simple strategy like asset allocation. People mistake the speaker for a teacher when s/he is actually a paid spokesperson. Whereas other attendees often raise hands in an attempt to ask questions and procure knowledge, I raise my hand to challenge contradictory premises or conclusions lacking sufficient supporting data. I find their descriptions of things more akin to Swiss cheese.

This is consistent with my perception of financial advisers as accomplished salespeople. I believe advisers should be data scientists or traders: two occupations that would be much more likely to understand the mechanics of making/losing money. Salespeople just repeat what they are told and embellish with positive spin since they have not done the research or trading themselves.

Members of an audience are conditioned to believe the presenter is an objective expert in virtue of an introduction claiming professional work in the industry and some formal attire. It is probably an illusion, though, as both the presenter and sponsoring organizer/venue are likely benefiting from the event.

So why TDFs aside from the fact that this is what the financial industry has chosen to market and advertise? I have categorized this post as optionScam.com until I figure that out.