Against Target Date Funds (Part 2)

I previously discussed two articles in the June 2016 AAII Journal arguing against target date funds (TDFs). Charles Rotblut, CFA, (AAII vice president and editor) wrote a third article in the same issue that takes aim at TDFs.

In the article, Rotblut samples six different TDFs. He discusses the importance of speed to final allocation:

      > The Vanguard fund will reach its final allocation
      > by 2027, versus 2030 to 2039 for the Fidelity
      > fund. A shorter glide path and a larger
      > allocation to bonds… may be a plus for
      > someone with a shorter expected life span and/or
      > greater cash needs in retirement… The ideal
      > strategy provides a person the right amount of
      > money to fully fund retirement and no more
      > beyond what is desired to be bequeathed.

Rotblut says target date depends on expectations for other retirement income that may ease the burden on your nest egg:

      > For example, say you plan to retire in 2020… if
      > you do not expect to be reliant on your portfolio
      > for retirement income—thanks to a pension or
      > other sources of income—you could choose to go
      > with a 2025 or later-dated fund instead. A
      > later-dated fund will give you a greater
      > allocation to stocks at retirement and thereby
      > more long-term growth. On the flipside, if you
      > don’t think you will be able to withstand a bear
      > market near your retirement date, you should
      > consider a shorter-dated fund.

Rotblut concludes by suggesting creation and management of one’s own portfolios:

      > Setting aside questions about whether TDFs use
      > the most optimal allocation strategies… the
      > biggest downside to them is the lack of
      > customization. Shareholders in these funds
      > are locked into specific fund families. They
      > are also locked into allocation ranges based
      > on planned retirement ages.

I think his most damning critique of TDFs comes near the beginning of the article where Rotblut shows a lack of clear consensus on capital allocation. Six funds with a target date of 2020 have a current allocation of stocks and bonds ranging from 38-65% and 30-59%, respectively. Final fund allocations for stock and bonds range from 20-30% and 46-80%, respectively.

How much of a leap is it to suggest I might as well put on a blindfold and take aim at a dartboard?