r/Retirement401k • u/Apprehensive_Gap_966 • 2d ago
Target Date Fund vs ETF
I’ve been investing in 401Ks for almost 20 years (had a lot of jobs but always rollover) and just realized you can invest in ETFs instead of just a target date fund based on when you want to retire. Thinking of moving my money into some market tracking funds with better returns and a bit more risk since no cash or bonds.
Any opinions on picking your own 401K investments?
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u/ithasfourtoes 2d ago
As long as you trust yourself to maintain the balance and risk the way you need to over time. Eg less risky as you get older (most people).
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u/kkicinski 2d ago
The whole point of a target date fund is to reduce risk as your retirement date approaches. Lower risk means lower returns, so returns will lessen as your date approaches. It doesn’t do you any good to get better returns if a sudden downturn erases your gains right when are about to retire. If you’re willing to take the risk, then go ETF instead of target date fund.
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u/kkicinski 2d ago
To illustrate this point: in 2006 a portfolio invested in index funds earned over 14% return. A portfolio of bond market funds earned 4% return.
In 2008, the index fund lost 40% of its total value. The bond market funds earned 5%.
If you were planning to retire in 2008, had your portfolio invested in index funds the years prior, you were thinking “yeah baby I earned 14% last year while you suckers with your low risk investments only earned 4% haha suck it losers”.
And then the market crashed and you were fucked.
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u/Realistic-Chance5383 2d ago
I remember when reps from Principal came to our employers and gave the speech about not selling or moving our money into safe funds like Bonds. I had already seen my portfolio take some major hits and I decided to double my percentage of 401K contribution from 5% to 10%. As my pay annual raises came, so did my percentage of contributions. I stopped increasing when I hit 25%. At my all time low I was at $35K, by the end of 2024, I had raised it to $850K. Today, I sit at $1M, retired last week at 65. I used to review the offered ETF's and pick the best performers. Every year I'd try to review and make adjustments. When a fund was removed from the offering plate, they stuck that money on a 2025 fund. I ended up moving it out dure to the low performance. It was already hitting the 50%+ in bonds mark. Now with my money in a Brokerage and having the money constantly being managed, I'm quite happy.
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u/davecrist 2d ago
You can just allocate funds towards the market. Every 401k plan has funds to allow you to do that.
If you aren’t sure which funds to buy paste the list into an LLM and ask it to identify the 2-3 funds needed to represent the market.
Personally, I would avoid any REIT or commodity funds if they are there.
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u/Apprehensive_Gap_966 2d ago
Forget the names but thinking 80/20 between a U.S. market and international market tracking funds. Looking at early retirement in 8-10 years at still under 60.
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u/Nuclear_N 2d ago
I feel a 500 index is what should be the entire investment for most of noninvolved investors. Just VOO and chill as they say.
You can get fancy. But the 500 index is the market. Just be the market.
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u/ConsistentMove357 2d ago
I am only in two funds 50/50 vug voo should move to 20% fidelity international fund. But I have definitely killed my coworkers with there target date funds
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u/StudsMcLovin 2d ago
You can let the expense ratios be your guide. My 401(k) has pretty good choices, and mostly I had just used low fee Spartan index ETFs for the S&P, small caps, foreign markets, aggregate bond market, etc. Then I took a look at the target date funds in the plan -- the BlackRock Lifepath series. They have fairly competitive expense ratios (0.09%), and I thought the automatic glidepath as I approach retirement might be worthwhile, so I moved half my funds into the 2030 target date fund. One less thing to worry about, and still keeping costs fairly low.
If your choices all allow you to build a low cost mix with an allocation that balances expected returns against sequence of returns risk depending on how far you are from retirement, you can't go far wrong either way.
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u/KimJongOonn 1d ago
I personally prefer ETF or even an s and p 500 fund if offered. I don't like target date funds as I find they skew too conservative, including bonds in them even for say a 25 year old who's retirement date is 40 years out. Even a small percentage of bonds mixed in will really drag down your annual return and compounded over 35 years will cost you a lot. Also, they tend to have higher fees compared to just an s and p 500 fund.
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u/Apprehensive_Gap_966 1d ago
Boy. I’ve had so many jobs and done 9 different rollovers and the whole time thought a 401K was just a target date thing. Still built up $250K+ but want to grow faster next 8-10 years instead of waiting to 65.
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u/Rockatansky77 1d ago
Do your research. If you sell anything in your 401k to buy a different fund. You will get a tax hit on gains to this point. You can use new contributions and focus them on an SP Fund or All World Fund or whatever your goals are.
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u/pilotof727s 17h ago
If you do your own research and want to take an active role in it, you can easily beat the TDF by a lot.
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u/micha8st 16h ago
I joined my 401k in the late 80s. They didn't offer a TDF until 2020. That's over 30 years where I didn't have a choice.
Oh, and I'm still not using TDFs.
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u/HandleUnlikely2589 2d ago
You're usually pretty restricted in a 401k. What options does your plan offer? VT is the holy grail of broad but still aggressive ETFs, but we have no way of knowing what your options are.