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Target Date Comparison - Aren’t They All The Same?

edited December 2019 in Fund Discussions
“Just because two target date funds have the same target date does not mean their portfolios are the same. In fact, different fund families often have different approaches with their target date funds.”


  • Good comparison. My 401(K) use Vanguard's TDFs. T. Rowe Price uses more actively managed funds - a bit more volatile but with a slight edge in returns.
  • As a time-kill, I chose the "target date 2040" category at random.

    37 funds. Five year returns range from 5.0 - 7.9% a year. Maximum drawdown from 9.0 - 14.4%. Standard deviation from 7 - 11%. That strikes me as pretty vast differences for funds with such a similar goal.

    That's especially striking in light of the funds correlation. I rank a matrix for all 2040, sorted by Sharpe and then chose every third fund (12 total) to analyze. That gaves me a equal sample to top, middle and bottom performers. The vast majority of funds had correlations to each other of 98 or 99. The biggest outlier was one fund-to-fund correlation of 91. The correlation suggests, to me anyway, that they've all in the same markets with small but cumulative differences in expenses, valuations and so on.

    Back to my students,

  • I believe for every fund with the same target year T.Rowe Price has a higher allocation to equities. Its not just the active management.. Fidelity used to be the worst choice of the big three because they put their worst funds in their target funds but I also believe competition has made them change their policy and I am uncertain of their current relative performance.
  • T. Rowe Price has two series of target date funds: the original series now called Retirement Funds and its newer more conservative series that it calls Target Funds.

    Price describes the latter as "offer[ing] lower volatility -- and lower potential long-term growth -- than Retirement Funds by emphasizing bonds near the target date."

    M* shows the glide path of the former as having a high, but not the highest, equity allocation as seen in the graph on this page:

    Fidelity has so many lineups it's difficult to keep track of them. Its Simplicity RMD funds were formerly Income Replacment Funds that were overhauled in 2017. It has Managed Retirement Funds, Freedom Funds, and Freedom Index Funds.

    Regarding the latter, M* observed that "Despite the notable cost advantage, each Freedom Index fund lagged its Freedom series counterpart since the Freedom Index series' late-2009 launch through December 2018 .... The absence of active management and certain subasset classes, like high-yield bonds, from Freedom Index contributed to these results."

    Then they've got a series I'd never heard of: Freedom Blend Funds. In case you can't decide between active (Freedom) and passive (Freedom Index) management, these "blend" funds use both. Did I mention that Fidelity also has Fidelity Advisor (load) versions of these funds as well?
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