What will the financial pundits be predicting in 2021? What “expert” advice is in your best interest?
4. Target-date funds are terrible. Yes, these funds—which offer a diversified portfolio in a single mutual fund—can suffer steep short-term losses, just like any other investment exposed to stock market swings. Yes, by putting together your own investment mix, you may be able to build a lower-cost, more tax-efficient portfolio that’s better suited to your personal situation. Yes, some fund companies load up their target-date retirement funds with actively managed funds with steep expense ratios.
Still, a target-date fund—especially if it’s one of the low-cost, index fund-based offerings from Charles Schwab, Fidelity Investments or Vanguard Group—is a great option for folks who aren’t interested in investing and don’t have enough wealth to command the attention of a talented, fee-based financial advisor. So why do financial advisors regularly deride target-date funds?
They fear losing clients to these funds—and the fact is, they should be fearful if all they’re doing for clients is building portfolios of mutual funds, without offering robust help with insurance, estate planning, taxes, financial planning and other aspect of a client’s broader financial life. I don’t own any target-date retirement funds, except in one small account. But if Vanguard ever offers Admiral pricing on its target-date funds, I’d likely swap over much or all of my retirement accounts to a Vanguard target fund and thereafter leave the driving to the fine folks in Malvern, Pennsylvania.
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7. Social Security recipients won’t be getting much of a raise. Every year, media outlets report how much Social Security benefits will rise in the year ahead. The stories are usually accompanied by the suggestion that seniors are somehow being shortchanged—and, in the social media commentary that follows, there are often political attacks on Congress and the president.
This is beyond silly. The annual increase in Social Security benefits is determined by a formula, not a political vote. More important, it’s designed to ensure benefits keep up with inflation. What if the increase in benefits is modest? That means inflation is modest—and thus seniors are simply being made whole, nothing more, nothing less.
[Let me add that it makes no difference which inflation indicator is used, CPI, CPI-W or CPI-E. Low inflation will produce a low COLA as it should.]