Target Date Fund Growth

This is Sam Schaeffer, Financial Advisor.  Happy New Year!  And what a year 2019 was.  Amidst political and economic concerns, the markets had a strong year, as did our no-load Fidelity Mutual Funds.  Target date funds, which employ a similar diversification strategy to managed asset accounts, under performed  in comparison.  The returns for the above mentioned investments were as follows:

• The average of the Nasdaq, S&P and Dow Jones this year was 28.82%.

• The weighted average of our 7 recommended funds this year was 30.95%, outperforming the markets by 2.13%.  Outperforming the markets by 2% over a 20 year period will result in your portfolio growing 47% more than following the markets.  Outperforming the markets by 2% over a 30 year period will result in your portfolio growing 70% more than following the markets.

• This year, the target date fund Fidelity Freedom 2020 returned 17.98% and Fidelity Freedom 2040 returned 25.38%.

We would have no problem with target date funds or managed asset accounts underperforming during years such as this if they truly provided the stability that they purport.  Unfortunately, they have not.  The average target date fund has been down 1 out of every 3 3/4 years while returning on average approximately 6.5% for their lifetime.  Compare this with our strategy that has been down 1 out of every 7 years while returning around 14% for its lifetime.   To see the potential impact on your savings, I go into this and related topics in more depth in my financial education course.

Sincerely,
Samuel Schaeffer