Choosing a Target-Date Fund

Last week, I wrote a guide to choosing a target-date fund for a popular personal-finance blog, Get Rich Slowly. The guide compares target-date funds from Fidelity, T Rowe Price, and Vanguard using various criteria, including their glide paths.

In the comments, there were questions about expanding the comparison beyond those 3 fund families. So, here’s the glide path chart expanded to 5 fund families (source: Morningstar 7/8/2010):

Stock glide paths for 5 target-date funds

And to compare costs, here’s an updated list of expense ratios for their 2040 funds (source: Morningstar 7/8/2010). Vanguard is still the low-cost leader by a large margin due to its use of low-cost index funds.

2040 Fund Ticker Expense Ratio
Fidelity Freedom 2040 FFFFX 0.81%
T. Rowe Price Retirement 2040 TRRDX 0.79%
Vanguard Target Retirement 2040 VFORX 0.20%
Principal LifeTime 2040 Instl PTDIX 0.82%
TIAA-CREF Lifecycle 2040 Retire TCLOX 0.72%

Even though they’re not ideal for everyone, target-date funds are still useful investments for many people. They’re certainly better than other strategies commonly used by beginning investors: picking stocks, picking mutual funds using past performance, or not investing at all.

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