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Investment Strategist Hilary Kramer on the problems with target date mutual funds in many investors’ 401(k) programs.
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In focus tonight a possible flaw with your 401K plan.
And I'm talking about target date mutual funds you -- -- chances are you're invested.
Their funds designed to change asset allocation automatically.
Each and every year you reach retirement.
Now -- -- -- saying -- kind of funds don't produces big of -- -- -- age you may thank Hilary Kramer is an investment strategist and editor of game changer.
Are I want read a statement from parents that they were highly critical of this in -- story to focus on Iran are not for research affiliates.
He said this target date mutual funds don't produce bigger retirement nest eggs than a 5050 bond stock mix would.
So why pay for -- what do you make of this.
Well Jerry this is a great point that is finally coming out.
Because investors really.
Are getting these shortsighted to stick by doing this this formulaic.
Rebalancing.
Based on and their age retirement.
It doesn't really make any -- you end up.
Buying high and selling low.
Still depending doesn't automatically and most excellent fighters today asset allocation of the most -- OK but let me explain this is what happened to instead of looking at your portfolio and saying okay what a 5050 mix of stocks and bonds.
Oh look.
Bonds have gone up so much it's now 70% of your portfolio that's cut -- back and lift up equities that would be of great way to end up making a lot more money.
The opposite happens it's his constant process of going more and more into bonds we have a bond bubble that's about to first.
Bonds are are over bought and when that bubble first you gonna have those that are closest to retirement.
That are almost fully invested in bonds because that's how it works but clearly the -- -- -- in mutual funds are making the situation even worse now.
Yes some suggestions for people out there who might be worried about this what should they be doing instead.
Well they are great -- substitutes right now.
Which are the high yield the high dividend yielding stocks -- you want me across the board invested you can do financials.
A company like BlackRock.
Excellent -- in yield.
-- You could you could look at companies like McDonald's MC dean could even have the capital appreciation.
In there.
Waste Management W and mind anything even he had Kerry and -- -- -- -- an international stock bikes -- -- The ticker symbol is SI you can buy -- -- German company right here.
In the New York Stock Exchange.
That's right at all good ideas.
And -- you know I've never heard anybody put it quite that way so it's insisting -- -- -- your analysis.
ICI the Investment Company Institute -- this afternoon with some numbers showing mutual fund flows.
And -- can't even now we're seeing people get out of stock funds.
What would you tell those people who are selling off their stock funds be so careful this is not this time.
-- this -- hunt it time to be to be going into bonds it seems that stocks are overbought yes we've had a great rise in the in the S&P and NASDAQ.
But you're still better off historically stocks are much much cheaper than bonds just think act in 1980s how investors were burned so badly.
When interest rates rose and bond prices fell it is possible to be hurt in the bond market.
And there's this just misconception.
Out there.
-- it's all about bonds if you want safety it's not the case is becoming a very dangerous stirring up their work.
Bond holders -- the you know on the underlying -- the fund themselves.
Hilary thanks for coming on tonight it's an absolute pleasure to have you here great advice I hope our viewers -- -- they.
