Target date retirement funds are simple, automated, easy.
The problem? What’s simple might not be optimal.
Investment expert Paul Merriman joins us to discuss the two-fund portfolio, a mix of one target date fund and one small cap value fund. He describes why this could be the ultimate portfolio for buy-and-hold investors who want to boost their returns, without excessive complexity or risk.
Here’s the idea behind a two-fund portfolio:
- Your age x 1.5 = the percentage of your portfolio in a target date fund
- Invest the rest in a small cap value fund
According to Merriman, this simple strategy could dramatically improve long-term aggregate returns without creating too much volatility or complexity.
Why? Merriman offers a few reasons:
- Target date funds arguably expose younger investors (the under-40 crowd) to too high of a bond allocation
- Target date funds arguably hold too much exposure to large-cap blend stocks, and not enough exposure to small-cap value stocks
Layering in just one additional fund, he says, could improve returns without creating an asset allocation or rebalancing nightmare.
Tune into today’s episode to learn more about how the two-fund strategy could impact your 401k (and also to hear firsthand stories about John Bogle, the founder of Vanguard, and his office full of teddy bears!)
You’ll enjoy this episode if:
- You love nerding out about asset allocation
- You want a super simple two-fund portfolio for your retirement savings
- You’ve taken the set-it-and-forget-it Target Date Retirement Fund approach and want to get more from your money in an easy way
Resources Mentioned:
- Chris Pederson’s articles
- Ben Carlson’s blog, A Wealth of Common Sense
- PaulMerriman.com
- We’re Talking Millions!, by Paul Merriman
- Next Gen Personal Finance
Enjoy!
– Paula
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