Off Target
Greg Spears | Nov 26, 2021
NEW RESEARCH suggests that target-date retirement funds—which currently receive a majority of contributions to 401(k) plans—are missing the mark. Target funds’ returns, in aggregate, lagged those of replica portfolios built with exchange-traded funds (ETFs) by one percentage point a year, according to University of Arizona finance professor David C. Brown, one of the study's authors. The majority of the underperformance was due to higher fees, Brown said. Target-date funds are funds-of-funds. Most fund families charge investors layers of management fees—both on the target-date fund itself and on the underlying funds. Active management also cuts into target funds’ returns, according to the study. Active managers, as a group, tend to lag the market averages. The good news: Some target-date funds have some or all of their assets in market-tracking index funds. Finally, the timing of asset allocation adjustments was a small reason for target funds’ performance lag, accounting for about 1/20th of the return difference, according to the study. Brown’s study, co-authored with the University of Colorado's Shaun Davies, is titled “Off Target: On the Underperformance of Target-Date Funds.” It was presented Nov. 12 at a conference sponsored by the CFP Board Center for Financial Planning. To assess target funds’ returns, Brown and Davies mixed replica portfolios using 50 low-cost, passively managed ETFs from Vanguard Group. Their performance was compared to equivalent target funds from 2008 to 2020. “In dollar terms, target-date funds underperformed cumulatively by $35 billion,” Brown said. The underperformance reached nearly $10 billion in 2019, as target funds’ assets grew to almost $1.6 trillion. Many workers are automatically invested in target funds when they’re enrolled in their employer's 401(k) plan. Employees can change to other plan investments, but relatively few do. Target funds receive nearly 60% of all plan contributions, according to Cerulli Associates. The relatively poor performance of…
Read more » Not Staying the Course
Greg Spears | Sep 19, 2025
THE MOST FAMOUS expression at Vanguard is to ‘stay the course.’ It’s meant to suggest that investors should remain steadfast and not sell stocks in a downturn. This has proven great advice over the decades, but I’ve not been staying the course lately. I’ve been selling stock funds and buying bond funds this summer. Yet I think my actions would have the blessings of Vanguard founder Jack Bogle, who made the phrase ‘stay the course’ famous. Mr. Bogle used to have lunch with the crew in the cafeteria, called the Galley in keeping with Vanguard’s nautical naming style. There, he would dispense wisdom to all comers. Bogle advised keeping investing as simple as possible (though not too simple), and this included his ideas about asset allocation. During one lunch conversation, he said that the adage that you should own your age in bonds was generally correct, but he might make one adjustment. I’m 69 years old, so if I followed the traditional rule, I would invest 69% of my portfolio in bond funds and 31% in stocks. Bogle suggested tweaking the formula by subtracting your age from 110 and owning that percentage of stocks. By this adjustment to the rule, I would invest 59% bonds and 41% stocks. At summer’s start, 70% of my retirement assets were in stocks. I’ve profited from being overweight in stocks. So, why not let it ride? Well, I don’t need to make more money in the market. I do need to protect what I’ve got. When the market briefly corrected earlier this year, I admit I had regrets. After it recovered, I felt I was offered a do-over. I didn't stay the course. After a season of selling, I’ve whittled my stock holdings down to roughly 45%. The remainder is in bonds and money…
Read more » Six Ways to Grow Income
Greg Spears | Dec 18, 2025
The best financial advice I know is “live on less than you earn and save the difference.” For too many, though, there’s nothing left over to save after paying the bills. Basic living costs seem much higher these days. Housing can take an outsized bite of family income as rents and housing prices have risen. Factor in other big expenses like health insurance, childcare, and student loan repayment, and there may not be any money left to save at month’s end. I propose a new chapter in the financial planning curriculum—ways to make more money. That wasn’t a core subject in my Certified Financial Planner program. The unstated assumption, I think, is that clients who consult with a CFP are already well-fixed. To get started, I’ll pitch six ideas. It does feel like I’m stating the obvious, however. You probably have good ideas from your life. Please add them in comments—I look forward to reading them. Here are mine: If still in school, know what your college major pays before you—or your child or grandchild—graduates. You can look up the average first-year earnings of many majors at specific colleges at a site called CollegeSimply. I learned from this site that at Purdue University, biology graduates earn $33,500 a year, on average, versus $69,200 for mechanical engineers. Try to major in something that pays. If you’re already in the workforce, continue your education by earning a professional designation or advanced degree. Many employers, like mine, will pay the full tuition for a job-related degree, including an MBA or CFP. For white collar workers, these degrees are the equivalent of belonging to a union. Job hop for a pay bump. I wrote about this once during the pandemic, when job seekers briefly held the upper hand in salary negotiations. A reader commented…
Read more » Getting My Due
Greg Spears | Jul 7, 2021
A 156-YEAR-OLD newspaper company filed for reorganization in bankruptcy court last year. The company said it just couldn’t come up with the millions it owed to its pension plan. Some 24,000 current and future retirees were promised payments from that plan—and I’m one of them. This is the story of what happened to our benefits after the pension plan failed. For 10 years, I was lucky enough to cover Washington, DC, as a newspaper reporter. It was a heady job for a history major like me. The icing on the cake was I worked long enough to qualify for a small pension from my employer, Knight Ridder. I left Knight Ridder in 1994. My benefit was projected to be $400 a month starting when I turned age 65 in March 2021. Heftier payments go to those who stay decades, including their highest-earning years. Still, I felt lucky to have any benefit at all. After all, a pension is guaranteed income. I would get paid no matter what. Or that was the theory—until the newspaper business crashed so spectacularly. At first, just a trickle of advertisers and readers migrated online. Recognizing the threat but unable to check it, Knight Ridder sold itself at a premium to a smaller newspaper chain, the McClatchy Company, in 2006. To swing the deal, McClatchy borrowed heavily and assumed all of Knight Ridder’s debts and pension obligations. You can see where this is headed. As the trickle to the internet swelled to a torrent, no number of painful layoffs and cutbacks could staunch the losses. McClatchy filed for Chapter 11 bankruptcy reorganization on Feb. 13, 2020. It asked the court to terminate the employee pension plan. Was my pension lost before it began? I turned to my old benefits handbook. If the pension plan were ever…
Read more » Worst Year Ever
Greg Spears | Nov 8, 2022
BONDS ARE ON PACE to have their worst year on record. To be sure, once interest rates stop rising—perhaps early next year—they may win back their place as a worthwhile investment for retired investors. But right now, that feels like wishful thinking. As the Federal Reserve has hastily raised short-term interest rates in big steps to fight inflation, bond prices have fallen down the cellar stairs. Bloomberg’s broad U.S. aggregate bond index is down 16% in 2022. It’s the worst year for U.S. bonds since reliable recordkeeping began in 1926. Bond prices fall when interest rates rise because bonds issued earlier—which pay lower rates—get discounted until their return equals the currently available yield on new bonds. No less an authority than Vanguard Group declared the six months through June 2022 the worst half-year for bonds “since either before the Civil War or George Washington was president.” If you’re wondering, the Civil War began in 1861 and Washington’s second term as president ended in 1797. Bonds are supposed to provide a counterweight to stocks and act as a stabilizing force during bear markets. That hasn’t happened this year. Nothing’s worked. Now for the better news: Bonds could rise from the ashes and make a valuable contribution once again to a retiree’s portfolio. The 10-year Treasury note yielded more than 4.2% in late October, its highest rate in 15 years, though that remains below the current U.S. annual inflation rate of 8.2%. Still, higher bond yields could signal the end of TINA—the mantra that there's no alternative to stocks. Since 2010, many investors who wanted income turned to dividend-paying stocks because bond yields were hovering near zero. Now, the yields on super-safe Treasurys can compete with utility stocks and easily outpace the dividend yield on most other shares. The S&P 500’s dividend yield is currently 1.7%.…
Read more » Powerful Savings
Greg Spears | Sep 21, 2023
I BOUGHT AN EXPENSIVE new water heater last year for my house in Maine. The old heater had a ring of rust at the bottom, and I was spurred to act by an $800 rebate offered by the state of Maine, which was contingent on buying a heat pump water heater. The new water heater draws its heat from the surrounding air, and is two-to-three times more efficient than my earlier model. I filled out a rebate form at the appliance store counter. Months later, I got a curt email from the state of Maine saying I didn’t qualify for money back because the model I’d purchased wasn’t Energy Star rated. By then, the heater had already been installed and I didn’t want to unwind the purchase. Lesson learned: Read the fine print. That’s good advice if you want a share of the billions in energy-efficiency tax credits contained in 2022’s Inflation Reduction Act. From now until year-end 2032, homeowners can get money back after installing energy-efficient heaters, windows, doors, air-conditioners, furnaces, water heaters and more. Although these energy-efficiency incentives could return $28 billion to taxpayers, according to an estimate from the University of Pennsylvania’s Wharton School, most taxpayers haven’t heard of them. In past years, you may have used similar tax credits to snag a deduction for new windows and doors. In many cases, the new law is an extension of previous schemes, but with more generous allowances. Some are for energy savings, like insulation, and others are for energy creation, like solar panels. There’s fine print you’ll need to understand to make sure you qualify, which I’ll cover in a minute. To whet your appetite, here are 10 credits that may cut your utility bills—and your taxes, too. 1. Insulation. The government will pay 30% of an insulation…
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