How To Stop COVID-19 From Derailing Your Retirement
Justin Kuepper
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Let’s take a look at a few key pieces of advice to stop...
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Within TDFs it is important to understand that there are two investment architectures: open and closed. An open architecture will include both in-house or proprietary funds of the manager as well mutual funds managed by other firms. A closed architecture is a fund in which there are limited mutual funds within the TDF and most are operated by a single firm providing the product.
There are also arguments against each fund architecture. Opponents of open funds say they can be expensive and difficult to research. There is also the chance for “over-diversification” which can be confusing to novice investors. On the other hand, critics of closed architecture say the style can cause conflicts of interests if too much money is being invested in-house simply to raise company profit, and there is the possibility of too little diversification if only one manager is being used.
In July 2014, Morningstar released its Target-Date Series Research Paper. In it they said, “Open architecture series should have the ability to draw from the industry’s best, but these series have shown no performance advantage over closed-architecture series.” Interestingly, however, it is fees that come into play when looking at returns, with the implication that closed funds are more attractive to the cost-conscious investor. The report continues: “Open-architecture series pay systematically higher fees to access non-proprietary managers, and those costs eat into returns.”
Some of the biggest TDF providers in the U.S. are Fidelity Investments, Vanguard, and T. Rowe Price. The Fidelity Freedom K 2020, 2030, 2040 and 2050 funds have an average compound return of 9.3% for the five years ending March 31, 2015. Vanguard’s Target Retirement 2020, 2030, 2040 and 2050 funds have a compound return of 10.4% over the same time period. Both are closed-architecture funds.
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Within TDFs it is important to understand that there are two investment architectures: open and closed. An open architecture will include both in-house or proprietary funds of the manager as well mutual funds managed by other firms. A closed architecture is a fund in which there are limited mutual funds within the TDF and most are operated by a single firm providing the product.
There are also arguments against each fund architecture. Opponents of open funds say they can be expensive and difficult to research. There is also the chance for “over-diversification” which can be confusing to novice investors. On the other hand, critics of closed architecture say the style can cause conflicts of interests if too much money is being invested in-house simply to raise company profit, and there is the possibility of too little diversification if only one manager is being used.
In July 2014, Morningstar released its Target-Date Series Research Paper. In it they said, “Open architecture series should have the ability to draw from the industry’s best, but these series have shown no performance advantage over closed-architecture series.” Interestingly, however, it is fees that come into play when looking at returns, with the implication that closed funds are more attractive to the cost-conscious investor. The report continues: “Open-architecture series pay systematically higher fees to access non-proprietary managers, and those costs eat into returns.”
Some of the biggest TDF providers in the U.S. are Fidelity Investments, Vanguard, and T. Rowe Price. The Fidelity Freedom K 2020, 2030, 2040 and 2050 funds have an average compound return of 9.3% for the five years ending March 31, 2015. Vanguard’s Target Retirement 2020, 2030, 2040 and 2050 funds have a compound return of 10.4% over the same time period. Both are closed-architecture funds.
Receive email updates about best performers, news, CE accredited webcasts and more.
Justin Kuepper
|
Let’s take a look at a few key pieces of advice to stop...
News
Iuri Struta
|
Most equities have continued their rally these past two weeks, along with investment-grade...
Aaron Levitt
|
While tax-gains harvesting takes some planning to implement, it can help save investors...
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Mutual Fund Education
Justin Kuepper
|
Let's take a closer look at how ESG investments have outperformed during the...
Mutual Fund Education
Daniel Cross
|
While CITs and mutual funds share many similarities, there are some key differences...
Mutual Fund Education
Sam Bourgi
|
The phrase ‘bear market’ has been thrown around a lot lately, but it...