As a presenter at the 2025 Bogleheads® conference, I covered the simplest way to invest: using all-in-one funds. Watch the whole presentation below.
Transcripts
Investing Simply: How to Use All-In-One Funds in Your Portfolio with Jon Luskin
00:00:05 Jim
Investing Simply: How to Use All-In-One Funds in Your Portfolio with Jon Luskin
Christine and I, we tend to write for and speak to large audiences as much as we can. The other three people that are helping us with Bogleheads® University 101 today often will work one-on-one with people. They are professional advisors.
Our next one is Jon Luskin. He’s a fee-only, advice-only CFP®. A fiduciary works out of San Diego still. He has been published in the Journal of Financial Planning. He’s done some cool stuff with his life, like taking a year off and basically tried out that F.I.R.E. life so many of us are looking for.
He serves on the Bogle Center Board. He has been an occasional host of the Bogleheads® podcast. He is a wonderful person and he’s got a great presentation today where he’s going to be talking a little bit about all-in-one funds and their benefits. So, 35 minutes on the clock, he says he’s not gonna use it, so get your questions ready.
00:01:01 Jon Luskin
Hello everybody. As Jim mentioned, I’m Jon Luskin. You may remember me from the Bogleheads® on Investing show, also Bogleheads® Live. And if you like those shows, you can show your support by going to BogleCenter.net/donate where your tax-deductible donation is appreciated. Same thing for our YouTube viewers at home, BogleCenter.net/donate.
Today, I’m here to talk about all-in-one funds. Before I do: not investment advice, for education purposes only, and speak with your financial professional before making any decisions. And also, there’s going to be some memes.
Before that, let’s talk about what we’ll talk about today. What are All-In-One funds? Why do you want to use these as opposed to maybe a do-it-yourself portfolio you create yourself? Talk about the benefits of all-in-one funds, the critiques, of which I will also critique the critiques. Then, we’ll round it off by talking about selecting all-in-one funds and then transitioning into them.
And as promised, some memes. So, maybe we’re like John Wick here. We’ve got this puppy. We’re not quite sure what to do with it. But perhaps at the end of this presentation, we’ll have a different relationship with all-in-one funds. So, stay tuned.
00:02:32
So, what are all-in-one funds? These are one fund for all your investing goals. These are set-it-and-forget-it investment solutions that require practically zero to no maintenance at all. Now, you’ve probably seen these things. If you’ve started at any sort of employer in the last decade or so, you’re probably defaulted to them. You’re probably investing in them already. These are target-date funds in your 401(k). These are the lifecycle funds in the Thrift Savings Plan. Maybe they’re a target enrollment fund in a 529 College Savings Plan. Or maybe you’re already investing in a balanced fund or an allocation ETF.
00:03:12
Before I get into the technical details, let’s do an analogy. Now, we’re here in Texas, so we have to talk about Texas barbecue. So, if you want Texas barbecue, you’ve got some options. You can go down to Pinkerton’s. It’s about a 12-minute walk from here. You get some really delicious barbecue, and that’s pretty convenient. But it’s expensive.
00:03:34
Now, alternatively, you could make some barbecue yourself. Get an offset smoker. This will be much less expensive in the long run, but it is a lot of work. If you guys know anything about barbecue, you know you’ve got to manually feed this fire wood logs over maybe 12 hours, adjusting the airflow on the vents. It is a lot of work. So, it’s a trade-off: cost vs effort. You get one or the other. Or, the do-it-yourself route, low cost, high effort.
00:04:07
What if I told you there was a third option? Now again, if you’re a barbecue geek, you may know there’s something called a pellet smoker. So, this thing, also for do-it-yourselfers, way easier, no wood fire to manage, you just put some pellets in, you turn a dial, and then you’re ready to go. So much, much easier. So comparatively, we have high-cost, low-effort, opposite ends of the spectrum for buying barbecue or making barbecue, but we have this third Goldilocks approach with a pellet smoker. Let’s call it, “low’ish cost, low’ish effort.”
00:04:42
That’s kind of what all-in-one funds are. We can do professional portfolio management. A lot of Bogleheads® know that’s very expensive. High cost, low effort, but very expensive. We’re Bogleheads®, we’re frugal, we’re not going to do that. We can make our own portfolio, low cost, but high effort. Or, this third option, low’ish cost, low’ish effort with all-in-one funds.
00:05:05
So, let’s talk about these things a little bit more. Now, Christine, she talked about the different asset classes, and that’s what you’ll find in all-in-one funds, which you don’t have to buy them individually, they’re all in there already. Here’s one example: this is a static LifeStrategy Moderate Growth from Vanguard. We’ve got all of our asset classes in there. U.S. stocks, international stocks, U.S. and foreign bonds.
00:05:30
And here’s something similar from iShares, but it’s just slice and dice. So, we already have all our funds in there. We don’t have to buy all these funds ourselves. And then, moreover, they’re going to rebalance for us. We can have that static mix that I just mentioned with those two funds that I just shared, or we’re going to have a changing stock/bond mix. And that’s what we’re gonna get with a target-date fund or a target-enrollment fund.
00:05:54
So, here’s sort of what that looks like initially and Christine touched on this in her presentation. We’re gonna be more aggressive earlier when we’re farther away from retirement. As we move towards retirement, we’re gonna have more and more bonds in our portfolio. These target-date funds do this for us automatically. We don’t have to go in there every year and figure out, “hey, where should my stock/bond mix be?” And then rebalance to that.
00:06:20
Target-enrollment funds, same thing, allocating for us automatically. They handle the rebalancing process for us so we don’t have to. This helps us manage risk.
00:06:32
Now, why should we use all-in-one funds? Why not just buy those three or four funds, whatever, and just do it ourselves? Well, I have found in working with hundreds of do-it-yourself investors, that almost no one properly maintains their portfolio. And so, with these funds, they do it for us so we don’t have to.
And the other thing I found is that a lot of do-it-yourselfers also neglect other important topic areas in their lives, be that estate planning or insurance, and that investing can often serve as a distraction.
00:07:10
Do-it-yourselfers don’t rebalance. Why? There are a variety of reasons. Oftentimes, it’s going to be, “Hey, U.S. stocks are up. I don’t necessarily want to sell my winners.” Again, that’s rebalancing. That’s what we want to do. We want to sell what’s increased relative to what hasn’t done as well. Buy more of those underperformers. That’s how we’re going to help manage risk.
00:07:30
Other reasons, do-it-yourselfers don’t rebalance. They don’t want to pay taxes. “Hey, U.S. stocks have done really well. I have an unrealized gain. I don’t want to trim this and have to pay taxes.” And a downside of that is that, whatever the tax bill is, you always have more at stake from investment underperformance than any tax bill you could possibly defer. So, you don’t necessarily want to do that; you don’t necessarily want to put taxes ahead of investing. Investing first. Again, this process is automated with these all-in-one funds.
00:08:00
Other reasons, do-it-yourselfers don’t rebalance. They’re watching the news. They get scared about current events, and they just get completely derailed from their own investing plan. Another reason why do-it-yourselfers don’t rebalance is that initially they have a lot of enthusiasm for an investing approach, and they make something that’s needlessly complicated. Then, later, they get overwhelmed by the complexity they’ve created for themselves.
00:08:25
I worked with a gentleman who had a high-fee, 1% AUM advisor. Then, he learned about low-cost indexing and decided to fire his portfolio manager, “hey, I’m gonna do this myself. I’m gonna use low-cost index funds.” He created a 10-fund portfolio. One year goes by, it’s time to rebalance, and now, he works with me for the first time. He shared with me, “I wish I hadn’t made it so complicated.”
00:08:51
And so here’s a meme that speaks to this. Shout out to Cody Garrett, who put this together. This makes fun of the fact that, hey, maybe we’ll get really excited when we learn about something new, but then later on, we’re going to burn out. The bad news is your portfolio still needs to be maintained, even if you’re no longer excited about it.
00:09:11
As I touched on earlier, investing in minutia can serve as a distraction from many much more important projects that folks are neglecting. I can think of another gentleman that I worked with. He had terminal cancer. He also had a young child, and he had no will. For those of you who aren’t estate planning geeks, you know that without a will, the court will decide who takes care of his child when he passes. So, that’s not great.
00:09:40
Now, instead of discussing that, the gentleman really wanted to talk about the optimal bond duration for an intermediate-term government bond fund. If we had an all-in-one fund, we wouldn’t really have to worry about that; we wouldn’t have to think about that. Instead, we can focus on those more important projects.
00:09:54
Another gentleman I worked with had a lot of employer stock. His plan was to put together a limit-order strategy that would sell it at certain price points, but he wasn’t even able to do that successfully. He missed his price on one, and didn’t renew the limit order. But this gentleman remarried; his new wife had kids of her own, and he had kids from a previous marriage. The way his estate plan was set up, when he dies, all of his assets go to his new wife. He did want his heirs to inherit assets, but the way his estate plan was set up meant they wouldn’t inherit anything. That is a pretty serious problem, yet he was playing with limit orders on a single stock rather than addressing more important concerns.
00:10:47
So, another meme here that speaks to this. As do-it-yourself investors, we’ve got the boring things we need to do, and then we get distracted by this investment minutiae. Again, these projects are just so much more important. Insurance is another thing that folks miss: enough term life insurance, the right type of disability insurance, and umbrella insurance. These are the things that folks just miss because they’re trying to optimize their portfolio instead.
00:11:13
Let’s talk about the benefits of all-in-one funds. As we mentioned: simplicity and automation already. Let’s talk about some more benefits.
Behavior-proofing. Christine touched on this, actually, as did Dr. Jim. We don’t want to be panic-selling. Research by Morningstar shows investors who use all-in-one funds are better at sticking with their investments; they help us behavior-proof ourselves.
00:11:38
Enthusiasm-proofing. We talked about this already with the gentleman with the 10-fund portfolio, right? Maybe we’re really excited today, but we’re gonna burn out later on.
00:11:48
Legacy planning is another really important consideration. In most households that I work with, there is a gonna be the “super investment nerd” and then, there is gonna be the “normal spouse.”
Often, but not always, the investment nerd is male and the spouse is female, but sometimes there are exceptions. Women have a longer life expectancy than men. What that means is the investment nerd is gonna die first and the normal spouse is gonna be left behind. The question is: what sort of investment plan are we creating for the normal spouse to inherit? Is it going to be something where they have to find the computer password, open it up, find their proprietary spreadsheet, calculate trade orders, go on to the custodian, and enter the limit orders to make the trades? Or is it going to be something that requires no maintenance at all? That is something we need to be thinking about.
00:12:45
Maybe you’re not married; maybe it’s just you. Let’s talk about cognitive impairment. Maybe you’re really excited, and you have the ability to manage your spreadsheet now, but research shows financial ability peaks at around mid-50s. If you’re gonna live longer than you have the ability to manage investment plan, what sort of investment plan should that be? Thinking about your future self.
00:13:11
Another benefit of all-in-one funds is theft detection. I know Mike Piper sent an email about this recently, referencing a couple of articles about folks who had shares of their funds transferred out of their accounts via ACATs fraud. This is much easier to figure out if this is happening to you if there’s only one fund in your portfolio. If you’ve got 10 different positions, it’s going to be much harder to figure out if that’s happening. Fraud detection is another benefit of using all-in-one funds.
00:13:43
Jon Luskin here, board member for the John C. Bogle Center for Financial Literacy. If you’re finding this session valuable, hit that subscribe button to get notified when we release more free financial education from experts like these. Your support helps us continue our mission. Now, back to the conference.
00:14:02
Another benefit: happiness. I worked with a gentleman who had a complicated portfolio, and I was able to successfully talk him into using a single fund. Here’s what he wrote me afterwards. (AOR is the ticker for the all-in-one fund.) “We put everything into AOR, and I slept like a baby for the first time in four months. The market tanked yesterday; I deleted the Fidelity app off my phone and didn’t even look. It’s like I had a cancer removed.”
The more often you look at your investments, the less happy you’re likely to be. With all-in-one funds, you barely, if ever, have to look at these things. That’s another benefit of all-in-one funds.
00:14:58
Let’s talk about critiques. One common critique is fees; you’re going to have higher fees with all-in-one funds. I talked about that earlier with the barbecue analogy. It’s not necessarily low-cost, it’s low-ish’ cost. Now, if you’re using an index variety of an all-in-one fund, we’re talking about a few basis points and investment nerds know that means it’s a tiny amount. Paying a few more basis points is not going to make or break your financial plan. Now, certainly, there are higher-fee all-in-one funds out there, and we don’t want to use those. But as far as the index variety is considered, that small difference in fees is just not going to make a big difference.
00:15:38
Now, there are some tax efficiency considerations, and this is only going to apply to a taxable account—so not an IRA or a 401(k). But if you’re a good saver, like probably most of us in this room, you’re going to have money in a taxable account as well. At that point, we do need to be thoughtful about taxes.
So, here are some common critiques about the tax efficiency of all-in-one funds: You can lose the foreign tax credit that you would otherwise have if you did a “slice and dice” do-it-yourself portfolio approach. Also, you generally can’t do tax-loss harvesting if you use an all-in-one fund.
00:16:09
Now, that might be offset by some of the all-in-one fund ETFs, which have an ETF wrapper. So, you could argue maybe it’s a little bit of a wash. The ETF wrapper of an all-in-one fund is going to help you defer capital gains; whereas if you had a do-it-yourself portfolio, you would have to sell your winners, generating a capital gain, that creates a tax bill. The ETF wrapper may be able to keep all of that within the fund. So, maybe it’s a trade-off, and the ultimate tax liability of using an all-in-one fund in a taxable account is probably not too material.
00:16:44
Another critique is flexibility. People say, “Hey, I want to be able to change from this fund to the another.” I saw a blog post by some F.I.R.E. blogger, he moved from an aggregate-bond fund to a total-bond fund. Those are very similar funds. I would argue you don’t want to do this; you want to leave your investments alone. This is just a form of market timing. Flexibility in this circumstance is a bad thing. Again, that behavior-proofing component—that’s what makes all-in-one funds so great—there’s less to fiddle with, there are less moving parts, and there is less to tinker with.
00:17:26
Another critique is, “Hey, I don’t want to sell stocks when they’re down. I can’t necessarily do that with an all-in-one fund.” Well, all-in-one funds rebalance automatically, and that’s effectively the same thing. Don’t sell stocks when they’re down; rebalancing your portfolio. If stocks are down, you’re probably not selling stocks from it. You’re going to sell more of what’s done relatively better, which is going to be bonds. This is done for you automatically in an all-in-one fund.
00:17:55
And again, here’s a meme from The Office that just speaks to this. “Hey, don’t sell stocks when they’re down” and “rebalancing your portfolio”— corporate needs you to spot the differences between two pictures. They’re the same picture.”
00:18:09
Another critique is that the fund company is changing them at the fund level. Quite some time ago, Vanguard added international bonds to the target-date funds. Folks didn’t like that; that’s another critique of all-in-one funds.
00:18:31
Another critique is allocation optimization. “Hey, I don’t want to have foreign bonds in my portfolio,” or, “I really do want to have high-yield bonds in my portfolio. I can’t get that with an all-in-one fund.” Or, “Hey, I want to overweight U.S. stocks relative to international; I don’t like the weighting that they give me in these all-in-one funds.” Or, “Gosh, this glide path—the way it changes from stocks to bonds—is too conservative too early; I don’t like it.”
My response to that is that these critiques always involve some forecast of the future. “If stocks do better, this target-date fund will underperform.” “If tax laws never change over my lifetime, I’ve saved taxes with this other strategy—across-account allocation—instead. “
00:19:22
Now, I can’t know what the future holds, but I do know that a more complicated investment plan is more difficult to manage. So, you’ll only come out ahead with that more complicated plan if two things happen: number one, you can guess correctly about the future; and number two, you can maintain that more complicated investment plan. Most people are pretty terrible at both of those things.
00:19:50
Here’s a great quote from the forum—a great thread on all-in-one funds if you guys want to get super nerdy on it:
“The optimal asset allocation—which just means stocks and bonds I’m going to choose—can only be determined after the fact. The same goes with asset location.” (That’s just a nerdy tax strategy.) “It’s only that when I die that my survivors will be able to determine the optimal stock/bond mix and tax strategy that would have worked best during my lifetime.”
Another one of my favorite investing quotes: “There is no perfect portfolio. There are plenty of perfectly fine portfolios.” That’s from Mike Piper. And then here’s another gentleman from the forum, who has a very similar comment to the gentleman I’ve worked with: “Looking back, I believe investing everything in an all-in-one fund would have been a fine move.”
00:20:44
Let’s talk about selecting all-in-one funds. How do you figure out which ones are right for you? As we touched on this a bit earlier, target-date funds are going to be appropriate if you’re on your way towards retirement. This is why you can find them in a workplace retirement plan; you want to find the right “vintage” year, 2050, etc. Now, you always want to stick with the low-cost variety when choosing a target-date fund. Vanguard, Fidelity, Schwab all have great low-cost target date funds. iShares has a target-date ETF, which might be more appropriate for a taxable account, given the tax efficiency considerations we touched on earlier.
00:21:23
Now, any Vanguard target-date fund is going to be low-cost. Schwab and Fidelity will try to mislead you; they have two series of target-date funds—a high-fee and a low-fee fund. As Bogleheads®, we want the low-fee fund. You want to make sure it has the word “index” in the name of the fund. That’s going to help keep your fees low.
00:21:45
Here’s another meme that went around quite some time ago, if any folks remember this one.
So, maybe we’re not on the way to retirement. If we were already retired or near retirement, we don’t necessarily need to change our stock/bond mix; we just need to find the right one for us. There are a couple of options out there. Vanguard has a mutual fund series called the LifeStrategy Fund, and iShares has its Allocation ETFs. You’ll just find the stock/bond mix that’s right for you—60% stocks, for example—and then it will rebalance for you automatically.
00:22:17
Vanguard has their sets of weightings, and the iShares weightings are a little different. Again, ETFs are likely better suited for a taxable account. Mutual funds may distribute capital gains, you don’t necessarily want to be holding them in a taxable account.
Now, Vanguard does have some other all-in-one funds. They’re not my first pick because either they’re going to have a relatively smaller international diversification—meaning they are overweight U.S., and there are downsides to that—and/or they’ll have slightly higher fees.
00:22:50
Let’s talk about moving to all-in-one funds. Now, this is a pretty simple decision in a tax-advantaged account because you can make any changes, for the most part, without tax consequences. This includes workplace retirement plans, IRAs, HSAs, etc.
00:23:08
In a taxable account, you do need to be thoughtful. If you have something in there that has unrealized gains, there is going to be tax consequences for selling and moving into an all-in-one fund. That’s usually on a case-by-case basis and you will probably want to speak with your financial advisor about it. As I mentioned earlier, in those taxable accounts, those ETFs are likely better suited given their tax efficiency; you probably don’t want to be holding mutual funds in a taxable account.
00:23:35
Now, I have asked Vanguard if they could get some all-in-one ETFs, but at least they’ve given us a whole bunch more bond funds in the meantime.
00:23:50
So, here is what we covered: what are all-in-one funds, why you probably don’t want to do a do-it-yourself portfolio, the benefits of all-in-one funds, critiques (including my own critiques), and how to select and move to these funds.
00:24:04
Another one of my favorite investing quotes from Rick Ferri, “the education of an index fund investor.” We are born into darkness—remember the gentleman using the 1% portfolio manager, for example. Find indexing enlightenment—fire the manager. Overcomplicate everything—10 fund portfolio. Then, embrace simplicity. Maybe that means using one single fund.
Hopefully today, maybe I can get everyone here to skip that third step since this is a Bogleheads® 101 session. Let’s bring it back to where we started. Remember the question, “Hey, what do we do with this thing?” “I have no idea. I’m not sure.” But maybe now that we’ve sat through this presentation, I have another meme that’s more appropriate, and here it is. And that’s it, folks.
00:25:08 Jim
We have some questions that have been collected for this talk.
00:25:26 Participant
Why are the fees higher?
00:25:32 Jon Luskin
So, if it’s an active fund—active funds are always going to be higher—why are the fees higher on all-in-one funds? That’s a great question. They probably shouldn’t be, because if you think about it, it’s just representation of the underlying funds. But for the most part, it is just a few basis points. It’s not something that I thought about, but that’s a good question to ask the Vanguard reps: “Why are the fees higher on all-in-one funds compared to the underlying index funds?” That’s a good question.
00:26:07 Jim
Although to be fair, at Vanguard, they’re not much higher.
00:26:10 Jon Luskin
Oh yeah, no, we’re talking.
00:26:11 Jim
I mean, you wanna roll your own. You’re not gonna save more than a couple of basis points.
00:26:15 Jon Luskin
Yeah, exactly.
00:26:16 Jim
It’s not necessarily the case at other fund companies though.
00:26:18 Jon Luskin
Yep.
00:26:19 Jim
Okay, we got some written questions passed in. Thank you, Mike. The next one is: Does rebalancing increase your ultimate returns, or is it just a psychological benefit to keep your portfolio in line with your risk tolerance?
00:26:34 Jon Luskin
Vanguard put out a white paper on this—on rebalancing—so, if you want to nerd out on that, check it out. For the most part, as I understand it from that paper, rebalancing is there to manage your risk. It’s not necessarily there to increase your return. Now, certainly there’s going to be periods when markets drop significantly; it will increase returns over that short time period, but for the most part, it’s a risk management tool. Did that answer that question?
00:26:58 Jim
Yeah, I think so. I mean, basically, if one of your asset classes has a lower expected return than another, rebalancing most of the time is going to lower your returns, but it does maintain your risk. I guess if all the asset classes in your portfolio have the same expected returns, you could get a rebalancing bonus, but I think that’s more of a myth than something actual showing up in people’s portfolios. Okay, that’s all I got. We got a quick question back here.
00:27:26 Participant
You mentioned that you liked some all-in-one funds more than others. I think you were saying that you preferred the target date, is that right?
00:27:34 Jon Luskin
I liked certain ones—effectively you can divide all-in-one funds into maybe two or three categories, right? So, one major category is gonna be a shifting stock/bond mix, right? So that’s target date, target enrollment. It’s gonna be one stock/bond mix today, and a different stock/bond mix later.
00:27:53
And then there’s static all-in-one funds. With respect to the static all-in-one funds, that’s what I was referencing. Vanguard has the LifeStrategy Series, and they’ve got the 80/20, 60/40, stock/bond mix, etc. It’s always going to stay at that mix. Now, in addition to the LifeStrategy Series, they’ve got a few other ones as well. I don’t like these other funds as much as LifeStrategy series for one or both reasons may apply.
Number one, fees are higher. Even though it’s Vanguard and it is low fees, some of them may have an active component to them, so fees are going to be a little bit higher. I would argue we should just use low-cost index funds; we don’t need an active fund, even if it’s Vanguard. So that’s one reason.
00:28:40
The other reason is that the U.S./international split is heavily weighted in favor of U.S., so you’ve got a lot of home bias risk there. Some of these funds have either one or both of those problems, which is why I don’t like those funds as much as I like the LifeStrategy series. Does that answer your question? Okay.
00:29:03 Mike Piper, CPA
Is there anyone who is just blatantly not a good—like for the iShares target or the iShares allocation ETFs? Is there anyone for whom this would be absolutely inappropriate and why?
00:29:18 Jon Luskin
Yeah, I mean, certainly if you are going to look at your portfolio every day. That’s going to apply regardless of your investing strategy, right? So, if you’re looking every day, you’re going to see whatever the performance number is, and be disappointed. That is the best-case; worst case, you change it and do something else. So, anyone who’s looking at their portfolio is going to be a bad fit.
00:29:41
Certainly, taxable considerations are always going to be a challenge. Sometimes I’ll work with someone and they’ve got, for example, everything is 100% VTI. They’ve had it for a long time and there’s a huge gain on it. It’s difficult to argue that we should sell all of that to go to an all-in-one fund at that point. Let’s say they’re on the cusp of retirement and we need to manage risk; having 100% U.S. stock at that point isn’t reasonable for them. We are probably not going to use an all-in-one fund in that situation because of tax considerations. We will probably do something a little more complicated. The trade-off is more complicated. So, we’re prioritizing taxes in that situation.
00:30:21
So, certainly some folks, but not for everyone. It’s easier when the funds in the taxable account are “bad”— like actively-managed mutual funds that are spitting out capital gain distributions on an ongoing basis and have more modest unrealized gains.
00:30:40 Participant
My question is around target date versus Lifestyle funds. What factors would you take into consideration when trying to choose one versus the other?
00:30:55 Jon Luskin
Target date versus LifeStrategy, fixed. It would depend upon where you are in life. If you’re far away from retirement, something like a target-date fund is probably going to be a reasonable choice because you want to be more aggressive today, you want to be more conservative as you approach retirement. Personally, I’m in the 2050 Schwab Index Target Date Fund, because I’m probably not going to retire and start spending my money sometime until then, so that’s a good choice.
00:31:30
But for someone closer to retirement or someone already in retirement, they don’t necessarily need to be changing their stock/bond mix over time. They just need a fixed, static mix that’s right for them. For example, a gentlemen I work with uses, AOR; that’s the iShares 60/40 Static ETF—60% stocks and 40% bonds. He’s on the cusp of retirement, that’s a good portfolio for him. So, generally: pre-retirees use target date; near-retirees and retirees probably use static stock/bond mix.
00:32:02 Jim
Can we get a mic right here in the middle?
00:32:04 Jon Luskin
Do you have any concerns that they’ll add private equity to all-in-one funds?
00:32:09 Jon Luskin
It’s funny; I did see a post—maybe it was on Twitter or LinkedIn—just this morning about something to that effect. It’s certainly a possibility. I can’t predict the future. They’ve certainly changed these things in the past. I would hope that the index variety of these offerings would not do that, but wouldn’t surprise me if the higher-fee active or the target-date funds, etc. would do that. Which is why, regardless of the asset class, you want to keep those fees low.
00:32:49 Participant
Can you talk a little bit about solutions within taxable accounts? I ran into that where I put some in a taxable account, a target-date fund and found out the consequences there? Can you talk about alternative options within that category?
00:33:06 Jon Luskin
First, I’ll say, having a mutual fund make a distribution in a taxable account isn’t fun. No one likes that. It’s certainly not going to make or break your finances, but it’s annoying. So, can we solve for it? As mentioned, iShares has target-date ETFs, which should in theory make little to no distributions in the future. I did ask Vanguard to make a target-date ETF as well—we’ll see what happens.
00:33:41 Participant
Can you repeat the question for everyone, please?
00:33:41 Jim
The question is: what should be added to a target retirement fund to complement it—such as cash—particularly if you didn’t have some other sort of emergency fund?
00:33:49 Jon Luskin
It certainly depends on how complicated you want to make it. I’m always encouraging do-it-yourselfers to keep their investment plan as simple as possible, because they almost never maintain it, and also, they’re ignoring more important stuff. So, if we are going to make it more complicated, I always encourage it to be a “zero-touch” level of additional complication.
What does that mean? That means having a target-date fund, for example, in my tax-advantage account, and then an cash bucket on the side in a bank account. That’s more complicated, but it doesn’t require any maintenance, so I like that.
00:34:22
Another thing that folks might like to do is, “Hey, Roth and HSA accounts, these grow tax-free. I want to take advantage of that, so I want to hold only stocks in these accounts.” Great, fine. Hold an all-stock fund in your Roth and your HSA. We’re still a zero-maintenance strategy, right? It’s more complicated, but it’s still zero-maintenance. That’s what I always encourage do-it-yourselfers to consider because—the broken record warning, they’re probably not gonna maintain it.
00:34:47 Jim
Okay, let’s give Jon a big round of applause.
00:34:54 Jon Luskin
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