Thanks to a generous client, I was able to experience the final Pitt – Penn State football rivalry game live last weekend in Happy Valley from a VIP vantage point: the 40 yard-line a few rows behind the Pitt bench.
Despite being seventeen-point underdogs, my Pitt Panthers played inspired football, losing 17-10 in a back-and-forth thriller.
It’s impossible to describe the intense atmosphere at a Penn State football game when they’re playing a rival like Pitt and/or a quality opponent – you have to be there. Saturday’s game was the 100th meeting between Pitt and Penn State and there was electricity in the stadium – literally, there was a thirty-minute game delay due to lightning.
Unfortunately, despite Pitt’s keen interest to keep playing the rivalry, Penn State’s front office has made the decision to terminate the relationship for good after 2019. Why, so they can play the likes of the University of Idaho Fighting Potatoes to fill out their out-of-conference schedule? Penn State did play a woefully overmatched Idaho team two weeks ago at home, not sure if their actual nickname is a spud.
There’s a strong likelihood the two programs won’t play again in my lifetime, which is just an unnecessary travesty.
As always, fans from both schools were chippy leading up to the game, which adds to the fun. And after listening to thousands of Penn State fans chanting “ ____ on Pitt” throughout the game on Saturday (the blank word begins with an S and rhymes with Pitt), you realize how much students / fans from both schools still care about one of the most storied rivalries in all of college football - and don’t want see it come to an end either.
Life won’t end with the conclusion of the Pitt-Penn State football rivalry, but it will be slightly less fulfilling. What’s next, Notre Dame chooses to stop playing Michigan?
If you are employed, there’s a good chance you have a 401(k) plan benefit. And if you have a 401(k) plan, there’s a good chance you have a target-date-fund (“TDF”) as one of your investment options.
I have a mixed opinion about the efficacy of the target date fund as a universal retirement plan investment solution. Ignoring my tepid support, TDFs have exploded over the past decade and have become a mainstream retirement plan investment vehicle. Investments in TDFs now surpass one trillion dollars, representing nearly 25% of all retirement plan assets (per Morningstar).
The growth in TDFs has been driven by federal legislation that allows forced 401(k) participation for new employees (the employee has to opt out to not participate in the plan); the default investment for these forced plan contributions is typically a TDF.
Sure, the TDF can simplify retirement plan investing. Effective retirement investing is beyond the ability of many folks and a TDF can offer useful investment guardrails. With a TDF, you select the investment that matches your target retirement age and then the investment runs on auto-pilot for the rest of the participant’s career.
Over time, the asset allocation inside a TDF is methodically rebalanced and de-risked by shifting from stock to bond funds as the participant’s runway retirement shortens over time.
We often see a real mess when reviewing a prospective client’s 401(k) plan investment positions and a lackluster roster of investment choices. The TDF can help avoid obvious investment mistakes for the DIY plan participant and those who don’t use an investment advisor.
The TDF does offer asset allocation benefits and can help to avoid major investment mistakes for the average participant. The problem is not everyone is average and the “one-size-fits-all” approach has obvious drawbacks. Allow me to elaborate.
Age is not the only factor in determining the optimal investment strategy. If you fill a room with fifty-five year old plan participants, their financial profile, goals, risks and opportunities will diverge wildly. Once you enter the retirement red zone, customization of all aspects of your financial plan becomes much more important, including your investments.
Not all TDFs are the same. Some have excellent portfolio diversification across many asset classes, others offer just a few funds. Asset allocation, holdings, fees and performance varies markedly, even among the most popular TDFs with the same target age horizon.
Many TDFs have poor and/no exposure to smaller cap stocks and emerging market equity, two equity asset classes that present the best long-term growth prospects for younger plan participants.
A TDF can create the perception that reaching retirement age is the investment end zone and a time to spike the ball. Retirement (pre and post) is when investing gets really hard and yet most TDFs end holding a material amount of equity investments even at retirement age.
To be sure, investors at/near retirement in many 2010 TDFs got a jolt during the severe bear market of 2008-2009 due to their meaningful allocation to stocks, more then they many realized.
Bonds are no longer the master investment risk mitigator. As interest rates move lower and lower, bond funds, which enjoy the reputation for safety, have rarely been riskier and yet constitute a meaningful portion of late vintage TDFs.
In case you’re wondering what to do if currently invested in a TDF inside your retirement plan, here’s some planning nuggets to consider:
Look under the hood and analyze what your TDF owns. Is the TDF portfolio diversified enough? Check the performance of the underlying investments; are they using active or passive (index) funds? What is the equity allocation for the fund at/near your target retirement age?
Consider a hybrid strategy, investing in TDF and across other plan investments.
Coordinate your investments held outside of the retirement plan to fill in any gaps in your TDF holdings and/or other plan investments.
Check to see if your plan allows for in-service withdrawals (once you reach age 59.5) to better diversify your retirement capital.
And in case these suggestions aren’t your cup of tea, we can do this heavy lifting for you.
Until next time, be well…..Tim
Target date funds are sold by prospectus. Investors should consider the investment objectives, risks charges and expenses of the investment company carefully before investing. The prospectus contains this and other information about the investment company. Prospectuses may be obtained from your advisor and should be read in full. The investment return and principal value will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost