target date funds

Target Date Portfolio: IncomeClub vs. Target Date Funds

Target date funds are powerful options for investors, and they have long been accessible to investors who prefer to have a defined time investment. However, these funds are not perfect, and IncomeClub offers an alternative that might be beneficial for investors.

However, these funds are not perfect, and IncomeClub offers an alternative that might be beneficial for investors.

Actually, both the use of IncomeClub’s platform and target date funds can be viable options for investors uncomfortable with self-managing their portfolios. How do these managed account solutions stack up to one another, though?

How do these managed account solutions stack up to one another, though?

The Basics of the Target Date Fund

Target date funds are not newcomers to the investment scene. They’ve been around for a while. The most common scenario is a tickered mutual fund that allows investors to specify the year in which they wish to retire.

Most often, they’re provided by fund families, and you’ll find them available through sources like American Funds, and Fidelity to name just a couple.

In most instances, investors have a menu consisting of five-year increments. For example, an investor might decide they wanted to retire in 2030 or in 2035. However, they could not decide they wanted to retire in 2032, or 2033.

Rebalancing, glide path, and asset allocation are all professionally managed, based on the investor’s specification of retirement date.

One of the most critical components to understand here is “glide path.” Really, this is nothing more than a gradual reduction of equity allocation within the fund as the retirement date approaches.

Eventually, an allocation will level out completely, remaining steady, although when this happens varies from one fund family to another.

In some instances, the glide path will continue through retirement, but in others, it ends at the retirement date.

IncomeClub – The World’s First Bond Investing Robo-Advisor Specialist

If you’re not familiar with the term “robo-advisor,” don’t worry. They haven’t been around that long. Despite that short length of history, there are quite a few variations on the market.

With that being said, they do share some commonalities. In most cases, they are automated investment advisors that help grow wealth based on a proprietary algorithm.For most robo-advisors, the investor completes a questionnaire, and then this information is used to tailor the portfolio.

IncomeClub is unlike any other robo-advisor out there. Where all others rely on ETFs, IncomeClub instead focuses on investing in individual, investment-grade bonds.

The firm takes a dedicated portfolio theory-derived approach, which focuses on creating predictable cash flow.

Bond investing offers a number of benefits, but one of the most crucial to understand is the concept of maturity.

In short, bonds offer a specific maturity date, on which the investor will receive their investment capital back (plus coupons throughout the duration of the bond, enhancing return significantly).

Why a Personalized Approach Is Better

Target date funds are a one-size-fits-all investment tool.

Obviously, this is not the right approach to take.

Your needs are not the same as another investor’s needs are. Your goals are not their goals. This goes for every single investor out there.

In comparison, IncomeClub’s personalization model ensures that your unique goals, needs and time horizon are taken into account, and then your portfolio is personalized to match those considerations.

Mutual Funds and Investment Advisors

Again, target date mutual funds are “one-size-fits-all.”

Investment advisors, on the other hand, take a one-at-a-time approach. In other words, you receive a personalized solution that bears your individual needs in mind.

IncomeClub is also registered with the SEC and provides a specialized, transparent, fiduciary investment management service.

The firm carefully considers not only individual investor needs but the suitability of the match between the investor and IncomeClub.

There are many factors included in this consideration, including the investor’s risk tolerance, their age, their overall investment goals, and their specific financial and personal circumstances.

The Question of Management Fees

Target date funds have a range of possible fees depending on the mutual fund’s expense ratio, as well as management fees and more.

For example, Vanguard offers one of the lowest on the market, at just 0.17%. However, most of the options available are higher than 1%.

IncomeClub charges investors a fee as low as 0.25% for accounts holding under $100,000, and a fee as low as 0.20% for accounts with more than $100,000 in them.

Choosing the Right Option for You

It’s hard to answer the question of which method is right for you, simply because there are so many potential factors. Target date funds do offer advantages, including the fact that they can provide broad diversification in different asset classes. This makes it a good option or those with less risk aversion.

However, for those who cannot tolerate much risk, as well as for those who require predictability and stability in their investing, IncomeClub’s option is the better of the two.

It is also important to understand that target date funds may not be the right choice if you are at or even remotely near retirement age, as they can and do lose a great deal of value in some years.

For example, the 2010 target date funds for most fund families in the Great Recession lost a whopping 20%.

When everything is said and done, target date funds and IncomeClub’s solution are both viable, but investors should consider their approach very carefully.