Optimal Finance Daily - Financial Independence and Money Advice 3252: Why You Shouldn't Buy Target Date Funds by Wanderer of Millennial Revolution on Investment Advice
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Aug 18, 2025 Target Date Funds might seem convenient, but they come with hidden fees and unnecessary complexity that can eat into your returns. The discussion highlights how a DIY strategy with ETFs could be more cost-effective and yield better results. A humorous take on the mindset of convenience seekers offers food for thought about our investment choices. Ultimately, the podcast makes a strong case for taking control of your finances rather than relying on these popular, yet flawed, investment options.
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How Target Date Funds Work
- Target date funds shift allocation from equities to bonds as retirement approaches and label funds by retirement year.
- This design promises a set-it-and-forget-it lifecycle approach tied to your age and target date.
Avoid High Fees
- Avoid target date funds for their high fees compared with low-cost indexed ETFs.
- Expect to underperform by roughly the MER difference over time if you replicate with cheap ETFs.
Hidden Active-Management Costs
- Many target date funds use actively managed internal funds, layering extra hidden fees.
- Those layered active funds often add another 1–2% in costs, inflating total yearly fees.
