Target date funds vs growth stock mutual funds (Dave Ramsey's advice)

I was watching some videos and Dave Ramsey was basically saying that target date funds are no good because when you get reallocated to bonds over time you earn way less interest and he said that there were a ton of mutual funds that out perform the S and P 500. I looked into this and have found some, but not a ton. Also it seems like the mutual funds are through different brokers (i think i used the correct verbiage there) What are your thoughts?

I’d be interested in getting @Jeremy’s opinion on this one :innocent:

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I love Dave, but his take on investing is bad. Suggesting there are “tons of mutual funds that outperform the S&P 500” is nonsense. Suggesting you can look at past performance and pick out which ones will outperform in the future is even more nonsense. Suggesting you should pay high fees for a slim chance at getting lucky and picking a mutual fund that happens to outperform the market has certainly cost his listeners untold millions or billions of dollars that has been funneled into the pockets of the financial services industry.

The arguments in favor of index fund investing over actively managed mutual funds are overwhelming and could easily fill a book. In fact, they did fill a book. The little Book of Common Sense Investing by Jack Bogle.

Dave is great at getting out of debt, but Jack Bogle is definitely the altruistic leader when it comes to investing. His impact on the industry has transferred trillions in wealth out of the hands of the financial services industry directly back to the pockets of the individual investor. He is the father of the index fund and should be everyone’s financial hero.

Regarding the critique that target date INDEX funds (note I added the word index, because not all target date funds are index funds) get too conservative and underperform. Yeah, maybe, but most 65 year olds I talk to are suddenly less concerned about getting maximal returns and more concerned about protecting the nest egg they’ve spent a career building and living stress free. That’s what TDIFs offer. If you don’t think that’s in your future, sure go with a three fund portfolio of index funds with the asset allocation that you prefer. You could also just choose a TDIF with a later date (say 10 years after you retire) to keep it more aggressive for longer.

Also, I think it’s important to reflect upon the fact that Dave has a conflict of interest regarding recommending high fee mutual funds, as he’s paid by his smartvestor pros.


Thanks so much! That makes sense. The more sources I read, the more index funds win.

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Thanks for that explanation Jeremy! One thing I was surprised to find was this article where John Bogle criticizes TDIF being too conservative or bond heavy (or at least that’s what I got out of this)

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Yeah, I certainly wouldn’t be one to contradict Mr. Bogle! He makes a good point about social security being part of the equation as well… that in essence acts as an income producing stable part of the portfolio that could take the place of bonds. As I mentioned above, I certainly think a three-fund portfolio or pushing the retirement age back on the target date funds is an excellent strategy :slight_smile:

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Yeah man you and John got me thinking now lol. Still going to keep the TDIF for my 401K but might go three-fund portfolio for Roth IRA and brokerage. I def do agree that TDIF are good for 99% of people, especially those who don’t know about PF/investing and don’t want to spend any time on it.

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Yeah, my general thinking is if someone goes with a TDIF and never changes, at retirement they’ll be in good shape even if the market gets wonky. If they get to 65 and realize they still want to be aggressive going forward indefinitely, they can swap out of the TDIF into all equities or whatever at that point.

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