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Targeted or target-date funds are now hurting seniors. Well duh.

Posted by John Reed on

Guess what? Targeted or target-date mutual funds which adjust as you get older are now hurting older people.
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Well, duh.
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All targeted means is that as you age, they shift more of your money out of stocks and into bonds. That is the same as the hoary notion that the percent of your savings that should be in bonds should be the same as your age or other similar formulas.
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When did that last make sense?
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In the Great Depression, US government bonds and Post Office Savings account were the champion investments. That is because the Depression was deflation. Bonds were okay between WW II and around 1970 but not better than stocks.
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Then, in the 1970s the politicians discovered they could buy votes by having the Fed “print” money. And they have since gone nutS “printing” money. That causes inflation, the opposite of deflation. And that means bonds are NOT the best investment that they were in the Depression. They are the WORST.
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Same is true of fixed annuities. In inflation, bonds and fixed annuities are the WORST investment.
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I have been railing against bonds since my first edition of How To Protect Your Life Savings From Hyperinflation & Depression. Occasionally, that took the form of railing against targeted mutual funds because they are nothing but automatic selling of stocks—which triggers transaction fees and capital gains taxes and replacing them with bonds which may trigger transaction fees.
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Targeted is just a 21st century marketing spin on the hoary Depression era notion that bonds ares safe and secure and conservative. During inflation, bonds are neither safe nor secure nor conservative. They are FINANCIAL SUICIDE!
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If you had not signed some sort of “I understand how dumb this is” waiver, and you probably did, you should sue the investment advisor who sold you bonds in an inflationary era and an era of bond interest rates that were less than the inflation rate.
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I make no exception for TIPs or I bonds. Those purportedly have inflation protection. They are like a bullet proof vest make out of aluminum foil. Or more like an abortion clinic with a 10-month waiting list.
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High inflation happens DAILY. but the TIPs and I bonds only adjust semi-annually I think. It could be worse. They could adjust annually like Social Security.
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Furthermore, the adjustment is based on prices from something like two quarters (six months) before you get the higher amount. And the adjustment is to raise your principal amount which then immediately tax as a capital gain even though you cannot have the money until maturity!!!
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Double furthermore, it is likely that the government will renege on all CPI adjustment clauses because they perpetuate inflation which voters will be clamoring to end.
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If you have these damned targeted fund, I hope you did not also PAY the stupid SOB who gave you the mindless advice to buy low-interest rate bonds in an era of higher than that inflation.
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40% to 60% of 401(k)s are now held in these insane target-date funds.
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Bonds are dollar-denominated. In inflation, all dollar-denominated assets lose purchasing power—they become worth less. In hyperinflation, the purchasing power and therefore the value of all dollar-denominated assets and annuities becomes WORTHLESS without the space between the two words.
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The question “Should I get out of bonds?” in an inflation era is like the question “Should I leave my house?” WHEN YOUR HOUSE IS ON FIRE!
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YES!!!! NOW!!!!!
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Should you put the money back into stocks? Stocks are not inflation hedges. You should put the money into inflation hedges. Those are non-dollar denominated assets, namely real estate, commodities (I recommend US pennies and nickels—gold and silver are also commodities but are currently overpriced compared to their long-term historic real values), foreign currency, extra necessities like food, household consumables, cars, electrical appliances that you need.

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