Another Franklin Fund Nosedive

[HoneyNut]

bond funds are no different then buying an individual bond .
...
as an example if a bond fund has a duration of 5 years and you paid 10 bucks and it paid 5%—if rates go to 6% then your fund value will fall to 9.50 but you will get 6% not 5% .

You may be right but my recent personal experience with bond funds indicates that bond funds are different than individual bonds.

I thought the point of having an asset allocation with a chunk of money in bonds was to provide capital preservation, but it sure didn't work that way with the long duration bond funds held within the retirement-target-year fund. And since the funds stopped paying income I don't think they are getting any kind of equivalent increase in value.

Also, bond funds are still different, but better IMO, for the high yield junk type bonds. I would not be able to buy enough variety on my own to mitigate risk, but I feel okay buying some of those bond funds.

 

[againstthegrain]

@HoneyNut Perhaps as we get closer to the target date of the target date fund one might separate bonds from equities. This way we can sell either bonds or equities when you need cash avoiding selling either during a down market.

Unfortunately we came through a period when both were down, which isn't how the script was written.

 

[mathjak107]

i am not a fan of target date funds for quite a few reasons .


there are no standard allocations for what is right . Each company does their own glide path .

target date funds load you up on investments based on time instead of what is happening around you and what part of the cycle an asset is in with no regard for your own risk tolerance.

not only do they not take risk tolerance in to the equation there is no standard format for what a fund should hold. it varys from fund family to fund family.

keep in mind there is noooooooooo standard as to how risky a target date should be even if you are at retirement .

the same 2010 target date fund from wells fargo in 2008-2009 lost 11.5% while the t.rowe price 2010 target fund lost 26.5%. that is a target fund that had 2 years to go before retirement.

in fact the t.rowe target date fund didn't fall to below 45% equities until 5 years after the target date. to make things worse after the downfall instead of buying more equities over the next 5 years as good investing tactics would dictate target funds actually shed their holdings further as they reduced down by design the equity side and sold while they really should be buying.


they also do not work well dollar cost averaging in . since markets are up 2/3's of the time and down only 1/3 that fact plus the fact as time goes on they are buying less and less equities could leave you under goal as you will be much more conservative then you may have wanted to be by dollar cost averaging.

 

[mathjak107]

keep in mind hat old school thinking that equities should be reduced more and more as we age has been proven now to be a poor glide path .

research by DR WADE PFAU AND MICHAEL KITCES show that equities should be reduced about 5 years before going in to retirement to about 35-40% when amounts are peak and a big hit would be a lot in dollars , then kept lower the first five years of retirement..

that danger zone is called THE RED ZONE .

ONCE THE RED ZONE is cleared equities can start to rise up to 50-60% .

i just cleared the red zone this year and increased from 40% to 52%

The Portfolio Size Effect And Optimal Equity Glidepaths

 

[OneEyedDiva]

i am not a fan of target date funds for quite a few reasons .


there are no standard allocations for what is right . Each company does their own glide path .

target date funds load you up on investments based on time instead of what is happening around you and what part of the cycle an asset is in with no regard for your own risk tolerance.

not only do they not take risk tolerance in to the equation there is no standard format for what a fund should hold. it varys from fund family to fund family.

keep in mind there is noooooooooo standard as to how risky a target date should be even if you are at retirement .

the same 2010 target date fund from wells fargo in 2008-2009 lost 11.5% while the t.rowe price 2010 target fund lost 26.5%. that is a target fund that had 2 years to go before retirement.

in fact the t.rowe target date fund didn't fall to below 45% equities until 5 years after the target date. to make things worse after the downfall instead of buying more equities over the next 5 years as good investing tactics would dictate target funds actually shed their holdings further as they reduced down by design the equity side and sold while they really should be buying.


they also do not work well dollar cost averaging in . since markets are up 2/3's of the time and down only 1/3 that fact plus the fact as time goes on they are buying less and less equities could leave you under goal as you will be much more conservative then you may have wanted to be by dollar cost averaging.

I had a couple of target date funds in my early investing days. I didn't like them either. I'm glad got rid of them early on.
Also re your other reply, I noticed the change in advice from subtracting one's age from 100 to use as a guide for how much to keep in equities. It's now subtract from 120. I'm a bit more aggressive than that even, but can afford to be because I don't need any part of my investments to live one.

 

[mathjak107]

I had a couple of target date funds in my early investing days. I didn't like them either. I'm glad got rid of them early on.
Also re your other reply, I noticed the change in advice from subtracting one's age from 100 to use as a guide for how much to keep in equities. It's now subtract from 120. I'm a bit more aggressive than that even, but can afford to be because I don't need any part of my investments to live one.

those formulas are crap .. how we choose to invest is not cookie cutter ..those old wives tales are not only wrong but harmful to one’s financial well being.

there is no such thing as an aged based formula for all which is why target funds for the same date are all over the place as far as glide path

modern research shows that after we pass whats called the red zone , equities should rise not fall

The Portfolio Size Effect And Optimal Equity Glidepaths

 

[OneEyedDiva]

those formulas are crap .. how we choose to invest is not cookie cutter ..those old wives tales are not only wrong but harmful to one’s financial well being.

there is no such thing as an aged based formula for all which is why target funds for the same date are all over the place as far as glide path

modern research shows that after we pass whats called the red zone , equities should rise not fall

The Portfolio Size Effect And Optimal Equity Glidepaths

I agree there's no one size fits all formulas and I've pretty much given up on
considering advice from so called experts.

 

[mathjak107]

anyone who tries to cookie cutter a plan by just age ain’t no expert

i just cleared our red zone after 8 years in retirement. we run different portfolios for different purposes and time frames

we typically keep 2 years cash

then 5 years or so in a conservative income model with 25% low beta funds and the rest assorted bond funds and it is 75% less volatile then the s&p,

it closed up for 2023 by almost 10%

then we have 10 to 15 years spending in a growth and income model which ranges from 50-60% equities
up 18.26%

the rest is in 100% equities consisting of vti total market fund and berkshire class b , up 16% but 25% less volatile then the s&p

 

[mathjak107]

i have been experimenting with what is called a leveraged risk parity portfolio based on the work of cliff asness as well as hoffsetin

it uses leveraged 3x funds with managed future funds to give you the gains of a 60/40 while cutting volatility down to a fraction of a traditional 60/40 .

i wont tell anyone to do this but it does look interesting so i am playing with it . it only has 2% of investable assets in it. enough to make it interesting but still dipping our toes

it works on the premise if we have a dollar , we can put 20 cents in a 3x fund like upro for our equities and it now has the weight of 60% equities ,

then we put 13.3 cents in tyd a 3x bond fund and we have the weight of 40% equities working for us .

the .67 cents left goes into a managed futues fund like dbmf which uses short and long strategies to protect the stocks and bonds . to complex to explain here .

its easy to implement but harder to understand the hows and whys it works .

results have been excellent so far with good gains and low volatility.

the one i use is called the carolina reaper

you can see how it beat a 60/40 over time but with far less volatility and risk

 

[debodun]

Being the end of the month, I checked the value of my Franklin fund and it's up a few thousand from last month. PHEW!

 

[mathjak107]

Being the end of the month, I checked the value of my Franklin fund and it's up a few thousand from last month. PHEW!

for me personally that fund would be part of a much more diversified portfolio and not the bulk of my investments. on top of which you need to pick your bond funds based on why you are owning it and how long you plan on holding it .

as i said earlier , in this fund the bonds it holds are pretty long in duration so they are extremely interest rate sensitive .

they also hold high yield and unrated bonds

so rising rates will hit this fund hard as will a threat of recession.

so while it spins off a comparative income stream in the bond world it carry’s lots of risk which is why it got hit so hard

 

[Brookswood]

those formulas are crap .. how we choose to invest is not cookie cutter ..those old wives tales are not only wrong but harmful to one’s financial well being.

there is no such thing as an aged based formula for all which is why target funds for the same date are all over the place as far as glide path

modern research shows that after we pass whats called the red zone , equities should rise not fall

The Portfolio Size Effect And Optimal Equity Glidepaths

I agree with you, sort of…..

I do think we need to take into account what the prospective investor will do if he/she does NOT invest in a target date fund. For many people that may mean letting the money sit in a bank CD earning a so-called high interest rate of 2.8% in today’s 5% world. ( I just saw an ad for this!)

Or they may be fooled into buying risky speculations, everything from Crypto to gold coins to stocks in can’t miss startups. Or, they might be sold a variable annuity with huge fees and all sorts of restrictions that limit how they can take their money out. Or fall into the hands of an unethical financial advisor who sells them a lot of high commission products when cheaper and better investments are out there. I’m sure we can come up with a lot of other goofy things to invest in.

So, if an age based mutual fund is easy to understand and requires little effort over the decades, these people might be better off. I speak of this from my personal experiences talking to people who in their 50’s and 60’s who have seen the fruits of their investments eaten up by greedy sales people, low performing funds, and outright dangerous speculations. It’s not pretty.

 

[Brookswood]

FWIW, I am on a gl

modern research shows that after we pass whats called the red zone , equities should rise not fall

The Portfolio Size Effect And Optimal Equity Glidepaths

Thanks for bringing up the Glidepath example. I am doing my own version of a Glidepath myself. Briefly, (well, brief for me) here it is.

Note: I am not wealthy, so protecting the buying power of what I have is of great importance to me. I have SS, a small pension, and what is left from investments after a divorce division and buying out my ex-wife’s share of the house.

I retired about years earlier than planned at about 60 due to work circumstances beyond my control. I have read studies showing that the chances of me living up to 10 years more than my parents did were descent (about 30%) if I took good care of myself and didn’t leave it all to chance. That means I might live to 100!!! Initially I left a lot of my investments in cash and very safe bond funds (which turned out to be not so safe after all).

However once I hit 70 I realized that I no longer would live another 40 years but actually only another 30 at the most, and probably less. So, I have started to increase my common stock investments using index funds.

What I do now is keep 5 years living expenses in ‘safe’ investments. The rest is in index funds, mostly total USA stock market, and some in international index funds. Every year in January I look at my 5 years of safe money and sell what I need to get it back to 5 years. I try to take into account any big expenses that may happen in those five years like needing to get a new roof on the house, or buy a new car to replace the current one. When RMDs hit I will first use that withdrawal to fill my 5 year bucket of money.

Then I forget about it for the next 50 weeks until January rolls around again. My only financial decisions are where to find the best rates on FDIC insured CDs and US Treasury obligations.

As the years roll on I will probably add a few more years to my ‘safe’ bucket, just to make certain I am not scraping for pennies in my very old age when my mental abilities may not be that great.

 

[Brookswood]

Being the end of the month, I checked the value of my Franklin fund and it's up a few thousand from last month. PHEW!

It’s been a good 2023. My total USA market index fund is up 26% In 2023. That pretty much gets me back to where I was at the previous market high in 2021. Albeit with more drama than I would have preferred.

 

[mathjak107]

I agree with you, sort of…..

I do think we need to take into account what the prospective investor will do if he/she does NOT invest in a target date fund. For many people that may mean letting the money sit in a bank CD earning a so-called high interest rate of 2.8% in today’s 5% world. ( I just saw an ad for this!)

Or they may be fooled into buying risky speculations, everything from Crypto to gold coins to stocks in can’t miss startups. Or, they might be sold a variable annuity with huge fees and all sorts of restrictions that limit how they can take their money out. Or fall into the hands of an unethical financial advisor who sells them a lot of high commission products when cheaper and better investments are out there. I’m sure we can come up with a lot of other goofy things to invest in.

So, if an age based mutual fund is easy to understand and requires little effort over the decades, these people might be better off. I speak of this from my personal experiences talking to people who in their 50’s and 60’s who have seen the fruits of their investments eaten up by greedy sales people, low performing funds, and outright dangerous speculations. It’s not pretty.

basically the target funds were created so wall street could cover its butt ….whether you think the allocation and glide path are appropriate or not , it automatically becomes appropriate if the sec approves the fund

 

[OneEyedDiva]

Being the end of the month, I checked the value of my Franklin fund and it's up a few thousand from last month. PHEW!

That's what the market does. Sometimes it will be up, sometimes down. Investing for the long haul instead of panic selling and buying yields the best results.

The end of the year report on the markets did very well in 2023. I don't know why the Dow's percent rise isn't mentioned here but I saw on TV that it ended the year up by 14% (I think). The forecast is for a good run in 2024. Most of my funds are in the Nasdaq but my portfolio didn't rise by 44%; its up 13.4% from the end of last year.
"The S&P 500 gained 24%, powered by resilient consumer spending, an economy that bucked calls for a recession, and steady corporate profits. The Dow Jones Industrial Average was powered higher, too, and the Nasdaq rode a wave of enthusiasm for artificial intelligence to finish the year 44% higher. "
US stocks fall but end the year with big gains as traders look ahead to easier Fed policy in 2024

 

[mathjak107]

one of my funds , fidelity blue chip growth was up 58%

 

[OneEyedDiva]

one of my funds , fidelity blue chip growth was up 58%

Nice!

 

[C50]

one of my funds , fidelity blue chip growth was up 58%

But it's still below its all time high correct? I have money in the same fund so pay attention to it. Personally I have trouble getting excited about a fund unless it surpasses previous levels, and by levels I mean dollars, not points or percentages.

 

[mathjak107]

But it's still below its all time high correct? I have money in the same fund so pay attention to it. Personally I have trouble getting excited about a fund unless it surpasses previous levels, and by levels I mean dollars, not points or percentages.

yes but 80% of all our investing time is below the last high and above the last low so bench marking off a mommentary point in time is silly , unless you bought at that level and are at a loss.

i own this fund for decades so it is up a nice amount .

no one sells a stock at the exact high so benchmarking off that high would be a bit crazy..

if you paid 50 bucks and the stock went to 120 and rolled back to 100 and you sold you would consider that a big win not a loss becuse you didn’t catch the momentary high.

equities are long term investments and the yard stick shouldn’t be a year or two

 

[Brookswood]

basically the target funds were created so wall street could cover its butt ….whether you think the allocation and glide path are appropriate or not , it automatically becomes appropriate if the sec approves the fund

And they’re a great marketing tool to use when dealing with people who think you have to be a rocket scientist to invest for retirement.

 

[Brookswood]

But it's still below its all time high correct? I have money in the same fund so pay attention to it. Personally I have trouble getting excited about a fund unless it surpasses previous levels, and by levels I mean dollars, not points or percentages.

Are you including dividends when calculating all-time highs?

I don’t follow the above fund. But, I know some people who leave out dividends when calculating ups and downs, and, thus are not looking at total return. So I thought I would ask.

 

[mathjak107]

i show fidelity blue chip growth with all distributions

up 20.53% cagr from 2019 to dec 30 2023

up 17.5 % cagr from 2020

up 5.53% from 2021

down 2.23% from 2022

for comparison vti total market fund is up 15.06% from 2019 and up .73% from 2022

if we go back to 2000 , 100k in fidelity blue chip growth is 897,580 while vti is 691,500.

for long term investors not hitting an old peak and calling it a loss is silly, equities are a variable balance with some days higher then other days.

the fact vti hit a new high has it behind blue chip growth which didn’t

for many funds the difference in expenses over the years can count more then hitting an old peak or not