I’d like to review with you the remarkable development of these all-in-one funds that keep coming out. For those that are going to be investing in Euros, Vanguard has now come out with Euro-based LifeStrategy funds. Even iShares now has similar, new all-in-one funds. A few years back Canadians got these, Australians got these, and now the British have them. If they live in Britain, they can go directly with Vanguard. Of course, we’ve had them in the States for years.
I think the growing availability of these all-in-one funds is awesome news for investors! Knowing how to construct a portfolio, can be very challenging for folks – whether they’re experienced investors or folks that are just getting started. It can seem to be difficult and overwhelming. There are so many different options. Even after you’ve put together a portfolio you are comfortable with, there may be some additional transaction costs associated with those. Going forward, you’ve read that you need to keep your portfolio in balance, so you’ve got to rebalance it from time to time. How are you going to do that? How are you going to monitor it?
Well, all of this is done for you in these fantastic all-in-one funds. There might be a little bit of work that you need to do. Maybe you have to modify these. Let’s imagine that you have a portfolio that’s an all-in-one portfolio that’s 80% stocks and 20% bonds. As you get closer to retirement or closer to financial independence, you might have to begin to change that to a 60/40 portfolio or a 40/60 portfolio. So there is some work that you might have to do. One kind of all-in-one fund is called a target date fund and is based on the date you plan to retire. These all-in-one, target date funds that Americans have and that the British have will even adjust your portfolio over time. I think these are wonderful developments for the individual investor.
Now, of course, many advisors think they’re the worst things that are available. In fact, I saw a thread on a social media site where an advisor had posted how horrible target date funds were: they were too generic, they didn’t take into account an individual’s personal situation, and they were basically going to ruin peoples’ futures. Some of the dialogue was that severe! Of course, to a certain extent there is a validity to some of those comments. There might be cases where an all-in-one fund or a target date fund doesn’t necessarily make sense for an investor. For example, if they have a Roth IRA as an American and it’s just a small component of their investments, then it might make sense to be more aggressive there than an all-in-one fund would allow. Or, if they have plenty of other assets, they have a pension plan, or they have income that’s going to be coming in from real estate or some other source, then maybe they want to structure their investments in a different way than an all-in-one fund or target date fund might accomplish for them. There are some cases like that.
But for so many people these all-in-one funds are awesome, wonderful ways to invest! They simplify everything. And they even protect many investors from themselves and from those behaviors that can have a negative impact on their portfolio’s performance. The idea with the all-in-one fund is that it’s hands-off – you let the markets do what they’re going to do. You enjoy the broad diversification you get with these funds and accept the fact that you don’t have to do anything.
My view is that one of the best developments for investors is the availability of these all-in-one funds. They will make it simpler and easier for investors of all types all over the world to get all of their investment needs met in a nice all-in-one type of choice. What’s going to be the hard part about this, though, is for investors to accept that these products are really that easy.