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Do I need more than a target-date fund?


In my last blog, I offered some tips on selecting a target-date fund (TDF). As I noted, TDFs provide ready-made portfolios for retirement-minded investors. And a balanced, well-diversified portfolio is perhaps the most critical factor to long-term investing success.

But other factors are important as well, and you may have additional goals beyond retirement. Suppose, for example, you’re in your early 30s. You and your spouse are saving for retirement, but you’d also like to begin saving for college for your 2 young children. At the same time, you’d like to buy a bigger house, but you’re worried about paying higher mortgage payments when you still have student loan debt from graduate school.

Since your oldest child is 15 years away from attending college, do you prioritize saving for college over your retirement? For college saving, do you use a 529 plan or a Uniform Gifts to Minors Account (UGMA)? How much do you need to save? What about paying off your own education loan? Do you miss the opportunity to buy your dream house if you wait to pay off that debt? In short, what do you do with your next dollar?

As your financial situation grows more complex, you’ll need to make many more decisions. This 1960s song lyric comes to mind: “Help! I need somebody.” Somebody, as in a financial advisor. Or something, as in a digital advice provider, commonly called a robo-advisor.

For definition’s sake, an advisor is a human professional with the education, training, and experience to provide financial advice. A robo-advisor is an online platform that delivers advice services through a digital interface and algorithmic programming based on user inputs. While not a perfect analogy, it’s similar to employing a certified public accountant (CPA) to prepare your tax return and offer guidance rather than using tax-planning software or online services.

In a future blog, I’ll evaluate the different types of advisors and provide insights on how to select the best option based on your individual financial situation. Right now, I want to focus on what you can expect from an advisor—human or robo—and whether you’re a candidate for professional advice.

An advisor can help you identify and prioritize your goals. For most of us, saving for retirement is priority number one. You can’t reach any of your short- or long-term objectives without knowing how much to save for each. The foundation of a solid plan includes creating a budget that covers your income and expenses, establishing an emergency fund, and prioritizing and providing saving recommendations for your various goals. Many advisors offer projections on the probability of success in reaching your goals.

An advisor will develop a suitable investment portfolio for you based on your goals, age, time horizon, tax bracket, risk tolerance, and other factors. The portfolio will feature investment recommendations—typically mutual funds or exchange-traded funds (ETFs). The advisor will also consider your tax situation and seek to maximize your investments through tax-efficient asset allocation and tax-advantaged accounts like an IRA.

Ongoing portfolio management, rebalancing, and monitoring are also part of the package. Professional advice can help you navigate a life change—the birth of a child, job loss, or receipt of a windfall from an inheritance or sale of a business—that requires guidance or changes to your plan.

Finally, depending on the comprehensiveness of the service and cost, you might receive assistance with insurance, philanthropy, and estate planning. For me, assistance in developing a thoughtful withdrawal strategy to generate income in retirement is one of the reasons I’d turn to an advisor; see my related blog, Why I’m considering financial advice.

Vanguard research had concluded there are significant portfolio, financial, and emotional benefits associated with financial advice.

First, advice may help you resolve common portfolio construction errors resulting from behavioral biases and financial illiteracy, including undisciplined risk-taking, an overweight in U.S. equities, and uninvested cash.

Second, our research has determined that advice improved financial outcomes. Specifically, 8 in 10 clients receiving advice had an 80{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} or greater probability of achieving a secure retirement. While only 2 in 10 clients remained at risk of not reaching their goal.

Lastly, many investors appreciate the emotional elements associated with an advisor or advisory service. The researchers observed that most of the perceived value among traditionally advised investors lies in the relationship with and trust in their advisor. The emotional benefits among robo-advised investors centered on a sense of accomplishment and control.

Do you need advice? If you have confidence in your knowledge and ability, and possess discipline, fortitude, and time, you may be fine with a do-it-yourself approach. If not, and your financial situation is complicated by multiple goals and other variables, consider a reasonably priced advice solution.    


Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date. Investors should check a Target Retirement Fund’s prospectus for any applicable expense ratios.

These fund suggestions are based on an estimated retirement age of approximately 65. Should you choose to retire significantly earlier or later, you may want to consider a fund with an asset allocation more appropriate to your particular situation.

Financial advisors typically charge clients fees in addition to any fund fees and expenses.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk.

We recommend you consult a qualified tax advisor about your individual situation.


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