Category Archives: Target Date Funds

Is Financial Engines right for you?

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financial enginesDear Mr. Market:

If you were asked to list two or three of the largest Registered Investment Advisory (RIA) firms in the country which ones would come to mind first? You’d definitely hear many of the names associated with Wall Street and the investment industry. Names like: Merrill Lynch, Charles Schwab, Fidelity and Wells Fargo – while these are certainly large firms none of them are RIA’s. We’ve written on several occasions what an RIA is and how they are driven by their fiduciary responsibility to their clients. A simple online search of RIA’s will show that the largest firm is nearly 40% larger than any its closest competitor. It specializes in assisting individuals in managing their company retirement accounts and has become a behemoth in the investment industry. Financial Engines, Inc. has risen out of relative obscurity and is quickly becoming a household name.

Financial Engines is based out of Sunnyvale, CA, is publicly traded under the ticker symbol FNGN, and currently manages over $90 billion in assets! To put this in perspective the second largest RIA firm is Fisher Investments with assets under management of just over $50 billion. Fisher Investments is a marketing machine and if you have a portfolio over $500,000 in value, you’ve most likely received one of their post card mailings or solicitation emails.

Financial Engines, on the other hand, is a relatively young company and is the creation of some of the brightest minds in the industry that made their mark in the late 1990’s. The founders of the firm are Nobel Prize winning economist William Sharpe, Stanford Law Professor Joseph Grundfest, Attorney Craig Johnson and Jeff Maggioncalda. While the firm went through some minor growing pains, they have certainly found their target market – working with individuals and managing the investments in their company retirement plans. Continue reading →

Force your Portfolio to be Disciplined in 2014

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Rebalance Cartoon

Congratulations Mr. Market…you’ve delivered a tremendous year of returns to equity investors!  With the broad equity markets delivering returns over 25% (S&P =29%, DJIA = 25% and the NASDAQ = 37% as of 12/27/2013) investors are now faced with the question of what to do now?  For those investors that were invested in stocks, especially domestic stocks, year-end statements are going to look very impressive but remember that is only on paper. As we step into 2014 what should investors do with their portfolios?

Often investors choose to go with an adage commonly heard in casinos – “Let it ride!” Although the market defied odds and dodged several ominous obstacles, there is no guarantee that it will continue to do so going forward.  Sitting back and doing nothing could very well allow those returns to dwindle away and become nothing but a memory.  It wasn’t that long ago that ‘The Tech Bubble’ hit investors with a strong left uppercut that they never saw coming.  Mr. Market delivered three years of impressive returns (1997 = 33%, 1998 = 28% & 1999 = 21%) only to see it disappear with three consecutive years of negative returns (2000 = -9%, 2001 = -11%, 2002 = -22%) and let’s not forget 2008 (-37%).   How can investors avoid repeating history while also managing the risk and unrealized gains in their portfolio?  Continue reading →

Target Date Funds – is it time to refocus?

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Off TargetDear Mr. Market :

You certainly have a unique sense of humor! Your unpredictable personality often leaves investors scratching their heads as they attempt to figure out your next move and how they should be positioned.  You’ve reintroduced us to market volatility the last few weeks and left investors scrambling.  During the first quarter of this year, investors moved billions of dollars into the equity markets as they began to gain a sense of comfort based on recent performance.  As investors muddle through the overwhelming amount of investment options available to them, more and more continue to look for the ‘quick fix’ or the ‘one stop shop’ and invest in Target Date Funds.  By simply picking the fund that has a date corresponding to a time frame they have in mind for their investment goals, they can put their portfolio on cruise control and focus on more important things. Simple, right?

If only it were truly that easy…“If it seems to good to be true, it probably is”

Investors need to take a step back and not allow ‘Mr. Market’ to play with their hard earned dollars and take a look if these funds are in fact too good to be true.  While the underlying premise of the fund appears sound, investors definitely need to kick the tires on these funds before buying them.  The typical Target Fund intends to be much more aggressive in the early years and as the years pass and the ‘target date’ approaches, they will become more conservative.  They do this through the asset allocation within the fund. Simply put, in the earlier years the portfolio has a higher percentage in stocks which then get trimmed with a reallocation and more exposure to fixed income or bonds.

Sounds perfect doesn’t it?! Continue reading →