Jan 14, 2016

When the stock market tumbled in 2008, pleasant sounding “target date” funds for people near retirement sustained heavy losses. Since then, sponsors of these funds, which specify a likely retirement year in their monikers and are widely offered in 401(k) retirement plans, have generally lightened up on stock exposure, but have beefed up on low paying bonds.

Anne Tergesen writing for the Wall Street Journal points out the Catch 22 that is built in to so-called Target Date funds whose business model works well with interest rates on bonds somewhere in the five to seven percent range, but are gasping for air with bond rates in the two’s and three’s—making these funds potentially obsolete in the current environment.

With fund managers now raising allocations to bonds, these portfolios have grown more exposed to the negative impact on bond prices of rising interest rates—especially since the Federal Reserve has embarked on what is expected to be a series of U.S. interest-rate increases. Steve and Sinclair review and examine the risks and basics of target date funds, and how it applies to mutual funds and ETFs in general in this riskier market.

In the Q & A session, nationally renowned dividend expert Chuck Carnivale, the originator of F.A.S.T. Graphs, and FastGraphs.com joins the A-Team to discuss his approach to dividend investing. He explores two approaches--one that is very time consuming and another that is more in the "set-and-forget" mode. Both have their places. Mr. Carnivale is a long term blogger for Seeking Alpha and Guru Focus. Very interesting and timely discussion.