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By Don Phillips |

Bogle: Target Date Funds a Bit Too Clever

The Vanguard founder and former chairman is growing increasingly concerned that target date funds won't provide investors with the right asset allocation for their unique circumstances.

Don Phillips: What do you think about target date portfolios?

John Bogle: I'm increasingly nervous about target date portfolios with each passing day for a whole bunch of, I think, rational reasons.

Number one, the fact that you're going to retire in 2015 means something to investor A in terms of asset allocation, and something very different to investor B--[yet] they're both going to retire in 2015.

Take one example. One does not have Social Security, and if he has, say for the purpose of argument, $300,000 and he's 65. Using what I modestly call the Bogle Rule, he's 65% in bonds and 35% in stocks.

Investor B, also retiring in 2015, has a capitalized value in his Social Security an incredibly valuable and wonderful investment of, in round numbers, $300,000. So his $300,000 in his personal account, same as the other guy, if he puts, just for the purpose of argument here, $150,000 of that in bonds and $150,000 in stocks, he's 75% in fixed income and 25 percent in stocks. So it's a very different allocation, just whether you have a pension plan or a retirement plan, or, for example, other sources of income.

It's a little bit too clever a solution, I think, when it's perfectly easy for an investor to manage his own target date fund to take that into new account and just automatically rebalance.

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