Target-dated retirement mutual funds are getting more and more popular, offering instant diversification into stocks and bonds, as well as automatically shift to a more conservative blend as you near your target retirement date. An all in one fund! Whenever you see a finance article talk about the “best” of these mutual funds, invariably Vanguard and T. Rowe Price top the list. Recently, Kiplinger’s Personal Finance magazine named T. Rowe Price “the best Target fund available”. I’ve been meaning to do my own personal (and imperfect) comparison for a while now.
What makes a fund good?
First, why am I picking these two to compare? If you’ve read the books on my reading list, you’ll know that history and research has shown that the two most important factors that predict long-term performance are:
- Asset class – What is the fund invested in? Large-cap domestic stocks? Short-term bonds?
- Expense ratio – How much is the mutual fund company charging for its services?
Vanguard founder John Bogle sums it up well:
[Read more…]