Make sure your retirement planning tool is telling the truth.

It’s clear that target date funds are the leading default investment option for the defined contribution industry. Research from Vanguard shows tremendous growth in the TDF market. Participants who are automatically placed in TDFs should consider the tools and services they are offered to help them accurately plan for retirement.

We believe that every participant deserves to know how a TDF may impact their retirement goals. Not a single fund provider gives participants personalized retirement projections that consider a TDF glide path. This is a very big problem.

For example, a 25 year old participant may be placed in his provider’s 2050 TDF. This fund is sold with an ‘invest and leave it’ label, and he is assured that as he ages, his investment will be managed appropriately and properly contributed to.

To plan for retirement, he can enter his information into his provider’s retirement planning tool. When required to select a between a conservative, moderate and aggressive investment strategy, he decides that aggressive is the appropriate choice for a 25 year old.

Proposed regulations raise concern over active management in 401(k) advice. What does that imply for TDFs?

The new advice rules for 401(k) plans are creating quite a stir in the industry. One columnist shares his observations in a piece from CBS Moneywatch.

“The proposal, in part, concerns the delivery of advice to 401(k) participants. Worried that the advice might be slanted in favor of asset managers, the Department of Labor will require that the recommendations be provided by unbiased computer models. But the questions the Department is asking as it establishes the basis for those computer models have many in the brokerage industry up in arms. The questions, they fear, indicate that the guidelines for 401(k) advice will favor — if not exclusively require — the use of index funds.”

This brings a question to my mind: should target date funds only consist of passive funds as well?

Welcome to LikeAssets - Why you need a better benchmark

LikeAssets gives investors a brand new way to measure and benchmark investments. With people invested in so many different types of things, how do we compare them fairly?

In The Myth of Absolute Returns, Laurence Siegel says, “the universal goal of active management is to add value over a benchmark.” With this in mind, we’ve created the LikeAssets Benchmark, which allows our users to objectively compare the performance of leading publishers and authors as well as their own portfolios, ideas and strategies.

Investment websites are a big business. They impact millions of investors’ decisions. Why don’t people monitor their performance? It only seems fair.

Using indexes as benchmarks

In a Morningstar Investing Classroom course, novice investors are introduced to the concept of using indexes as benchmarks. Students are educated on how the most popular indexes may not be the most appropriate ways to measure their own investments.

“The Dow Jones Industrial Average (DJIA) may be the index that heads the stock market report on the evening news, but it’s rarely used as a performance benchmark for stock mutual funds… despite its widespread appeal, the S&P 500’s focus on large companies means it’s not representative of the entire market and smaller stocks’ performance in particular. It’s therefore inappropriate to measure a fund that doesn’t buy large companies.

“So what is the best index to use as a benchmark? Well, that depends entirely on what you’re comparing to it. Morningstar gives the reader some suggestions, “The Russell 2000 Index, which tracks smaller U.S. companies, is a good tool to evaluate many small-company funds, while the Morgan Stanley Capital International Europe Australia Far East (MSCI EAFE) Index, which follows international stocks, is a good measuring stick for foreign funds.”