Fear. It may be the single greatest motivator. It is something that can be manufactured and used to bring about desired outcomes. Usually the choices made while scared are poor choices. In the world of investing, fear of having enough money to retire is all too common.


Target-date funds are the subject of this installment of You've Gotta Be Kidding Me and an example of a desired outcome whereby money managers make yet more money while adding little to no value. The concept is simple: target date funds typically vest in thirty to forty years. The price of admission for these funds can be as high as 5.5% of your investing capital. After that, you’ll likely pay fees somewhere in the neighborhood of 1% annually. That means over the course of a 35-year period, $50,000 invested into a target fund may cost upwards of $100,000 in fees. You gotta be kidding me, $100,000?

Not that it ever would make sense to willingly part with $100,000, but at a time when yield is hard to come by, fees need to be kept to a minimum. At tastytrade, we believe the best way to keep fees low relative to returns is actively managing our own money. We do that by placing trades that have statistical high probabilities of success.

This is how target-date fund managers are hoping you’ll think: You need a certain amount of money in order to retire. Managing your own money is too risky. So hand over your money to a professionally managed fund vesting the same year you anticipate retiring. You wouldn’t want to make a poor financial decision that postpones your retirement, would you? While you’re at it, hand over your children to be raised by “professional child managers” because you wouldn’t want to make a mistake raising them. Because life is just that simple...

Ever get an “A” in school for not studying and not turning in assignments? Ever get promoted for doing nothing? I have a saying: nothing in life is worth having that you don’t have to work hard to get and work harder to keep. Handing my money over to someone else doesn’t meet that standard. Is there anywhere else where passivity pays?

Pull back that curtain on target-date funds and all we’ll find is disappointment. Target-date funds are nothing more than a gimmick with fear as its motivator. Want a target date for when I’ll invest in one of these funds? Try never.

If you’re looking for something to do that won’t scare you, watch tastytrade and see how we trade live on-air on tastytrade.com.