The default option inside many employer-sponsored retirement plans are Target Date Funds (TDFs), which adjust their portfolio holdings automatically over time based on a specific target retirement date. Morningstar just released their 2020 Target-Date fund report. You’ll need to provide your name and e-mail to download the free full report. There is a lot of in-depth analysis for industry insiders, although many individual investors are basically stuck with the one fund series that is available in their 401k/403b plan. Besides looking up your fund, here are a few broader takeaways.

Here is the average glide path across 53 different TDF series (taken from 2019 report). On average, most TDFs have an asset allocation close to 90% equity and 10% bonds in the early years, with the equity percentage dropping (and bond percentage rising) as time goes on. At the year of retirement, the average asset allocation is roughly 45% equity and 55% bonds.

Glide paths stick closer to the average across funds during the early accumulation years, but differ much more as you near retirement. Near-retirees take notice! The chart below shows the historical percentage difference in quarterly return between funds with the same target dates. (All the 2020 funds were compared, all the 2030 funds were compared, etc.) You can see that during the “COVID crash” in Q1 2020, the biggest difference in performance actually came from the funds meant for those in retirement.

Some TDFs maintain a higher equity allocation and keep lowering it gradually “through” the retirement date, while others decrease more sharply right up “to” the retirement date and then hold things steady. For a 2020 fund, this could mean a 15% difference in the amount of stocks being held in 2020 (ex. 45% stocks vs. 30% stocks). The situation actually flips a decade after retirement and the “through” funds end up holding less stocks on average.

The past performance of TDFs often hinges on recent stock market performance and which funds are holding the most stocks (or most domestic stocks). Both the “through” and “to” methods have their pros and cons, but one might fit your own preferences better. I personally think that people do respond differently to market drops after they stop working completely and have fully exhausted their “human capital”. (Once you can’t make any more money, you start to stare at your balance more often…) Perhaps the gradual “through” funds would work better for those that also stop working gradually, while the “to” funds would be better for those that stop work completely.

You can adjust your volatility level by picking a different date. You probably only have one TDF series as opposed to a wide menu. If it’s too stock-heavy for you, then just pick a retirement date that is earlier. If it holds too many bonds, then just pick a retirement date that is earlier. There is no rule that you have to pick your actual retirement year, or even any single one.

Gold or Silver-rated Target Date Funds. Morningstar changed up their ratings methodology in November 2019. A very detailed explanation and full rankings are in the report. Here are the gold/silver-rated funds and whether they are “through/to”:

• Blackrock LifePath Index (To)
• JPMorgan SmartRetirement Blend (To)
• Fidelity Freedom Index (Through)
• Fidelity Freedom (Through)
• JPMorgan SmartRetirement (To)
• State Street Target Retirement (Through)
• Vanguard Target Retirement (Through)
• American Funds Target Date Retirement (Through)
• T. Rowe Price Retirement (Through)

All other things equal, I’d still prefer a passive index approach with rock-bottom costs, but I’m glad to see even the actively-managed TDFs have lower expense ratios now than before.

Some of these TDF series are not available to retail investors outside of a employer-sponsored retirement plan. The Vanguard Target Retirement fund series remains the most popular with a 37% market share as of March 2020, and is also available to retail investors with a $1,000 minimum investment.

Bottom line. Although we often don’t have much choice in the matter, the good news is that every year the average target date fund gets cheaper and more competitive. Any of the gold/silver fund series above are able to provide a simple all-in-one solution. Added together, these “top-rated” options make up 78% of all TDF assets. However, it is still important to understand how your fund’s asset allocation changes as it nears the target retirement year, and know that you can pick a different year to adjust your risk level. If your fund is one of the bottom-dwellers, you may want to use this report to bug the HR department.

The 2020 Berkshire Hathaway Annual Shareholder Meeting was on May 2nd, 2020 and is now available as a recorded video on Yahoo Finance and a handy Rev.com transcription. As usual, I recommend listening or reading on your own, as my notes always differ slightly from what the business media chooses to highlight.

What makes Berkshire Hathaway (BRK) interesting to me is that it all started out as Buffett investing his own money alongside a few close family and friends. He’s always had nearly all of his own money in it. Even today, Berkshire is the main investment vehicle for many family members. People you run into at the store. People with whom you’ve shared a meal. This changes the types and amounts of risk you take.

And, now, I would never take real chances with money, of other people’s money under any circumstances. Both Charlie and I come from a background where we ran partnerships. I started mine in 1956 for really seven either actual family members or the equivalent. And Charlie did the same thing six years later. And we never, neither one of us, I think, I know I didn’t, and I’m virtually certain the same is true of Charlie, neither one of us ever had a single institution investment with us.

Buffett has stated that when he writes his annual letters, he imagines his sister reading them. That’s how I try to write as well, as an enthusiast making careful shares and recommendations to family. This overall sentiment helps you understand how BRK is run.

He started out with a familiar story of “betting on America”. This country has been though a lot, and it will recover again.

One of the scariest of scenarios, when you had a war with one group of States fighting another group of States, and it may have been tested again in the great depression, and it may be tested now to some degree, but in the end the answer is never bet against America, and that in my view is as true today as it was in 1789, and even was true during the civil war, and the depths of the depression.

In terms of investing, this means holding onto stocks for 20 or 30 years. But to survive the shocks during those times, you should never borrow money to invest in stocks, you need to have adequate reserves in 100% safe cash, and you need the proper psychological temperament.

The American tailwind is marvelous. American business represents, and it’s going to have interruptions, and you’re not going to foresee the interruption, and you don’t want to get yourself in a position where those interruptions can affect you either because you’re leveraged or because you’re psychologically unable to handle looking at a bunch of numbers.

You just don’t know what’s going to happen. You know, at least in my view, you know that America’s tailwind is not exhausted. You’re going to get a fine result if you own equities over a long period of time. And the idea that equities will not produce better results than the 30-year Treasury bond, which yields one and a quarter percent now, it’s taxable income. It’s the aim of the Federal Reserve to have 2% a year inflation. Equities are going to outperform that bond. They’re going to outperform Treasury bills. They’re going to outperform that money you’ve stuck under your mattress.

Simple, low-cost S&P 500 index fund for growth. Avoid the salespeople.

So find businesses. Get a cross section. And in my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there’s more money in it for them if they do. And I’m not saying that that’s a conscious act on their part. Most good salespeople believe their own baloney. I mean, that’s part of being a good salesperson. And I’m sure I’ve done plenty of that in my life too, but it’s very human if you keep repeating something often enough.

100% backed-by-the-government cash for safety. For them, it means Treasury-backed bills. For individual investors, this extends to FDIC-insured savings accounts and certificates of deposit.

And that means we own nothing but treasury bills. I mean, we’ve never owned, we never buy commercial paper. We don’t count on bank lines and a few of our subsidiaries have them, but we basically want to be in a position to get through anything. And we hope that doesn’t happen but you can’t rule out the possibility anymore than in 1929 you could rule out the possibility that you know you would be waiting until 1955, or the end of 1954, to get even.

Ignore the two things above if you have credit card debt.

My general advice to people, I mean, we have an interest in credit cards. But I think people should avoid using credit cards as a piggy bank to be rated. I had a woman come to see me here not long ago, and she’d come on some money. Not very much, but it was a lot to her. She’s a friend of mine, and she said, “What should I do with it?” I said, “Well, what do you owe on your credit card?” She says, “Well, I owe X.” I said, “Well, what you should do…” I don’t know what interest rate she was paying, but I think I asked her and she knew. It was something like 18% or something. I said, “I don’t know how to make 18%.” I mean, if I, owed any money at 18% the first thing I do with any money I had would be to pay it off. It’s going to be way better than any investment idea I’ve got. That wasn’t what she wanted to hear.

Be safe with your finances at this time. You don’t sell your airline stocks at a multi-billion dollar loss if you think a V-shaped recovery is likely. Just because we are still recovering from one horrible event, doesn’t mean another might not happen.

I would say that there are things that I think are quite improbable. And I hope they don’t happen, but that doesn’t mean they won’t happen. I mean, for example, in our insurance business, we could have the world’s, or the country’s, number one hurricane that it’s ever had, but that doesn’t preclude the fact that could have the biggest earthquake a month later. So we don’t prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum. I mean 2008 and 9, you didn’t see all the problems the first day, when what really kicked it off was when the Freddie and Fannie, the GSEs went into conservatorship in early September. And then when money market funds broke the buck… There are things to trip other things, and we take a very much a worst case scenario into mind that probably is a considerably worse case than most people do.

After listening to this entire Buffett talk and reading this Munger interview, the overall takeaway is definitely that of safety. They have been safe and will stay safe, no matter who complains about their cash levels. The world has changed, and just because something has a lower price today than in January, doesn’t automatically mean it is a better deal than in January.

Here is a NYT Dealbook article by Andrew Ross Sorkin, who has attended many shareholder meetings in person and also sensed a different tone this year.

You can find links to previous years’ Berkshire Hathaway Shareholder Meeting Full Videos, Transcripts, and Podcasts here.

(2020 update. The 2020 Berkshire Hathaway Annual Shareholder Meeting took place virtually with a Q&A session with Warren Buffett and Greg Abel (the likely next CEO). Right now it is available on replay at Yahoo Finance with the full transcript linked below.)

Berkshire Hathaway’s Annual Shareholder Meetings are held in Omaha, Nebraska every May. Although most of my portfolio is in a diversified mix of index funds, I also own individual shares of Berkshire Hathaway and respect the rational and practical advice given out by Warren Buffett and Charlie Munger.

I also like getting the information directly! I missed the live event again in 2019, but I plan catch up by first reading the WSJ liveblog, and then listening to the entire Q&A session via Yahoo Finance podcast at my own pace. Here are the many ways that you can catch up on past shareholder meetings.

Full Videos

• Yahoo Finance Livestream. Yahoo Finance is the exclusive online host of the Berkshire Hathaway 2020 Annual Shareholders Meeting that occurred May 2nd, 2020. View the entire Q&A session in its entirety on demand.
• CNBC Warren Buffett Archive. Footage of shareholder meetings from 1994-2019 In 2018, Berkshire gave CNBC a box of old VHS tapes (!) which were converted to digital videos so that everyone can view them for free. Additional material from CNBC including interviews, highlights, and short-form videos is also available.

Transcripts

• 2020 transcript by Rev.
• 2019 transcript by The Hobbyist Investor.
• ValueWalk 2018 notes by Adam Blum.
• ValueWalk 2017 notes by David Kass.
• ValueWalk 2016 notes by David Kass.
• ValueWalk 2015 notes by Ingrid R. Hendershot.
• ValueWalk 2015 notes by David Kass.
• ValueWalk 2014 notes [PDF] by Alex Bossert.
• Several individual investors share their own notes and transcripts after each meeting online each year.

Liveblogs

• 2020 CNBC Liveblog.
• 2019 WSJ Liveblog. Wall Street Journal has done a liveblog each year with highlights from the Q&A session. This is a good option if you are short on time. 2018. 2017. 2016. 2015. 2010.
• Bloomberg 2019 Liveblog. 2018.
• Morningstar 2019 coverage (no liveblog for 2019). 2018 Liveblog. 2017. 2010.

Podcasts

• Yahoo Finance also makes the BRK meeting available as a podcast, so you can listen in parts during your commute or chores. I listened to the entire 2018 meeting in the car while driving, and I liked it much better than sitting in front a computer. 2019 is already uploaded. iTunes. Player.fm.

Books

• University of Berkshire Hathaway: 30 Years of Lessons Learned from Warren Buffett & Charlie Munger at the Annual Shareholders Meeting by Daniel Pecaut and Corey Wrenn. My book review.
• Pilgrimage to Warren Buffett’s Omaha by Jeff Matthews was published in 2008 and presented a detailed personal account of his experiences at the meeting.

This post is about the live shareholder meeting, and is separate from the 2019 annual shareholder letter (which are also great).

Scott Burns of the Dallas News is known for his “Couch Potato Portfolios”. These are literally the simplest, laziest, easiest portfolios that you will ever see. The Basic Couch Potato Portfolio is 50% Total US Stock and 50% Total US Bond funds/ETFs. The Margarita version is 1/3rd US Stocks, 1/3 International Stocks, and 1/3 Bonds. Can’t get much easier to remember than that! You may be surprised at how well they have performed despite their simplicity.

Indeed, Burns recently provided another update on his Couch Potato portfolios, this time for theoretical retirees from various periods including those who retired in the year 2000 to the end of March 2020 (emphasis mine):

In this scenario, you’d be:

– Retiring just as the Internet bust was starting.
– Getting run over by the 2008-09 financial crisis.
– And ending with the coronavirus crash through the end of March.

In spite of all that, you wouldn’t be broke.

Here is a chart of how a 65-year-old couple would have done if they retired in various years from 1989 to 2015 and went with a 4% withdrawal rate (adjusted annually for inflation).

These retirees may not be shopping for a yacht, but they are still hanging in there. Simple, cheap, and diversified does much of the heavy lifting required. I appreciate that he included the likelihood that one or both of the couple would survive until 2020 as well. You may be surprised by how long your portfolio might have to last, but we also have to balance the risk of running out of time with the risk of running out of money.

The last 10 years of stock market returns have been pretty remarkable. If you invested $100,000 in the S&P 500 in the year 2000 and held it though the dot-com crash and financial crisis, you would be closing in on $300,000 today. However, if you retired in 2000 with a portfolio invested in the S&P 500 and used a 4% withdrawal rate (increasing each year by 3% for inflation), your nest egg would less than $50,000 and on a path to zero!

This stark difference between accumulation and withdrawal modes is illustrated by the chart above, taken from the Blackrock Blog post How to avoid “dollar cost ravaging” in retirement. “Dollar-cost ravaging” is also known as “sequence of return risk”, as explained in the this quote:

Investors have probably heard the term “dollar-cost-averaging,” where you make regularly timed investments to smooth out the risk of “buying high.” Retirees tend to do the opposite. Instead of putting money into their portfolio, they take it out with a regular cadence in the form of income. “Dollar-cost-ravaging” occurs when the market loses value while you’re taking withdrawals, especially in the early years of retirement. Because money is coming out rather than going in, it’s harder for the retiree to recover their losses when markets rebound. We even saw this during one of the most successful bull markets in our history over the past decade. The sequence of returns matters, and the biggest challenge is a bear market early in your retirement.

Unfortunately, there is no easy solution to this problem. This is what the article offers: “Striking the right balance to limit your losses in a declining market is just as important as capturing growth when the market is strong.” In other words, don’t hold too much in stocks, but also not too little. You can more easily weather a recession when you are still working and saving then when you are spending it down. I think more important advice is that you should be ready to withdraw less money out of your portfolio if the market tanks early on in your retirement withdrawal phase. Don’t follow a rigid withdrawal rule from some academic study into oblivion!

Now that you’re done reading articles about what happened in 2019, how about stepping back and taking in the longer view? Most successful savers invest money each year over a long period of time, these days often into a target-date fund (TDF). It may not get you doing silly things on a super-yacht, but this slow-and-steady behavior is a perfectly legitimate way to build wealth. Not everyone gets rich with IPOs or Bitcoin.

Investment benchmark. I chose the Vanguard Target Retirement 2045 Fund as this all-in-one fund is low-cost, highly diversified, and available both inside many employer retirement plans and anyone with an IRA. During the early accumulation phase, this fund holds 90% stocks (both US and international) and 10% bonds (investment-grade domestic and international). I think it’s a solid default choice in a world of mediocre, overpriced options.

Investment amount. For the last decade, the maximum allowable annual contribution to a Traditional or Roth IRA has been roughly $5,000 per person. The maximum allowable annual contribution for a 401k, 403b, or TSP plan has been over $10,000 per person. If you have a household income of $67,000, then $10,000 is right at the 15% savings rate mark. Therefore, I’m going to use $10,000 as a benchmark amount. This round number also makes it easy to multiply the results as needed to match your own situation.

A decade of real-world savings. What would have happened if you put $10,000 a year into the Vanguard Target Retirement 2045 Fund, every year, for the past 10 years? You’d have put in $100,000 over time, but in more manageable increments. With the interactive tools at Morningstar and a Google spreadsheet, we get this:

Investing $10,000 every year for the last decade would have resulted in a total balance of $174,000. That breaks down to $100k in contributions + $74k investment growth.

Are you a dual-income household that can put away more? If you were a couple that both maxed out their 401k and IRAs at roughly $20k each or $40k total per year, you would have a total balance of $700,000! That breaks down to $400k in contributions + $300k investment growth.

Bonus: 15 years of real-world savings. What would have happened if you put $10,000 a year into the Vanguard Target Retirement 2045 Fund, every year, for the past 15 years instead? (Now $150,000 total.) This is a self-centered inclusion as it has now been 20 years since I graduated college and 15 years since starting this blog. Here are the extended return numbers:

Investing $10,000 every year for the last decade and a half would have resulted in a total balance of $307,000. That breaks down to $150k in contributions + $157k investment growth. Your gains are now officially more than what you initially invested!

Are you a dual-income household that can put away more? If you were a couple that both maxed out their 401k and IRAs at roughly $20k each or $40k total per year, you would have a total balance of over $1,200,000! That breaks down to $600k in contributions + $620k investment growth.

Timing still matters, but not as much as you might think due to the dollar-cost averaging and longer time horizon. Yes, the last decade has been a great run for US stock markets. But Vanguard Target funds also own a lot of international stocks, which haven’t been nearly as hot and have maintained lower valuations. More importantly, you can’t control that part. You have much more control over how much you save. Here are my previous “saving for a decade” posts:

• January 2007 to December 2016
• January 2008 to December 2017
• January 2009 to December 2018

Work on improving your career skills (or start your own business), save a big chunk of your income, and then invest it in productive assets. Keep calm and repeat. Our path to financial freedom can be mostly explained by such behavior. The only “secret” here is consistency. We have maxed out both IRA and the 401k salary deferral limits nearly every year since 2004. No inheritances, no special access to a hedge fund. You can build serious wealth with something as accessible and boring as the Vanguard Target Retirement fund.