Some personal finance "gurus" recommend funds with a track record of at least 10 years.

Both my current and previous employer default to Vanguard target year retirement funds. These funds from 2015 up to 2060 all have inception date of 06/26/2015. (Only 2065 fund has a different inception date, which is in 2017.)

Should I take the 10 year track record literally or should I judge a retirement fund based on the subfunds that the retirement funds are dispersed to?

3 Answers 3


There are a couple of reasons why Dave Ramsey advises you to look at the 10-year performance of mutual funds. When comparing the past performance of different funds, you need to make sure that you are using the same time period for each comparison, so that each fund will have been subject to the same market conditions over the comparison window. 10 years is a good amount of time for that comparison, as it is usually the longest time period that is reported in the marketing materials. If the fund has been around for less than 10 years, then obviously you won’t have a 10-year performance number for comparison.

As you mentioned, for a target date fund, which is itself made up of multiple funds, you can read the prospectus and see exactly which funds the target fund is invested in at what percentages, and how that will change over time. If you look at that and decide that you are happy with what it does, then it doesn’t matter that the fund was created recently, because you understand fully how your money will be invested.

Since you are looking at Dave Ramsey’s advice, I will point out that Ramsey advises against target date funds. The reasoning is that they generally start a little conservative and get more conservative quicker than is appropriate for many people. The result is that they generally underperform when compared to an investment portfolio that is invested more heavily in stocks. For example, let’s look at the prospectus of the Various Vanguard Target Date Funds. Imagine that you have decided you want to retire 30 years from now, so you choose to put your money in the 2050 fund. The prospectus says that right now your money will be invested roughly 90% in stocks and 10% in bonds. 15 years from now, your investment in the 2050 fund will look just like what the 2035 fund looks like now. The prospectus says that it will be invested 77% in stocks and 23% in bonds. And in 30 years, when you want to retire, we can look at the 2020 fund to see that at that time your investment will be only 53% invested in stocks, with 41% in bonds and 6% invested in short-term securities (cash).

Some people would call this plan too conservative, as it would stunt the growth of your retirement fund long before you need to access the money.

  • 5
    And I always thought he was against them because they don't offer his salespeople a 5% upfront fee.... Commented Feb 3, 2019 at 14:58
  • 5
    @JoeTaxpayer [Citation Needed]
    – Ben Miller
    Commented Feb 3, 2019 at 15:11
  • All personal finance gurus, with no exceptions, recommend investment strategies which benefit personal finance gurus. But they hope that if you are dumb enough to think it's too hard to make your own investment decisions, you are also dumb enough not to figure that out for yourself.
    – alephzero
    Commented Feb 3, 2019 at 17:55
  • 5
    @alephzero JoeTaxpayer offers advice on his blog. Does you statement include him? You answer questions here on Personal Finance & Money. Does your statement include you?
    – Ben Miller
    Commented Feb 3, 2019 at 17:58

The "gurus" are talking about managed mutual funds, which is where a "Rain Man" genius stock picker tries to pick the best stocks. 10 years separates the skilled from the lucky. They want you to compare managed funds to each other. Actually, compare them to the index. Make sure to subtract out their expense ratios and loads.

Or better still, compare them to index funds that work in the same domain of stocks, such as VFINX for large-caps. Index funds do in fact have expense ratios, but they should be very, very small (less than 0.1%). So make sure to compare them net of loads and expense ratios!*

In the case of Vanguard, their life-cycle target funds are index funds, those are basically Vanguard's whole thesis (read John Bogle's book). So comparing them to the index is a lost cause, they are the index.

Life-cycle funds

The deal is that the stock market gives the highest growth but high volatility also. If your planning horizon is long enough (>20 years), the volatility averages out and the stock market is such a sure investment that university endowments are in it.

However, as you get near retirement age, you risk getting nailed by a downturn, without enough time left to recover value. So as you get closer to retirement age, you should be migrating out of stocks and into stable but lower growth investments like bonds. Life-cycle funds do this automatically.

So if you want to compare a life cycle fund, you need to break it into its components and figure out what fraction is in bonds, comparethat to a bond index, which fraction is in large caps, compare that to the S&P 500, etc. etc.

Now, the life cycle fund does the blending based on a rigid formula, a clever person could look at market conditions and make big shifts when the market seems to be at a peak. However, that is called "timing the market", and brokers absolutely will never tell you to do that, for a lot of reasons, largely business ones.

* and compare good index funds, like Vanguard's. Every broker which pushes managed funds also has an index fund on their books, rigged with the same 5.25% load and 1.5% expense ratio that they charge managed funds. It's only there to look bad.

  • To which of John Bogle's books do you refer?
    – Charles
    Commented Feb 4, 2019 at 2:02
  • 1
    @Charles Common sense on mutual funds, little book on common senseinvesting, any will do. His media can be relied on to be about index funds the way David Cronenberg's media can be relied on to be weird. Commented Feb 4, 2019 at 2:33

Life-cycle target funds do serve a purpose. They allow the investor to not have to worry about shifting the allocation as they move closer to retirement.

The advice of only investing in funds that have a 10 year track record is great advice. It is to allow you to see how the fund managers invest in a variety of market conditions.

Unfortunately if you want to use that rule with the life-cycle funds you will have to wait until you are about 10 years into your career. They only spawn new funds when the next five year group is ready to join the working world. You see the exact same thing with 529 accounts. Every couple of years the state shifts the allocation percentages for each fund and makes a new one for newborns and infants.

That shifting percentage is what allows you to not apply the 10 year rule to the fund, but only apply the rule it to the sub-funds. So if these sub-funds have an acceptable track record, and the target life cycle fund still has low fees then you should not be concerned about the newness of the fund.

Some additional advice: If you decide to go this route with you current employers 401K, don't forget to properly document the current percentages when reviewing your allocations across all your investments.

  • 1
    A 10 year track record has no value whatsoever, if the investment manager who produced it has just changed jobs and no longer manages that fund. And you won't find out interesting facts like that unless you do a LOT of digging - and spend longer digging than you might have done managing your own investments in the first place.
    – alephzero
    Commented Feb 3, 2019 at 17:52

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