At work, we're in the process from switching from an IRA to a 401(k) and I've been looking at the different fund options.
What struck me as very strange was how poorly the Vanguard Target Retirement Date funds even for targets 25-40 years in the future have performed over the last several years vs. the stock market overall.
Comparing performance of their 2050 target date fund (VFIFX) vs. the S&P 500 (.INX) over different date ranges, I get these results:
VFIFX: + 19.39%
.INX: + 25.65%
Past 5 years:
VFIFX: + 35.73%
.INX: + 60.44%
Since Jun 2006 (beginning of Google Finance's data for the comparison):
VFIFX: + 100.15%
.INX: + 158.88%
While I would totally understand a target, say, 2030 or 2035 fund having results of this nature, this seems odd to me for a target 2050 fund (and even the target 2060 results appeared to be very similar.)
Why would a fund targeting retirement 30+ years out have such poor results vs. the S&P 500?
Are the funds targeting that far out really that conservative vs. the stock markets overall? Or is this more just a result of the target funds having more global investments during a time when the U.S. stock market has been performing much more strongly than those of, say, the BRIC nations? Or something else I'm missing?