When I set up a 401k a few years ago, my options were pretty limited, so I simply went with a lifecycle target retirement date fund (exp ratio of 0.12%). However, I now see I can choose a passively managed S&P 500 Index fund with an expense ratio of 0.02%.
I am 24, single, have no debt, my employer matches the first 6% for 401k, and have a roth 401k option. I am also maxing out my Roth IRA into a Vanguard 2050 fund.
After reading a bunch of questions/answers here I am having a hard time understanding why I should not simply put all my 401k (roth and non-roth) into the S&P 500 Index for the near future.
I understand automatic diversification is an advantage of the target retirement type fund (though the bulk of the 2050 range are in stocks, similar to the S&P 500). I also understand a purely S&P based 401k is not ideal when I am considerably closer to retirement.
- What factors should someone (especially younger) consider when determining whether to choose a lifecycle 401k option vs an index-type fund?