Principal LifeTime 2040 R5 (PTDPX)
Expense Ratio: 1.03%
Expected Lifetime Fees: $30,576.12
The Principal LifeTime 2040 R5 fund (PTDPX) is a Target Date 2036-2040 fund started on 3/1/2001 and has $2.90 billion in assets under management. The current manager has been running Principal LifeTime 2040 R5 since 3/24/2011. The fund is rated by Morningstar. This fund does not charge 12b-1 fees.
iShares S&P Target Date 2040 (TZV)
Expense Ratio: 0.11%
Expected Lifetime Fees: $3,595.26
The iShares S&P Target Date 2040 (TZV) is an Exchange Traded Fund. It is a "basket" of securities that index the Target Date 2036-2040 investment strategy and is an alternative to a Target Date 2036-2040 mutual fund. Fees are very low compared to a comparable mutual fund like Principal LifeTime 2040 R5 because computers automatically manage the stocks.
|Mutual Fund Name||Ticker Symbol||Turnover||Assets (M)||Annual Fees|
|AllianceBern 2040 Retirement Strat I||LTSIX||12.0%||125||0.76%|
|AllianceBern 2040 Retirement Strat K||LTSKX||12.0%||125||1.01%|
|American Century LIVESTRONG 2040 Instl||ARDSX||5.0%||325||0.72%|
|American Century LIVESTRONG 2040 Inv||ARDVX||5.0%||325||0.92%|
|American Funds Trgt Date Ret 2040 A||AAGTX||1.0%||1,000||0.77%|
|American Funds Trgt Date Ret 2040 R4||RDGTX||1.0%||1,000||0.78%|
|American Funds Trgt Date Ret 2040 R5||REGTX||1.0%||1,000||0.48%|
|American Funds Trgt Date Ret 2040 R6||RFGTX||1.0%||1,000||0.43%|
|BlackRock LifePath 2040 Institutional||STETZ||4.0%||768||0.85%|
|BlackRock LifePath 2040 Institutional||STLEX||4.0%||768||0.85%|
|Fidelity Advisor Freedom 2040 A||FAFFX||14.0%||1,600||1.02%|
|Fidelity Advisor Freedom 2040 I||FIFFX||14.0%||1,600||0.77%|
|Russell LifePoints 2040 Strategy R1||RXLRX||23.0%||131||0.84%|
|Russell LifePoints 2040 Strategy S||RXLSX||23.0%||131||0.84%|
|Russell LifePoints 2040 Strategy S||RXLSZ||23.0%||131||0.84%|
|Schwab Target 2040||SWERX||3.0%||388||0.84%|
|T. Rowe Price Retirement 2040||TRRDX||15.9%||7,900||0.76%|
|T. Rowe Price Retirement 2040 Adv||PARDX||15.9%||7,900||1.01%|
|Vanguard Target Retirement 2040 Inv||VFORX||15.0%||6,800||0.19%|
|Wells Fargo Advantage DJ Target 2040 Adm||WFLWX||20.0%||1,200||0.87%|
|Wells Fargo Advantage DJ Target 2040 I||WFOSX||20.0%||1,200||0.52%|
|Wells Fargo Advantage DJ Target 2040 Inv||WFFTX||20.0%||1,200||0.93%|
Turnover represents how much of a mutual fund's holdings are changed over the course of a year through buying and selling. Active mutual funds have an average turnover rate of about 85%, meaning that funds are turning over nearly all of their holdings every year. A high turnover means you could make lower returns because: 1) buying and selling stocks costs money through commissions and spreads and 2) the fund will distribute yearly capital gains which increases your taxes. Look for funds with turnover rates below 50%. For comparison, ETF turnover rates average around 10% or lower.
Generally, smaller funds do better than larger ones. The more assets in a mutual fund, the lower the chance that it will beat its index. Managers outperform an index by choosing stocks that are undervalued. In order to find these undervalued stocks, the manager has to know more than his competitors to develop an "edge." There are only a finite number of stocks a mutual fund manager can reasonably analyze and actively track to gain such a competitive edge. When the fund has more assets, the manager must analyze large companies because he needs to take larger positions. Large companies are more efficiently priced in the market and it becomes increasingly difficult to get an edge.