PTEFX - Principal LifeTime 2050 R5

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Principal LifeTime 2050 R5 (PTEFX)
Expense Ratio: 1.05%
Expected Lifetime Fees: $31,105.27

The Principal LifeTime 2050 R5 fund (PTEFX) is a Target Date 2046-2050 fund started on 3/1/2001 and has $1.20 billion in assets under management. The current manager has been running Principal LifeTime 2050 R5 since 3/24/2011. The fund is rated by Morningstar. This fund does not charge 12b-1 fees.

MarketRiders Prefers The Following ETF

S&P Target Date 2050 Index Fund (TZY)
Expense Ratio: 0.32%
Expected Lifetime Fees: $10,230.23

The S&P Target Date 2050 Index Fund (TZY) is an Exchange Traded Fund. It is a "basket" of securities that index the Target Date 2046-2050 investment strategy and is an alternative to a Target Date 2046-2050 mutual fund. Fees are very low compared to a comparable mutual fund like Principal LifeTime 2050 R5 because computers automatically manage the stocks.

The Following Target Date 2046-2050 Funds Have Lower Fees Than Principal LifeTime 2050 R5 (PTEFX). Why are these metrics important?
Mutual Fund Name Ticker Symbol Turnover Assets (M) Annual Fees
American Century LIVESTRONG 2050 Instl ARFSX 6.0% 153 0.75%
American Century LIVESTRONG 2050 Inv ARFVX 6.0% 153 0.95%
American Funds Trgt Date Ret 2050 A AALTX 2.0% 512 0.79%
American Funds Trgt Date Ret 2050 R4 RDITX 2.0% 512 0.80%
American Funds Trgt Date Ret 2050 R5 REITX 2.0% 512 0.49%
American Funds Trgt Date Ret 2050 R6 RFITX 2.0% 512 0.44%
BlackRock LifePath 2050 Institutional STLFX 5.0% 121 0.85%
Fidelity Advisor Freedom 2050 A FFFLX 12.0% 476 1.04%
Fidelity Advisor Freedom 2050 I FFFPX 12.0% 476 0.79%
T. Rowe Price Retirement 2050 TRRMX 22.8% 1,700 0.76%
T. Rowe Price Retirement 2050 Adv PARFX 22.8% 1,700 1.01%
Vanguard Target Retirement 2050 Inv VFIFX 15.0% 2,900 0.19%
Wells Fargo Advantage DJ Target 2050 Adm WFQDX 19.0% 747 0.87%
Wells Fargo Advantage DJ Target 2050 I WFQFX 19.0% 747 0.52%

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Why Are These Metrics Important?

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.