true, you get this advice everywhere. but actually implementing it for realz isn't for the faint of heart. it's not impossible either, especially if you don't mind horseshoes-and-hand-grenades approximation.
If you want optimal as in mathematically optimal fund selection, then Bill Sharpe's startup, Financial Engines, does that (if you have at least $100k at Vanguard, you get it for free, also through many employers).
https://personal.vanguard.com/us/insights/retirement/financi...
I've come to be suspicious of anything in finance claiming to be "mathematically optimal". You can only optimise according to some simplified model, and simplified models of complex systems have a tendency to unpredictably break down.
Don't throw out the baby with the bathwater. Just because you have a large industry of sharks doesn't mean the good work being done by reputable investment houses is invalidated.
In general, index funds work. Some are better than others because of fees or their stock selection process. But they do work. The reason is that stocks in a sector have high covariance, and the outliers that might pop up occasionally with low covariance are only a small part of the index anyway. It is trivially easy to optimise on variance with some goal such as a limit on the number of holdings.
> (if you have at least $100k at Vanguard, you get it for free, also through many employers)
Actually, the people my employer go through just dumped Vanguard and a few other funds and would've automatically enrolled us all in a fund that changes every single year to be "optimum" for your age.
I opted out and I informed my coworkers that there were good reasons to be incredibly suspicious of this move, but I wonder who actually took my advice.
All I could think was that they were going to churn everyone's funds every single year so that they could get huge fees under the guise of "optimizing" our portfolios.
good to be suspicious; employer-selected investments are like employer-provided health care, there's a big imbalance in incentives.
2 things to watch: fund expenses and composition
if churning is an issue, it will be reflected in the expense ratio. but if the expense ratio is comparable to actively-managed funds and the fund's composition is index funds, then it might be ok since you're only paying for management services once.
Oh, the new age-balanced funds are not composed of index funds at all. They're composed of a mix of pretty much everything that they swap out every year for something else. So when you're young, you get mostly stocks, when you're old, they buy more bonds. But they have to trade them around all the time to generate fees.
Anything that didn't generate enough fees got kicked out of the program (unless you opted out). Thankfully, I was in one of the safer funds (the only one currently showing a profit) before the crash. I wish I could move it over to Vanguard now, but it's too late. They didn't give us much warning, and they certainly gave us no time to switch, when we either had to opt out or get enrolled in their shiny new fee-generating fund.
If you want optimal as in mathematically optimal fund selection, then Bill Sharpe's startup, Financial Engines, does that (if you have at least $100k at Vanguard, you get it for free, also through many employers). https://personal.vanguard.com/us/insights/retirement/financi...