The Wall Street Journal took what might be a sympathetic approach to 401k investors who might be feeling disillusioned by generally poor performance with the focus being on target date funds which have of course become a major staple of 401k plans.
I've been crapping on target date funds since they first became a thing. The idea that fund company determines the asset allocation, referred to in this context as a glide path, makes no sense to me and then factor in that fund companies uses different glide paths. One fund dated 2035 might have 75% in equities while another might have 60% and maybe neither number is appropriate for you.
The refrain from the article is to stay the course which is not surprising even if a little disappointing. The most compelling piece of the argument to stay the course is valid for any funds that might be down or otherwise adversely effected by falling bond prices. The article said that funds in that circumstance will take less time to come back because yields are now so much higher. That can be true. I don't know that it must be true for every fund but locking in some sort of loss or terrible compound annual growth might not make sense.
Just because selling the fund you have might be a bad idea, that doesn't mean you have to channel new contributions to the same fund. How many market calamities do target date funds need to do poorly in before you stop putting new money in. They collectively did terribly in the Financial Crisis and they did terribly in 2022. I would encourage people to engage enough to make just a couple of decisions with how their 401k accounts are invested.
An assumption embedded in many blog posts here for many years is that bonds don't diversify anywhere near as effectively as they used to. This comparison of Portfolio 1 70% into Vanguard S&P 500 Fund (VFINX) and 30% cash which now yields better than 5% and Portfolio 2 which is 100% Vanguard Balanced Index Fund (VBAIX), a proxy for a 60/40 portfolio is interesting.
They track very closely up until the point where bonds start to do poorly. The last couple of years of bond volatility has caused VBAIX' standard deviation to go up a lot and it seems plausible that bonds volatility will remain elevated for a while still. It could be that 70/30, where the 30 is cash yielding 5%, is the new 60/40 and could remain so for however long bonds remain broken.
I have to think that even the 401k plans with the fewest choices would have at least one broad equity index fund and at least one money market to build something like this to avoid bonds and target date funds. If not, one sort of hack you could look into is to buy the target date fund with the furthest date on it. This would have the highest equity allocation of the funds offered and so could be an equity proxy. For example, a 55 year old might be thinking about retiring in 10 years but instead of buying a 2035 target date fund, they buy a 2065 or whatever as a proxy for equity exposure. Want 75% equities for whatever reason? Put 75% (maybe a touch more) into the 2065 fund and leave the rest in cash.
Yes, some people really do want to delegate the entire thing but I think that is an awful way to go. First, it's your retirement, how do you not care enough to engage just a little? Articles like the one in the Journal that seem to discourage some sort of more active participation in retirement plans are just awful. Active doesn't have to mean any sort of regular trading, not even close but just doing nothing assumes the worst in people and I don't know why we collectively accept that. Similar to engaging and advocating for our health, it is just as important to engage and advocate for our retirement outcomes.
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