Earny Asks: How Should My Portfolio Be Performing?
Let's look at the performance of target date funds to see what kind of returns you could expect so far in 2025.
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Benchmarking Your Portfolio's Performance Can Help You Be a Better Investor
It’s been a rollercoaster of a year! We started off on an up note, but then tariff talk tumbled the market. Since then, it’s been all about AI, and the stock market, as measured by the S&P 500, is up big this year.
But how are you doing?
If you’re like most investors, you own different investments than just the S&P 500. In fact, over here on Filthy Rich Animal, we’ve preached that you should own a diversified portfolio. Sure, you can speculate in AI stocks. Own Tesla (TSLA) if you’re a fan of Elon. Or get involved with value stocks that pay dividends. Whatever! Just have a plan.
Now that it’s the middle of October, we’re into the final quarter of the year. So how are you doing?
In Earny’s case, he understands the value of the nuts he’s been collecting, but has no idea whether his performance has been good or bad.
Earny Asks: How Should My Retirement Account Be Doing So Far in 2025?
Answer
For the first three quarters of 2025, the S&P 500 is up nearly 18%. That’s pretty awesome. Maybe you’re up that much, too. Or maybe more!
It’s more likely that you’re up less. And that’s OK.
Why is it OK? Because it means that you’re probably diversified.
Here’s a list of Vanguard Target Date funds, like the kind you might have access to in your 401(k). This isn’t an endorsement of Vanguard, I only chose them because they are generally the largest funds in their class and wanted to stick with a single fund family.
I’ve sorted them so that the ones maturing sooner are at the top and the ones maturing later are at the bottom. Each year, these funds will rebalance so that they’ll be a little bit less risky. In other words, they sell some stocks to buy some bonds. See the allocation columns?
If you're retired or about to be, your portfolio's allocation might resemble the one on top. If you're just out of college, with 35 or more years until you retire, it should resemble the one on the bottom.
The first thing to notice is that every one of these funds has underperformed the 18% return on the S&P 500 so far this year. That’s because they’re diversified and own bonds, which don’t offer the same returns as stocks. They’re in the portfolio to provide income and safety. Stocks don't always go up!
The second thing to notice is that as the target date increases, the performance is closer to that of the S&P 500. That’s because the stock allocation increases!
While I don’t know your personal situation, I suggest looking at funds like these to see if your personal asset allocation is in the same ballpark. If not, ask yourself why. Perhaps you’ve got a plan that makes sense for you. If not, use these allocations as a starting point.
Final Thoughts
You shouldn’t be out to beat the market. When investing, you should think, instead, about having a proper asset allocation for your personal risk tolerance. Target date funds, like the ones I’ve listed above, provide a nice starting point.
