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: What are target-date funds and how do they work?

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: What are target-date funds and how do they work?

Target-date funds are a popular investing vehicle for those saving for retirement, and are a staple in many 401(k) plans. They have some advantages, but also have some negatives as well. 

What is a target-date fund? 

A target-date fund, or TDF, is a lifestyle fund that is invested toward a target retirement date. They are generally a collection of mutual funds of the fund company offering the TDF. There are also some target date ETFs. The manager will allocate the underlying mutual funds in line with the time remaining until the target date. 

Among the largest target-date fund families are Vanguard, Fidelity, T. Rowe Price and the American Funds. These and other fund families offer a full menu of target dates. For example, Vanguard offers TDFs with target dates ranging from 2020 to 2065 in five year increments. 

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Read: What’s happening to my 401(k)?

How do target-date funds work? 

The fund manager allocates the underlying holdings in the fund in line with the time remaining until the target date. The fund manager then reduces the allocation to stocks over time as the target date gets closer. At some point around the target date, the equity allocation levels off and stays constant in what is known as the fund’s glide path. 

Advantages of target-date funds 

Target-date funds offer a fully managed, hands-off investment option. Whether inside of a retirement plan like a 401(k) or elsewhere, target-date funds offer investors an option that takes no management on their part. In essence, target-date funds can offer a very inexpensive form of investment advice. 

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Target-date funds offer built-in diversification. For retirement plan participants and other investors who are uncomfortable making their own investment decisions, target-date funds offer instant diversification within a single fund. 

Target-date funds are often the default option in 401(k) plans that use auto enrollment. Studies have shown that plans with an auto enrollment feature have significantly higher overall participation rates than those who don’t. Target-date funds can help facilitate the auto enrollment process for 401(k) sponsors. 

Disadvantages of target-date funds 

Target-date funds do not prevent investors from losing money in a stock market downturn. This should be made clear in education provided to 401(k) participants and others. Looking at recent returns for three near-dated target funds through May 30, 2022 illustrates this:

Fund
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Year-to-date return 1-year return
Vanguard Target 2025 -10.82% -7.29%
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Fidelity Freedom 2025 -11.14% -8.64%
T. Rowe Price Retirement 2025 -11.07%
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-7.60%

These are funds that are conceivably geared toward investors who will be retiring in about three years. Note that during the financial crisis of 2008 we also saw losses in near-dated target-date funds as well. It’s important for investors considering a target-date fund to understand that the fund’s performance will be a function of the allocation of the underlying funds and the performance of the financial markets. Nothing is guaranteed. 

These are one-size-fits all funds. They make the assumption that every investor of a similar age has similar investments needs and has a similar risk profile. Of course this is not the case. 

Expenses can get high in some target date families. The expenses of the funds can vary widely. In some families the composite expense ratio is simply the prorated expense ratios of the underlying funds. This is the case with Vanguard’s target-date fund series with ultralow expense ratios of 0.08% for each of these funds. 

In other cases there might be a fund management fee in addition to the rolled up expenses of the underlying mutual funds. Additionally, the funds that comprise the target-date fund might have their own high expense ratios. 

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Points to keep in mind 

  • Investors are free to invest in a fund with the target date of their choosing. They are not restricted to the fund with the target date nearest their normal retirement date. This allows them to choose a fund that is either more or less aggressively invested based on their needs and risk tolerance.
  • Target-date funds are portrayed as retirement funds but they can be used as an investment for any purpose an investor chooses. They are typically available in taxable brokerage accounts as well as IRAs and workplace retirement accounts like a 401(k).
  • The target-date fund glide path will vary by target-date fund family. Some funds go into glide path mode on or near the target date. These funds are “to’ in terms of their glide path. Other target date families go into their glide path at a later point, these funds are considered to be “through” retirement.
  • If you are using a target-date fund combined with other types of investments such as other mutual funds, ETFs or other investments, it’s important to ensure that your overall asset allocation is appropriate for your situation. 

Target-date funds can serve as a one-stop investment option for retirement plan participants and other investors. As with any other investment, it’s important to understand how the target-date fund invests your money. These funds offer a number of advantages, but they are also subject to risk like any other investment.

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SEC Chairman Gary Gensler calls Bitcoin a commodity

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SEC Chairman Gary Gensler calls Bitcoin a commodity

SEC Chairman Gary Gensler calls Bitcoin a commodity SEC Chairman Gary Gensler calls Bitcoin a commodity Andjela Radmilac · 42 mins ago · 2 min read

The Chairman of the SEC said that Bitcoin is the only cryptocurrency he was ready to call a commodity.

2 min read

Updated: June 27, 2022 at 5:16 pm

SEC Chairman Gary Gensler calls Bitcoin a commodity

Cover art/illustration via CryptoSlate

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U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said that Bitcoin was the only cryptocurrency he was prepared to publicly label a commodity.

Gensler made the comments on CNBC’s Squawk Box, where he discussed the implications of labeling particular cryptocurrencies commodities rather than securities.

Distinguishing commodities from securities

Speaking to CNBC’s Jim Cramer, Gensler addressed his earlier calls to introduce more regulatory clarity to the crypto market.

He said that all of the main market regulators in the U.S. agreed that cryptocurrencies were a highly speculative asset class. Both the SEC and the Commodities Futures Trading Commission (CFTC) have been following the ups and downs of this asset class for a long time, focusing not just on Bitcoin but on hundreds of other tokens on the market.

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Observing the market has led the SEC to conclude that the investing public was hoping for a return from most of those tokens, just like when they invest in securities. Gensler said that many tokens on the market have the “key attributes” of securities, which puts them under the jurisdiction of the SEC.

Bitcoin, on the other hand, falls into a different category.

Gensler said that “some like Bitcoin” are commodities.

While he was careful when choosing his words to avoid hinting at any other tokens or revealing potential moves from the SEC, he was clear that Bitcoin was the only cryptocurrency he was ready to publicly label a commodity.

Later on, he said that market regulators in the U.S., which include the SEC, the CFTC, and various other banking regulators, have a lot of work to do in order to introduce comprehensive laws that would protect the investing public.

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Gensler called for full and fair disclosures in the crypto market, saying that the U.S. is open to having hundreds, if not thousands of tokens on its market if they complied with SEC laws.

When asked whether the public was already too comfortable with investing in Bitcoin, especially now that the SEC has called it a commodity, Gensler said it was no different from investing in traditional markets.

“There’s a lot of risk in crypto, but there’s also risk in classic securities markets,” he told CNBC.

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It’s a Curve-y road to recovery as CRV faces these market effects

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It’s a Curve-y road to recovery as CRV faces these market effects

Over the last few months, most DeFi protocols have struggled with “extreme market conditions” occasioned by the downturn of the general cryptocurrency market. Still reeling under the effect of this bloodbath, Curve Finance, an automated market maker platform, continues to see a decline in its Total Value Locked (TVL).

According to data from DeFiLlama, in the last two weeks, the Decentralized Exchange (DEX) has registered a 51% decline in its TVL. Two weeks ago, this stood at $7.82 billion. However, now ranked at #5 on DeFiLlama’s list of protocols with the highest TVL, the TVL of Curve Finance stood at $5.16 billion, at the time of writing.

A look at data from CoinMarketCap revealed that the governance token for the DEX, Curve DAO Token (CRV), has declined steadily over the last two weeks.

It’s all going down…

Exchanging hands at $0.7804 per CRV, at the time of writing, the alt has plummeted by 31% in the last two weeks. Over the last 24 hours, the crypto has registered a 5.17% decline in price. Trading volume was spotted with a 3% uptick within the same period.

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Furthermore, the market capitalization saw a drop in value over the last two weeks. It recorded a decline from $518.37 million to $420.27 million, at press time. 

Source: Santiment

Since the beginning of the month, increased distribution of CRV tokens has forced its price to plummet. Since then, the token’s Relative Strength Index (RSI) has moved further away from 50, with the same aiming for the oversold position.

This indicates that CRV tokens are being oversold. This also explains the sustained decline in price. Still, in a downward curve, the RSI was positioned at 41 at the time of writing. 

Source: TradingView

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On-chain analysis says…

On a social front, on-chain data revealed that CRV registered declines in its social dominance and social volume in the last two weeks.

Within this period, social dominance saw a 20% drop while social volume went down by 15%.

Source: Santiment

Additionally, the number of daily active addresses dropped by 14%. Network growth, on the other hand, saw a 27% decline.

Source: Santiment

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While other metrics registered some deprecation in the last two weeks, developmental activity went in the opposite direction. In fact, within the aforementioned period, developmental activity grew by 7%.

Source: Santiment

Abiodun is a full-time journalist working with AMBCrypto. He is also a lawyer with over 2 years of experience. With a keen interest in blockchain technology and its limitless possibilities, Abiodun spends his time understanding the technology, building projects, and educating people about it.

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Glassnode report shows 2022 bear market is the worst in history

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Glassnode report shows 2022 bear market is the worst in history

Glassnode report shows 2022 bear market is the worst in history Glassnode report shows 2022 bear market is the worst in history Oluwapelumi Adejumo · 2 hours ago · 2 min read

Bitcoin and Ethereum will trade below their ATH in their previous cycle for the first time since their creation.

2 min read

Updated: June 27, 2022 at 2:56 pm

Glassnode report shows 2022 bear market is the worst in history

Cover art/illustration via CryptoSlate

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Blockchain analytics company Glassnode’s latest report reveals the 2022 bear market as the worst in history and many investors have sold their Bitcoin (BTC) holdings at a discount.

According to the report, Bitcoin’s dip below the 200-day moving average, net realized losses, and negative deviation from realized price make this the worst bear market in the history of the cryptocurrency.

The 2022 bear market has been brutal for #Bitcoin and #Ethereum investors, realizing massive capital losses.

In our latest research, we quantify the severity of this bear, and makes a case for it being the most significant in history.

Read more👇https://t.co/FlSehPo3FB

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— glassnode (@glassnode) June 24, 2022

It continued that this is the first time on record that BTC and Ethereum (ETH) will trade below their ATH in their previous cycle, which means significant unrealized losses in the market. Every investor who bought BTC or ETH between 2021 and 2022 is now underwater.

While many are still holding on, the financial pressures of limited liquidity and rising inflation is pushing several investors to sell at a loss.

Bitcoin declines below moving average

Per the report, the first sign of a bear market is the decline in Bitcoin price below its 200-day moving average and, worse, 200-week MA. Bitcoin is trading at less than half of the 200-day MA level at the current price.

The report also pointed out that this is the first time since 2015 that the Bitcoin price will fall below 0.5 Mayer Multiple (MM). The MM for this cycle is currently 0.487, much lower than the last cycle, which was 0.511.

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Source: Glassnode

The Mayer Multiple shows oversold or overbought conditions by considering the changes in the price above and below the 200-day MA. “Only 84 out of 4160 trading days (2%) have recorded a closing MM value below 0.5,” the report said.

Additionally, the current market conditions are pretty severe, reflecting the spot price dropping below the realized price. Instances like this are sporadic, and this is only the fifth time it has happened since Bitcoin launched in 2009.

According to Glassnode, only 13.9% of all Bitcoin trading days have seen spot prices below unrealized prices. It further added that the investors locked in a loss of $4.234 billion on the day Bitcoin dropped below $20k.

Like Bitcoin, like Ethereum

Ethereum isn’t doing better either. Similar to Bitcoin, those who bought Ethereum in 2021 and early this year have unrealized losses. Most of the decline in Ethereum price is due to DeFi deleveraging and its dominance decline since November 2021.

Additionally, it is trading at a 63% discount to its 200-day MA, and its Mayer Multiple has hit 0.37, below the 0.6 MM band downside deviation. So far, the token has only traded below this band for 29 days, far below the 187-days in the 2018 bear market.

Based on all of the available data, Glassnode concluded that this current market capitulation event:

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Is one of, if not the most significant in history, both in its severity, depth, and magnitude of capital outflow and losses realized by investors.

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