Elanso

As part of my 401(k), I'm invested in a "target retirement" fund. The general idea is rather than worrying about what to be invested in, just choose when you'd like to retire and the fund management takes care of the rest. Sounds nice, right?

Well, if 2045 is 38 years away, why are they investing in:

1. Vanguard Total Stock Market Index Fund (71.9%)
2. Vanguard European Stock Index Fund (10.4%)
3. Vanguard Total Bond Market Index Fund (10.2%)
4. Vanguard Pacific Stock Index Fund (4.8%)
5. Vanguard Emerging markets Stock Index Fund (2.7%)

Index funds!? >70% to a stock market index fund?! It seems to me that with 38 years to make money, I'd like to way outperform the market. Here's more or less what I would do if I were managing a Target 2045 Retirement fund:

1. Stem-cell research start-ups (20%)
2. Software start-ups (20%)
3. Nanotechnology start-ups (20%)
4. Cancer research start-ups (20%)
5. International small-cap growth fund (20%)

If I lose money in the short-term on any of these, no big deal; I still have 30+ years to make it back. But the upside potential is huge.

And here's what I'd do if I were managing a Target 2012 Retirement fund:

1. Vanguard Total Stock Market Index Fund (71.9%)
2. Vanguard European Stock Index Fund (10.4%)
3. Vanguard Total Bond Market Index Fund (10.2%)
4. Vanguard Pacific Stock Index Fund (4.8%)
5. Vanguard Emerging markets Stock Index Fund (2.7%)

Look familiar? With this scheme, I'm highly unlikely to lose a lot of money in the next few years, but I'm also highly unlikely to kill the market.

What am I missing?