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Goldman Sachs Target Date Portfolios, How To Ruin A Good Portfolio

Goldman Sachs Target Date Portfolios

This is the article displaying the target-date portfolios for the Goldman Sachs Target Date funds. Here you will find a description, performance, and resources for the portfolios as well as detailed information on how to implement them yourself.

Goldman Sachs target date portfolios

Important note: It is important to separate funds from their underlying portfolio construction. It is possible to have a bad fund but have a good portfolio underlying the fund. The reverse is also true. You can have a great fund but have a badly constructed portfolio underneath. Here at portfolioeinstein.com, we are more interested in the portfolios that make up the fund than the fund itself. However, when researching the Goldman Sachs target-date funds there were simply too many things that sent the alarm bells ringing. Unusually then, we spend a little time making note of these alarm-inducing observances.

These funds are Goldman Sachs’ stab at the high growth area of target-date funds. They are relatively new.

From the onset, Goldman Sachs gives you the impression that these funds are very special. It is also more than hinted that these funds will outperform the broader market because of smart investment capabilities.

Adapts to Changing Markets

Let’s go through a few of the items that make these funds spectacularly unsuited for all investors. The question is then who these funds are suited for?

goldman-sachs-investment-process-for-target-date-retirment
Source: Goldman Sachs

This is not the high conviction you’re looking for

  • Goldman Sachs includes a dynamic allocation portion of the TDA portfolios to “incorporate current market views” and “pursuing high conviction, relative value opportunities.”

I have always loved the wording of high conviction stocks. It is such a convincing and powerful phrase. But having a high conviction does not correlate with having higher returns. There is ample evidence for that. See Meet Susan: The Most Important Question In Investing. And as always consult Charles Ellis’ book Winning the Loser’s Game, Seventh Edition: Timeless Strategies for Successful Investing as well as our all-time favorite Rick Ferri – The Power of Passive Investing: More Wealth with Less Work.

Extreme fees

According to the prospectus, The Goldman Sachs Target Date 2055 Portfolio has an expense ratio of a mindblowing 7.07 %. Luckily most of this fee is waived so the expense ratio is only 0.64% – whew! (The average return of the stock market for the past 100 years is approximately 10%). The waiver can be removed in December of 2020. I doubt that will happen.

You have to ask yourself, why is this fund so expensive? Is it due to severe inefficiency in managing the fund? Is it because the fund makes use of some very complex processes? Why?

Compare the fee to Vanguard’s Target Retirement 2060 Fund which has a 0.15% fee and you can begin to understand why you want to know what makes the Goldman Sachs fund so much more expensive.

Fees-for-goldman-Sachs-target-date-retirement-2060
Source: Prospectus for Goldman Sachs Retirement Funds

The setup of the Goldman Sachs Target Date Funds displays the old and venerable dogma of investment selection superiority. Whether this is due to arrogance, malicious willful duplicity or ignorance I leave it up to you to decide.

The Goldman Sachs target-date funds flunk badly but what of their portfolios? Let’s see and benchmark the portfolio contents of the target date funds.

That’s up next.

Description of Goldman Sachs target date portfolios

The funds are made of other funds. They are funds of funds in other words. This is the standard and smart way of constructing a target-date fund. Many if not most other target-date funds are constructed this way, fx, Dimensional Fund Advisors, Vanguard, BlackRock, and Fidelity.

Most of the underlying funds include Goldman Sachs smart-beta funds. Smart-beta funds target specific risk premia fx, size, quality, momentum. The Goldman Sachs smart-beta funds are very cheap. The underlying funds also include futures contracts on fx. S&P 500 and small caps indices. There are also token presences of standard index ETFs from Vanguard and iShares.

We benchmark the Goldman funds against their strategic benchmark presented in their attribution reports. We use standard index funds as per Data Sources and Performance Tracking Information.

We benchmark smart-beta funds against comparable value asset classes.

Disclaimer: These are target-date funds. By design, their asset allocation will change over time. In general, target-date funds shift more of their assets towards bonds as you age to lower your risk. This means that the asset allocation below will have changed until we update it here at portfolioeinstein.com.

Performance of Goldman Sachs target date portfolios

Portfolio nameAsset class count1 year return (2019)Year to date10 year returnCAGR since 1989DrawdownRisk LevelExpense ratioYield
S&P 500 (Benchmark)131.46%3.69%13.52%10.54%-37.63%5 - very high risk0.04%1.79%
Goldman Sachs Target Date 2055 Portfolio1025.04%1.60%9.60%9.03%-35.16%5 - very high risk0.08%2.40%
Goldman Sachs Target Date 2045 Portfolio1224.35%1.62%9.41%9.00%-33.20%4 - high risk0.08%2.35%
Goldman Sachs Target Date 2035 Portfolio1221.20%1.66%8.31%8.51%-26.06%3 - medium risk0.09%2.24%
Goldman Sachs Target Date 2025 Portfolio1318.18%1.62%7.31%7.97%-19.19%2 - low risk0.10%2.13%
Goldman Sachs Target Date Retirement Income Portfolio516.06%0.84%7.11%8.24%-16.50%n/a0.14%2.08%

 

Asset Allocation for Goldman Sachs target date portfolios

Goldman Sachs Target Date 2055 Portfolio

  • 42.80% Large Cap Value  (VTV)
  • 6.20% Large Cap Blend (S&P 500) (VOO)
  • 3.90% Small Cap Value (VIOV)
  • 2.10% Small Cap Blend (VIOO)
  • 1.00% Real Estate (VNQ)
  • 1.00% International Developed (VEA)
  • 23.80% International Value (EFV)
  • 3.00% International Small (VSS)
  • 0.30% T-bills/Treasury Money Market (BIL)
  • 1.80% High Yield Corporate Bonds (HYG)
  • 7.90% Emerging Markets Value (FNDE)
  • 2.50% EM Bonds (VWOB)
  • 3.70% Long Term Investment-Grade Bonds (VCLT)

Goldman Sachs Target Date 2045

  • 42.80% Large Cap Value (VTV)
  • 5.80% Large Cap Blend (S&P 500) (VOO)
  • 4.10% Small Cap Value  (VIOV)
  • 2.00% Small Cap Blend (VIOO)
  • 1.00% Real Estate (VNQ)
  • 1.00% International Developed (VEA)
  • 23.80% International Value (EFV)
  • 3.00% International Small (VSS)
  • 0.60% T-bills/Treasury Money Market (BIL)
  • 1.80% High Yield Corporate Bonds (HYG)
  • 7.90% Emerging Markets Value (FNDE)
  • 2.50% EM Bonds (VWOB)
  • 3.70% Long Term Investment-Grade Bonds (VCLT)

Goldman Sachs Target Date 2035 Portfolio

  • 34.60% Large Cap Value  (VTV)
  • 2.10% Small Cap Value (VIOV)
  • 2% Small Cap Blend  (VIOO)
  • 1.00% Real Estate  (VNQ)
  • 1.00% International Developed (VEA)
  • 16.80% International Value (EFV)
  • 2.00% International Small (VSS)
  • 4.60% Total Bond Market (BND)
  • 0.20% T-bills/Treasury Money Market (BIL)
  • 14.50% Inter. Term Corporate Bond (LQD)
  • 1.10% High Yield Corporate Bonds (HYG)
  • 5.70% Treasury Inflation-Protected – TIPS (VTIP)
  • 5.20% Emerging Markets Value (FNDE)
  • 4.00% EM Bonds (VWOB)
  • 5.00% Long Term Investment-Grade Bonds (VCLT)

Goldman Sachs target date 2025 portfolio

  • 23.90% Large Cap Value – LCV (VTV)
  • 2.10% Large Cap Blend (S&P 500) – LCB (VOO)
  • 3.10% Small Cap Value – SCV (VIOV)
  • 1.00% Real Estate – REIT (VNQ)
  • 1.00% International Developed (VEA)
  • 11.80% International Value (EFV)
  • 1.50% International Small (VSS)
  • 17.00% Total Bond Market – TBM (BND)
  • 0.40% T-bills/Treasury Money Market (BIL)
  • 19.10% Inter. Term Corporate Bond (LQD)
  • 1.1.% High Yield Corporate Bonds (HYG)
  • 5.70% Treasury Inflation-Protected – TIPS (VTIP)
  • 4.20% Emerging Markets Value (FNDE)
  • 4.50% EM Bonds (VWOB)
  • 4.70% Long Term Investment-Grade Bonds (VCLT)

Check the best mutual funds and ETFs here.

Resources for Goldman Sachs target date portfolios

Goldman Sachs has a podcast called Exchanges at Goldman Sachs. Go financial porn.

See a reading list for new GS employees here.

If you’re interested in the history of Goldman Sachs there are a few good books out there:

  1. Michael Cohen’s Money and Power: How Goldman Sachs Came to Rule the World
  2. Charles Ellis’ The Partnership: The Making of Goldman Sachs
  3. And if you’re interested in behind the scenes of GS under the financial crisis you’re not gonna get disappointed with The Big Short: Inside the Doomsday Machine.

See a performance comparison of target-date funds in our article Target Date Fund Portfolios.

If you are new to target-date fund read our primer as well as benchmarks in our article What Is The Best Target Date Fund?

Conclusion

The target-date funds from Goldman Sachs are expensive in the extreme and they make you believe that the funds can control risks and returns better than the competition.

The portfolios are much better and performing admirably.

How do you like the portfolios?

What do you think of a 7.07% expense ratio for a target-date fund?

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