Why You Should Be Wary Of Target-Date Funds It's the "in

New Post Public Reply Private Reply Replies (0) Message Board

Nov 27, 2012 at 4:15 AM

Why You Should Be Wary Of Target-Date Funds It's the "in thing" now; everybody's doing it, so why wouldn't you? Here's how the story repeatedly plays out, especially for those who recently opened a new 401(k) or 403(b) account. The benefits manager of your company sent you a big stack of documents and told you to complete the application. You thumbed through everything, skimming the microscopic print in these pamphlets called prospectuses, and found yourself completely overwhelmed. Luckily, as you were completing the application, you noticed that you could either pick your own investment options or choose the ready-made option that placed all of your retirement funds into a target-date fund. You didn't know what it was, but you didn't know how to pick your investment options anyway, so into this target-date fund is where your money has gone. What Is a Target-Date Fund? The concept is very simple. A target-date fund adjusts the assets in the fund to line up with your retirement timeline. If you're planning to retire in 15 years, you might pick a target-date fund of 2025 or 2030. The fund manager will adjust the holdings and when you near retirement age, that fund will hold a lot of bonds, instead of the more risky stocks. You don't have to worry about adjusting your investment portfolio because the fund does it for you. If you don't have the time or desire to learn how to manage your retirement portfolio, these target-date funds might be a great idea. As your grandparents might have said, if it's too good to be true, it probably isn't and that might be the case with target-date funds. The Whole You First, you are more than a date. Knowing that you plan to retire in 2025 or 2030 isn't enough information to assemble your retirement portfolio; imagine a doctor asking nothing more than your age. Your investment portfolio should be crafted around your tolerance for risk, the other assets you own, your family situation, social security and more. A target-date fund doesn't take any of that into account, because it's designed for a large amount instead of you, personally. They Might Cost a Lot According to Consumer Reports, the median expense ratio of target-date funds is 0.68%, compared to 0.71% for stock funds. That isn't bad if your plan offers a target-date fund around the median, but the median expense ratio of index funds, a fund that tracks the performance of a certain investment index, is only 0.5% and you can find index funds for as low as 0.1%. In general, actively managed funds, funds that have a team of people picking stocks and bonds in an attempt to beat the overall market, will cost more, but over the long term they don't perform any better than an index fund that is cheaper. They're Hard to Understand Target-date funds are like a brand new car . They look good on the outside but they're hard to figure out when you open the hood. A recent SEC study found that many people believed that a target-date fund guarantees an income stream at retirement much like an annuity or a pension. Others believed that once the fund reached the target-date, no more allocation changes in the fund were made. Both of these facts are untrue but this, along with the fact that a 2025 fund may vary greatly between companies, makes these funds dangerous for investors to take at face value. The Bottom Line Regardless of what you read today or in the future, there is no one investment product that will address all of your investing needs. A combination of products that may include a target-date fund is the best way to insure your retirement needs are met. Diversification will likely always be the best way to protect and grow your portfolio.

Newer

Older

Scroll down for more posts ▼

Top 10 Most Recent News Articles

U.N. Leaders Converge at NYSE, Forus Soars to $3B Valuation

A Busy Morning at the NYSE with Key Guests and Global Events In a world where high-stakes diplomacy and roaring market bells go hand in hand, today brings the U.S. Secretary of State, Marco Rubio, to the New York Stock Exchange. With the 81st Session of the United Nations General Assembly shaking up the Big Apple, the city finds itself at the intersection of politics and...

Lititz Mutual Embraces AI with Guidewire ProNavigator

It's not every day you see a company like Lititz Mutual making moves in the artificial intelligence (AI) arena. Based out of Lititz, Pennsylvania, this insurance firm has decided to shake things up with Guidewire's ProNavigator AI assistant. Forging New Paths in Insurance Lititz Mutual is set to inject some serious tech into their operations. The goal? Make life easier...

NACD Honors Top Board Leaders with 2026 Awards

Celebrating Boardroom Mavericks at NACD Gala September 2026 has brought some sparkling recognition to the elites guiding today's corporate governance landscapes. The National Association of Corporate Directors (NACD) has announced their Directorship 100 honorees, tipping their hats to stellar individuals firing on all cylinders in the boardroom. Who's Getting the Nod?...

Castillo Engineering Gears Up with New VP Appointments

New Leadership to Drive Expansion In a boost to its commitment to scaling up, Castillo Engineering, based in Maitland, Florida, has roped in two veterans from the renewables sector as vice presidents. Aaron Carrillo and Devin Radovich, who share a history of successful collaboration at Renewable Energy Systems Americas (RES), are set to guide Castillo's growth in the...

Annex Brands Grows with Bastrop's PostalAnnex Opening

New PostalAnnex Location Opens in Bastrop, TX Here's a fresh chapter in the books for Annex Brands, Inc. They've just cut the ribbon on a brand spanking new PostalAnnex in Bastrop, Texas, handing the reins over to eager fresh faces, Chetan Modi and Karan Desai. And you know what? This ain't just any regular location. It's a one-stop-shop for anything you could need, from...

HNTB Expands in Capital Region: A Strategic Move

Breaking New Ground in Arlington and Baltimore Deepening their stake in the Capital Region's future, HNTB has thrown open new office doors in Arlington, Virginia, and Baltimore, Maryland. We're not just talking fancy buildings, folks—this is about securing a piece of the infrastructure pie that's only going to get bigger and tastier. Infrastructure's the backbone of...

Tenera Care's Tech Triumph: Halving Falls with Simplicity

Every once in a while, a piece of tech comes along that makes you sit up and say, ‘Now that’s a game-changer!’ And with the recent rave reviews, Tenera Care seems to hit just that sweet spot for folks in the senior living game. By handing Dublin Glenn Memory Care the gold in the KISS category at the 2026 McKnight's Technology Awards, it’s clear the industry is...

Molex's VersaBeam Mini Pushes AI Data Center Limits

Game-Changer for AI Data Centers? Across the tech landscape, space is a premium, and Molex's new VersaBeam Mini arrives like a hail Mary in the fourth quarter. In AI data centers, squeezing down every single component counts—especially when optical density's in play. What we're seeing here is a potential paradigm shift. A 3x density improvement from a tiny 3.5 x 9 mm...

Lavior and CR Fitness Team for Wellness Reach

Botanical Care Meets Gym Life in the Southeast Lavior, the botanical whiz kids of wound and skin care out of Miami, are shaking hands with CR Fitness, Crunch's big-time franchise operator carrying the flag across the Southeast. They’ve ironed out a deal that’ll park Lavior’s products in more than 60 gyms covering Florida, Georgia, North Carolina, and Texas. It’s a...

Anixa Expands Global Footprint with Aussie Patent

Breaking New Ground in Cancer Immunotherapy Today feels like a pivotal day for Anixa Biosciences. Their announcement about securing a patent in Australia for their trailblazing breast cancer vaccine is like planting a flag on new, promising territory. This is no minor step; it's a strategic leap for the company as it strengthens its intellectual grip on the global...