Target-Date Funds Might Not Be Helping as Much as You Think They Are

Welcome to MutualFunds.com. Please help us personalize your experience.

Select the one that best describes you

Your personalized experience is almost ready.

Join other Individual Investors receiving FREE personalized market updates and research. Join other Institutional Investors receiving FREE personalized market updates and research. Join other Financial Advisors receiving FREE personalized market updates and research.

Thank you!

Check your email and confirm your subscription to complete your personalized experience.

Thank you for your submission, we hope you enjoy your experience

Stock graph concept

Target-Date Funds

Target-Date Funds Might Not Be Helping as Much as You Think They Are

Daniel Cross Nov 03, 2015



Mutual Funds vs. Target-Date Funds: What’s the Difference?


The other issue many people have with investing for retirement is understanding how asset allocation works. On the surface, it seems simple: you invest more in riskier high-growth assets, such as stocks, because you’re younger and have more time to recover from down markets. As you get closer to retirement, you slowly shift your focus away from stocks to more conservative investments like bonds.

Of course, understanding how each asset should be split and when to change them can require a bit of legwork and know-how. If you aren’t an investment professional, this process may be intimidating. The financial industry came up with a solution to this problem with target-date mutual funds – a single investment that holds other mutual funds and automatically changes stock/bond allocation according to the target date selected on the fund. It’s designed as a “set it and forget it” investment, but if you invest in one, you might not be getting all the benefits you think you are.


The Shortfalls of Target-Date Funds


Fees also can be an issue in these types of all-in-one investments. Mutual funds already have an expense ratio, or fee, built in for management of the fund. A target-date fund could hold a collection of mutual funds, each with different fees that you can’t control – not to mention the fee associated with the target-date fund itself. In an already conservative fund, these fees can hurt overall returns. If you earn 6% on your investments but the fees add up to 1%, you’re only taking home 5%.


The Bottom Line




Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Please Enter Your Email
Please Select Your Advisor Type

Popular Articles

Download Our Free Report

Why 30 trillion is invested in mutual funds book