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David Dierking Jan 24, 2017
In case if you are wondering whether mutual funds are right for you at all, you should read why mutual funds, in general, should be a part of your portfolio. Also check out the various mutual fund options, including pre-packaged target-date funds, in our Retirement Fund section.
Employers can choose to go with custom target-date funds for a variety of reasons.
You can read how target-date funds work to familiarize with this class of mutual funds.
Check the questions that you should ask your target-date fund provider.
While target-date funds have been great additions to retirement plan menus, they are complex investments and aren’t necessarily appropriate for everyone. The use of custom funds recognizes that employers are putting greater effort into seeing what’s inside these funds and finding mixes that are more appropriate to the investors (i.e. the plan participants) they’re serving. In this sense, custom funds reduce fiduciary risk.
On the other hand, developing custom investment options places more responsibility on employers to build their funds properly. Developing inadequate investment options or filling these portfolio with high cost funds may ultimately be considered not in the best interests of participants.
These funds tend to be advantageous to employees because they’re often more customized to their specific needs. Custom funds can offer greater diversification and a more risk-appropriate glide path at a potentially lower cost. In addition, they’re routinely more in line with the goals of the plan sponsor than the plan provider – an aspect that plan participants should be more comfortable while making the right investment decision.
Be sure to follow our Target-date Funds section to make the right investment decision.
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