If you invest in your employer sponsored retirement plan you have probably heard of Target-Date funds. These funds are characterized as investments that change the allocation of stocks, bonds, and cash according to your specified retirement date. In theory, these funds should progressively reduce risk exposure as the target date approaches. However, there are no universal allocation standards, so the returns have varied widely from plan to plan. This was highlighted by the market downturn in 2008 when funds with a target date of 2010 lost an average of 25%, with some posting losses of over 40%.
While the concept of these funds is great; taking the guesswork out of retirement planning for the average investor; further research, transparency, and likely regulation is required. To that aim the Senate Special Committee on Aging will be introducing legislation that would require fiduciary responsibility for target-date fund managers. This is a step in the right direction, but there are still many other concerns that warrant attention. In October 2009 Morningstar’s vice president of research Jon Rekenthaler testified before the Senate Special Committee on Aging. You can read his testimony here:
“Five Concerns About Target Date Funds”
photo credit – cliff1066™
