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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Fears About 'Target' Funds

FYI: Some experts worry investors don’t fully understand this popular 401(k) option.


  • If these funds are being sold as safe and "you won't lose your money" options, then the rep or the salesperson should be hung. How can you earn money if you don't take some risk with it?

    Personally, I do not favor target date funds. I use asset allocation funds which keep a steady allocation over the years.
  • In a typical 401k plan that was the subject of the article, there is no sales person or rep to hang. It's pretty much up to the participant to choose. But imo, the author (Chana Schoenberger) is mistaken about TD fund performance. According to M*, the fund she mentioned (VTENX TD 2010) only declined 20.67% in 2008 instead of the 30% that she reported. And she failed to mention that the same fund gained 19.32% in 2009. The category (according to M*) declined 22.46% in 2008 and gained 22.42% in 2009. I suspect that many retirement plan participants did much worse in non-diversified accounts.

    Just as mail carriers say that the only dog that won't bite is one without a jaw, every security carries some risk. However, Target date funds provide diversification and provide automatic rebalancing. In the long run, Buffett's right that the S&P 500 will outperform managed portfolios (e.g., Target date funds), but how many investors are blessed with the intestinal fortitude to sleep well in year when stocks drop 50% or more?

    And to John, I agree that balanced funds can be an alternative even though they don't typically have international stocks, international bonds or inflation hedges.
  • edited March 2015
    Terrible name. When these (target date) funds were originally conceived, interest rates were still in the near double-diget range - so the concept of increasing bond allocations over time made some sense according to the than conventional wisdom. Unfortunately, that may no longer be the case with the historically low rates of recent years. The "news" is nothing new, Experts have been sounding the alarm about this for some time.

    I don't understand why any savy investor would choose these over, say, a good conservative allocation fund, and perhaps allocate his own desired amount into cash or bonds. However, as a default option for those who either don't know very much about money or don't care, I guess they still make sense. They're far better than not saving at all or letting the money collect moss in a 0 interest account.

    I use Price's TRRIX (Retirement Balanced) as part of my overall allocation. It's part of their retirement fund lineup. But, unlike the others, it doesn't increase its allocation to fixed income over time. Essentially, it remains around 50-60% in fixed income indefinitely. Has low fees and gives you a nice slice of many of their other funds.
  • "And to John, I agree that balanced funds can be an alternative even though they don't typically have international stocks, international bonds or inflation hedges."

    Actually, the funds I am talking about do have these components in them. They are funds of funds with allocations designed for aggressive, moderate, conservative and other allocations in between.
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