Target date funds offer cruise control, but watch out for potholes
Posted on 30 March 2011
By Mark Miller
Permanent URL of this article: http://retirementrevised.com/money/target-date-funds-offer-cruise-control-but-watch-out-for-potholes
Target date funds (TDFs) have taken off in recent years as more workplace retirement plans install automation options.
TDFs invest in a mix of assets and aim to reduce equity exposure as participants approach retirement. The basic idea is good, considering that many investor portfolios suffer from benign neglect when it comes to rebalancing, fund selection and reducing exposure to riskier investments as retirement approaches.
But many retirement investors don’t really understand how TDFs are allocated between equities and fixed income. Fees can be high, and some critics don’t think TDFs are structured to select the best-in-class funds for all asset groups.
This week at Reuters Prism Money, I report on the most common problems with TDFs, and alternative investment strategies you can pursue.
