For those unfamiliar, these products aim to provide a low-maintaince and singular retirement plan option. These funds, which are also referred to as life-cycle or age-baed funds, crossed the $500 billion threshold in 2013 as reported by Morningstar (Reference). They are designed, through the rebalancing of its asset-allocation, to become more conservative as the target date (usually retirement) approaches. The demand for these products appears to remain strong. In fact, Casey Quirk (an asset management consulting firm), predicts that target-date funds will account for nearly half of all U.S. defined contribution plan assets by 2020 (Reference).
While these retirement plan options do indeed make long-term investing easy, I do caution my clients that these funds are anything but simple, and my not really serve the purpose to which they are intended. Here's why:
Most investors select these target-date funds through their employer-sponsored 401(k) plan without ever considering the points noted above. Be sure to do your diligence and resist selecting a life-cycle fund just because it's easy.
If you need any help analyzing your options, feel free to contact me.
Jason M. Gilbert, CPA/PFS, CFF
Jason Gilbert is Managing Director of RGA Investment Advisors LLC. He has over 10 years of experience in investment advisory, including portfolio construction, financial strategy, and advanced planning for high-net worth and institutional clients. He maintains an extensive background in both forensic accounting and personal finance, and serves as a fiduciary and trusted partner to his long-standing clients.