“I’m Retiring in 2050 – Are Target Date Funds Right for Me?”

“I’m Retiring in 2050 – Are Target Date Funds Right for Me?”

3 Pitfalls to Avoid


A common error in retirement planning is having a singular bias towards when you retire. That mindset can be dangerous when many financial products are marketed towards individuals seeking a simplistic, reductive approach to investing for the future.

Target date funds are mutual fund investments that offer a mix of stocks and bonds, packaged into one convenient product. Their simplification is their attraction– all the investment diligence is done for you, as the allocations and types of securities are determined by the fund manager.

To further lure prospective investors, these products highlight a “set it and forget it” feature. Target date funds follow what is called a “glide path,” meaning they will automatically rebalance to become less growth-focused and more conservation-focused as you approach retirement. They are designed so that investors do not have to actively monitor or adjust the fund themselves as they near their major milestone. Given the right circumstances, target date funds can be a wise investment choice. That said, there are significant pitfalls of which investors should be mindful:

1. A Lack of Bi-, Trifurcation Target date funds hold stocks and bonds together. Unfortunately, market conditions rarely lead to concurrent peaks in stocks and When both investments are held in one fund, you are prevented from withdrawing a singular investment in the mix. Rather, the entire fund share must be redeemed. Investing in funds that hold stocks or bonds can allow investors to seek higher returns than the blended return associated with a Target Date Fund.

2. A “One Size Fits All” Approach – A widely-accepted investment belief is to keep your percentage of stock holdings to “the number one hundred minus your age.” Yet, there are many reasons why someone might deviate from this strategy. With target date funds, a stock allocation is determined by the fund manager exclusively, with no regard for your unique circumstances. Additionally, no two like-year target date funds have the same composition. The investor is dependent upon what the fund manager thinks is best for the average person retiring in that target year, which may or may not reflect your unique circumstances.

3. A Lack of Transparency – Target date funds are often unremarkably listed among your 401(k) investment options. Little information on their underlying thesis or management is displayed, which can create two serious misconceptions. First, investors can incorrectly assume that the fund is guaranteed against loss – sorry to say, this is not true. Second, investors can miss the relevant distinction between a “to” or “through” fund strategy. A “to” target date fund reaches its most conservative allocation in its target year. A “through” fund continues to adjust beyond its target year. Either format could be best for you, but if you are not sure which strategy is in play, you may have disappointing results.

Your best bet is to work with an advisor who can navigate the complexity of fund selection and diligence based on your needs. As fiduciaries, we are required by law to guide you to a solution that is in your best interest. It is always a sound idea to have a fiduciary behind you before you make a major investment decision.


If you would like to discuss fund selection with a fiduciary, Axias is here to help. Contact us


**Mutual funds are sold by prospectus only and are subject to various types of risk. Before investing in a mutual fund, carefully review the fund’s prospectus and consider the fund’s investment objectives, risks, charges, and expenses. The principal value of the Target Date Fund is not guaranteed at any time, including at or after the target date. Investing involves risk, including loss of value, and past performance is not a reliable indicator of future results.

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