Taking Aim at Target-Date Funds

Target-date funds are being scrutinized by Herb Kohl, chairman of the Senate Special Committee on Aging. Target-date funds are designed as one-stop-shopping for investors’ retirement planning needs, but 2008 was a tough year for many of these funds. One target-date fund, with a target date of 2010, was down 41%.

The challenge with target-date funds, as the Committee found, is the varying amounts of equities the funds hold at their target dates. For instance, the Committee found that equity holdings of 2010 target-date funds ranged from 24% to 68%.

I’m not in the camp that says these funds should be more regulated. In fact, it’s very simple to find the funds' asset allocation with a couple clicks of the mouse. I say, “Caveat emptor.” Yes, let the buyer beware. Investors should get to know their target-date funds.