Equifax

Finance Blog

Retirement Savings: Risks and Benefits of Target Date Funds

Written by Jeff Rose on May 13, 2013 in Retirement  |   No comments

A target date fund is a type of mutual fund that many people add to their retirement savings accounts in order to diversify their investments—“target date” usually refers to the date on which the portfolio owner wishes to retire. Using this type of fund can…

retirement portfolio, retirement savings

A target date fund is a type of mutual fund that many people add to their retirement savings accounts in order to diversify their investments—“target date” usually refers to the date on which the portfolio owner wishes to retire. Using this type of fund can lead to more conservative investing once the target date has been reached. While this approach may appeal to those seeking a way to protect their retirement portfolio, it does have some disadvantages.

Risks of target date funds

Funds within funds: Allocation issues

Target date funds are not funds by themselves. They are funds within funds. This can pose a problem when you want to own a certain amount in assets because there are many classes of funds in which you’ll be investing.

Blind investments

Target date funds are blind investments—they don’t take into account your goals or anything else in your portfolio. These funds also do not consider the implications of your other investments, the goals you’re attempting to achieve, the risks associated with those goals, or other income you may have in retirement.

Without these considerations, it’s as if this investment stands alone, which can be quite risky.

...
Retirement Archive

Stay Informed Sign up for our FREE Equifax email Newsletter