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Targeting target date funds

Many people consider target date funds the “set and forget” option of their retirement plan investing choices. While they are designed to be a one-stop way to addressing the challenge of changing one’s asset allocation to become more conservative as the target date approaches, they don’t all do that in the same way. Some funds reach their most conservative allocation on the target date and remain static after that, while others can still have a substantial portion of the portfolio in stocks many years after the target date is reached, on the theory that even retirees still need some growth.

Enter the SEC’s proposal to require a target date fund to spell out in its marketing materials exactly what its asset allocation will be on the target date, and demonstrate in a chart, graph or table  how its asset allocation will change over time, both before and after the target date. This is designed to help address the problem retirees experienced on discovering during the 2008 financial crisis that a fund they had counted on to provide income as of the target date specified in the name had suffered serious losses at a time when it would be difficult to replace the money. The SEC is still reviewing comments submitted by the public.

It’s yet another reminder that you can’t always tell a book by its cover–or in this case, its name.

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