Check Your Target-Date Fund, Especially if You Plan to Retire Soon

Key Points:

• Target-date mutual funds are designed as "set it and forget it" investments that automatically shift from aggressive growth assets to more conservative ones as investors approach retirement, requiring minimal decision-making from investors.
• Financial experts warn that these funds can be either too risky or too conservative, potentially giving investors a false sense of security about their retirement preparedness, especially if they are not saving enough.
• Critics like Ron Surz highlight that many target-date funds remain heavily invested in risky assets at retirement, exposing investors to significant losses if the stock market crashes.
• The popularity of target-date funds surged after the 2006 Pension Protection Act allowed automatic enrollment in 401(k) plans, with assets growing from $408 billion in 2010 to over $4 trillion in 2024.
• Some target-date funds, such as the iShares LifePath Target Date 2060 ETF, maintain a high stock allocation (up to 98%) for young investors and only gradually shift to a more conservative mix by the target retirement year, which may still involve substantial equity risk.