Is This the Best Way to Invest Retirement Savings?

Better Investing

What's Hot


2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Target-date funds are now the most popular investment vehicle for 401(k) contribution. Find out why choosing the wrong fund can cost you dearly.

More than half of all 401(k) contributions now go into target-date funds, Bloomberg Business reports.

This year marks the first time that has happened, and the trend is projected to continue, with 88 percent of all 401(k) contributions going into target-date funds by 2019.

Target-date funds, or TDFs, are a type of mutual fund geared toward people with less investing expertise, or who simply do not want the hassle of rebalancing their investments.

Here’s how Money Talks News founder Stacy Johnson describes TDFs in “Why You’re Stressed About Your 401(k) — and How to Get Over It“:

These popular mutual funds are appealing because they take a lot of the work out of investing. You choose the date when you want to retire — 2030, for example — and the fund is supposed to do the rest, rebalancing your investments periodically to meet your goals.

Target-date funds appear to be doing well for the millions of Americans who are now invested in them, Bloomberg reports. TDFs have been around for a decade and have returned an estimated average of 5 percent per year over that decade. That is a typical return for a fund that blends stocks and bonds, according to the Bloomberg report.

Target-date funds are also saving investors from themselves, an advantage over other types of mutual funds. Bloomberg reports:

The average mutual fund has a flaw, which is that the average investor hardly ever does as well as his or her funds. Investors tend to jump in and out of funds at the wrong time…

Investors in target-date funds, at least so far, seem to have avoided this curse. They’ve been sticking with their funds and doing surprisingly well in the process.

Target-date funds aren’t perfect, though.

“Target-date funds are conceptually simple, but there are few constraints on how they have to be designed, so you end up with lots of different approaches,” Boston College finance professor Jonathan M. Reuter told The New York Times earlier this year.

A study by Reuter and a colleague found a wide range of returns and risks across funds for the same retirement year.

When the stock market crashed in 2008, for example, an Oppenheimer fund for 2010 retirees fell by 41 percent, while a Wells Fargo fund for 2010 retirees fell by only 11 percent.

Fees for target-date funds can also be high, from 0.17 percent for Vanguard’s TDFs to more than 1 percent for more than a dozen TDF funds at other providers.

To learn more about mutual funds, check out “Ask Stacy: How Do I Invest in a Mutual Fund?

Like this story? SHARE it with your friends on Facebook.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!

💰🗣📰

Read Next: 4 Things You Must Know About How States Tax Retirement

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 2,069 more deals!