Mary Had a Little Lamb (Target Date Funds)

By Eric Peters, Fall 2017 IAC Student Intern

Mary had a solid job,

Worked real hard, nine to five.

Mary saved as best she could,

But worried ‘bout her goals.

 

Retire early, be comfortable,

Pay the bills, live for thrills.

Worry not for want and needs,

And take care of her home.

 

Then she learned of TDFs [Target Date Funds],

Target date funds to save best.

Suits your lifestyle and your age,

Can get it through your 401(k).

Holds a mix of stocks and bonds,

Long-term range, set a date.

Holdings shifting as you age,

To match your stage in life.

 

Stocks are risky, bonds are safe,

The blend of these two sets your state.

Shifting to a safer mix,

Towards your target date.

 

This rosy view is incomplete,

Things will trip you at your feet.

These returns aren’t guaranteed,

You could lose what you’ve grown.

 

All investments have some risk,

Never getting rid of it.

Strategy and shifting risks,

Your TDF’s your own.

 

Fees and costs, a different piece,

TDFs can’t run for free.

Often holding mutual funds,

Tacking extra fees.

 

Mary don’t discount these facts,

TDFs secure your path.

Just make sure to check the stats,

And always match your risk.

 

Learn More:

  • Lifecycle funds often hold mutual funds and a mix of stocks, bonds, and other investments
  • Over time, the mix gradually shifts according the fund’s investment strategy
    • Designed to be long-term investments for people with particular retirement dates in mind
    • Intended to become more conservative as you approach the target date
      • Typically shifts from being stock-heavy (riskier) to being bond-heavy (safer) as you age
    • Often available through 401(k) plans
    • Asset allocation in this fund determines your position in risk
    • Even if two target date funds have the same target date, they may have very different investment strategies and risks – depending on the investor
      • They DO NOT guarantee that you will have sufficient retirement income at the target date
      • You can LOSE money
      • You MUST, from time to time, determine whether the fund (still) fits your situation (investment objectives, risk tolerance, etc.)
    • All investments have some risk and you cannot eliminate risk entirely
    • Target date funds have different investment results AND different fees (even if they have the same target date)
      • Often, target date funds will invest in other mutual funds, and fees may be charged by BOTH the target date fund AND the mutual fund

If you want to learn more about target date funds, check out these websites from the SEC:

https://investor.gov/introduction-investing/basics/investment-products/target-date-funds

https://www.sec.gov/investor/alerts/tdf.htm