Given the dramatic, wealth-killing market Crash of 2008, it’s not surprising that target-date funds faced a lot of criticism in recent months. Some of these so-called set-it-and-forget-it retirement vehicles lost investors as much as 40% of their savings last year.
But the stock market is showing signs of improvement, with the Standard & Poor’s 500-stock index up about 36% since its March 9 low this year. The five-largest target-date funds aimed at investors with a retirement date of 2010 are up 25% on average since that date, according to data from Morningstar.
So, is it time to let these one-stop-shopping retirement vehicles off the hook?
Not really, even though fund managers will say there’s nothing wrong with their strategies.
‘Short-Term’ Events
Many managers say that focusing on a short-term event — in this case, the recent market collapse — is not the right way to approach these products. After all, they are aimed at long-term investors. Many of the funds that target a 2010 retirement date maintain a 50% or higher allocation to stocks, even long past investors’ retirement date, because, managers say, that’s the only way to make sure retirees’ savings last and beat inflation throughout retirement, a period of about 20 years based on average life expectancy. And it’s true that over the long haul, the best-performing target funds have beat the market.
But that’s little solace for people planning to retire in 2010, many of whom may be forced to delay their plans now that they’ve seen one-quarter or more of their savings vanish. The five-biggest 2010 target-date funds lost an average of 29% from the start of the market’s fall in mid-October 2007 through March 9 of this year.
Even with the recent market upswing, investors are a long way from getting back to where they were. Those five-largest 2010 funds are still down 16% on average for the …
Read the original article at WSJ
Related Posts
Tags: fund, Inflation, retirement, savings, stock
