Investors in supposedly super safe target-date mutual funds took it on the chin like pretty much everybody else as the market collapsed.
So why would anyone think about looking to these funds now?
While the bear-market performance of many target-date funds was surprisingly bad — they’re supposed to get more conservative over time, adjusting their investment mix as shareholders approach retirement — there’s still plenty about them prudent investors should like.
The AllianceBernstein 2010 Retirement Strategy fund, geared toward people retiring next year, took a 33% hit last year, according to investment research firm Morningstar. But the fund is up about 51% since the market’s March low through the end of September, reclaiming previous losses. The Vanguard Target Retirement 2010 Fund is up about 35%.
The market itself — as measured by the Dow Jones Industrial Average — is up 45%.
Jason Schneider
Find Your ‘Glide Path’
How should wary investors approach target-date funds?
The first thing to consider is a target-date fund’s “glide path,” or the process by which a fund shifts its assets.
Generally, the 2010 target-date funds that fared better last year were those that were most conservatively positioned. For example, the Vanguard Target Retirement 2010 Fund, which had 54.8% of its assets in stocks in 2008, lost 21%, while the Oppenheimer Transition 2010 fund — one of the most aggressively positioned funds, with 70% in stocks — lost 41%.
But experts say you shouldn’t simply choose a target-date fund by how much it lost in the most recent downturn. How much risk someone wants to take on depends on a host of factors, including what other savings he or she has, says Greg Carlson, a fund analyst at Morningstar.
He suggests that investors be wary of funds “out on the extremes,” whether it be a heavy …
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