Owning a retirement target date fund could throw off a balanced approach to your investments.
Believing that if one target date fund is good, thinking that investing in two or more would be better.
Structuring systematic withdrawals from a target date fund can be a straightforward strategy for creating retirement income for some investors.
If someone needs access to quick cash, a target date fund set for a 2025 is not place to stash their savings.
By 2016, 55% of 401(k) participants will have their whole retirement accounts invested in a single target date fund, up from 24% last year.
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Because a bucket strategy redistributes funds among buckets rather than rebalancing, it shifts the overall portfolio to a traditionally less risky allocation compared to that in a target date fund.
Table 3 shows that a bucket strategy may perform better with a lower cash target, but it also shows that a systematic withdrawal from a target date fund could perform even better.
The average 2015 target-date fund allocated roughly 40% to stocks at the end of 2012, down nine percentage points from the end of 2008, according to Lipper.
Investors willing to take additional risk might also consider leaving their current 401(k) savings in a target-date fund, but direct all new contributions into a domestic equity fund or international stock fund to boost returns, says Michael Francis, president of Francis Investment Counsel, a consulting firm specializing in retirement plans.
Fund companies that manage target-date funds assume that young people will pick a faraway date where the allocation to equity is always very high.
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