The problem with Target Date funds are the investors that use them

Ary Rosenbaum - The Rosenbaum Law Firm P.C.
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Ary Rosenbaum - The Rosenbaum Law Firm P.C.

A target-date fund (TDF) could be an attractive investment alternative for a participant that can’t be bothered with allocating their account balance.

The reason I have trepidation about target-date funds is because of how certain participants use it, as well as the financial advisors that don’t have a word with these participants.

According to data from Vanguard, 27% of use TDFs along with other 401(k) mutual funds. Another 2% use more than one target-date fund; 4% use two or more TDFs as well as other funds. So about a 1/3rd of participants are using TDFs incorrectly and plan providers and plan sponsors are ignoring this big fact.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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