Christopher Sahl
Target-date funds can make it easy to save for retirement. They shift their asset allocation, becoming more conservative over time, so your portfolio is essentially on autopilot. But this convenience comes at a price.
Many target-date funds are funds of mutual funds, and investors typically pay two layers of fees: one for the target-date fund itself, and another that is an asset-weighted average of the management fees of the underlying funds. These products have soared in popularity even as sales of other kinds of domestic mutual funds have flagged. At the end of 2000, there were just 23 target-date funds with a little over $8 billion in assets; there are now more than 205 with total assets of over $160 billion, according to Lipper. Assets have been growing at a clip of 60% to 70% a year since 2002. Since most invest in a mix of funds from the same fund complex, some people question just how much additional expense these firms actually incur for essentially repacking their existing products. Target date funds "are loaded with excessive fees," says David Loeper, CEO of Financeware and author of Stop the 401(k) Rip-off!: Eliminate Costly Hidden Fees to Improve Your Life. "For just about every vendor, they tack on [additional] basis points to have somebody move your equity allocation on a systematic calendar," he says. (A basis point is a hundredth of a percentage point.)
RSS
