This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

'Target' Mutual Funds Prove Their Worth

NEW YORK ( TheStreet) -- When target-date mutual funds recorded big losses last year, shareholders complained bitterly and legislators called for increased regulation. Some financial advisers argued that target-date funds had failed altogether.

But lately the funds have stormed back. Many have demonstrated they can perform their mission, providing sound investments for retirement savers.

Each target-date fund is designed to serve people who will be retiring near a certain date, such as 2020 or 2030. The funds include diversified portfolios of stocks and bonds. As the retirement date approaches, the portfolios automatically become more conservative, shifting away from stocks and into bonds. The aim is to protect retirees from suffering sizable losses.

The broad diversification should help to stabilize the funds. But as the markets tanked in 2008, many funds lagged behind the S&P 500 Index. Critics contended that target-date portfolios suffered large losses because they were poorly designed.

In fact, much of the underperformance can be attributed to big stakes in foreign stocks. Target 2040 portfolios currently have 27% of assets in overseas stocks, and 2010 funds have 13% abroad, according to Morningstar. In 2008, foreign stocks trailed the U.S. While the S&P 500 lost 37% of its value for the year, European funds dropped 49%, and diversified emerging market funds declined 54%, according to Morningstar.

Is it a mistake for target funds to hold foreign stocks? Hardly. Foreign stocks have soared lately, outpacing the S&P 500. That explains why target 2040 funds have returned 30% this year, outdoing the S&P 500 by 5 percentage points. As recent results have demonstrated, investors should hold foreign stocks because they sometimes outperform Wall Street and provide diversification.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $92.69 -0.59%
FB $119.49 1.43%
GOOG $711.11 1.40%
TSLA $214.93 1.61%
YHOO $37.23 0.79%


Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs