How We Learned to Love Target-Date Funds in a Decade
NEW YORK (TheStreet) -- When stocks plunged in 2008, many investors felt their faith in target-date funds sorely tested, suffering deep losses in investments they'd considered safe. But doubts appear to have dissolved, as TDFs show growing appeal, especially in 401(k)s.
TDFs use a heavy allocation to stocks when an investor is young, gradually moving to a more conservative mix of stocks and bonds near and after retirement. The automatic shift eliminates one of the biggest investing hassles. The investor selects a fund with a target date matching the expected retirement year, and the fund company does the rest.
Vanguard says 55% of participants in its 401(k)s now have target-date funds, up from 2% in 2004 and 28% in 2008. About 34% of all contributions are now directed toward TDFs, compared with almost nothing in 2004 and 13% in 2008.
How come?roll the 401(k) assets into an IRA, which will allow you to invest in virtually anything.
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