Are You Missing The Target In Your 401k?

Investing can be complex and tedious and often overwhelms people to the point that they never spend time learning basic investing and risk management techniques. The investment industry is keenly aware of this and in an effort to sell more of their products, continuously re-packages their offerings to provide “new” investment vehicles to the masses.


One such investment tool that has gained popularity in the last several years is the target-date mutual fund (or sub-account).  Why have these gained in popularity? Well, they are often perceived as a kind of auto-pilot investment. Target-date fund managers claim to manage each fund based strongly on an investment horizon that matches that of the investor.

Younger investors may see more stocks in their funds, while investors nearing the end of the fund target period may see a greater shift toward bonds. The automatic re-balancing of stocks and bonds over time theoretically relieves the investor of the burden of manually adjusting their portfolio as they age. The fund manager adjusts the fund portfolio, over time, to represent the changing asset allocation needs of an aging investor.

Few employers have a psychographically homogeneous employee base, so it’s a bit weird that they’re making such big decisions about investment philosophy on behalf of so many workers.

But that’s the system as it stands, so it’s your job to figure out what assumptions your employer has made on your behalf.

Ron Lieber / NYTimes

If you have a 15 year horizon before you retire, you might select a fund with a target date fifteen years from now.  These funds are currently very popular as an investment choice inside 401k plans.  With the low participation rate and challenges educating employees about investment strategy, many 401k plans offer target date funds as a simplified investment choice.


The marketing of these funds places a great deal of emphasis on your investment horizon. Since many investors are overwhelmed when making investment decisions, the mere selection of a fund based on an investment horizon may give them a misplaced sense of accomplishment in their investment management. While target-date funds can be great investments, potential investors should understand that they provide their own challenges and should be researched and monitored like any other investment choice.


While your investment horizon should always be considered when determining your investment style and choices, it is not the only consideration. You shouldn’t rely solely on fund managers to achieve your investment goals.

It takes time, but educating yourself and monitoring your investments is the only true way to protect your financial future and ensure that your investment choices continue to meet your objectives. A partial list of other target-date fund considerations include:

  1. Investment selection & asset allocation within the fund
  2. Fund expenses
  3. Fund style and portfolio turnover
  4. Tenure of fund manager
  5. Historical performance of target-date funds
  6. One size doesn’t fit all in 401k planning advice


Ron Lieber has written an article about target date funds and offers many good considerations if you are currently investing in target date funds, or considering doing so. Target date funds may be great investment tools for many investors. If you determine that target-date funds are right for you, I hope you will continue to educate yourself and never rely solely on a adviser or fund manager to manage your investments.

Please consider sharing this with others who may be interested in information about target-date funds.

Photo credit to Jeffrey Turner