Different Paths to the Same Target: Variation in Target Date Funds

Abstract

Target date funds (TDFs) provide a simple way to obtain an asset allocation that matches the current and future needs of an average investor with a specific retirement date. This article examines the differences between TDFs with the same target date but from different fund providers and finds considerable differences in asset allocations, risk, performance, and other fund characteristics. These differences are partially predictable based on the information in fund prospectuses; however, TDFs often deviate from the planned asset allocations. Investors and advisors should be aware that TDFs with the same target date can vary dramatically, warranting additional research when selecting between TDFs and then monitoring chosen TDFs’ asset allocations in the future. Potential solutions to these concerns include increased guidance from regulators, greater discernment from employers in employer retirement plan investment options, and more descriptive fund names.

TOPICS: Retirement, portfolio construction, performance measurement, legal/regulatory/public policy