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Set It and Forget It? You May Regret It

July 16, 2018

On an almost daily basis I see the continuation of what I believe to be a bad trend – people using target-date mutual funds to “set it and forget it.”


Target-date funds are based on when an investor plans to retire. If you wanted to retire in 2030, you’d invest in the target-date 2030 fund. The fund then manages its holdings to decrease exposure to risky investments like stocks, and move money into “safer” vehicles like bonds, as you near retirement. Thus, the target-date 2050 fund would have more stocks in it than the 2030 fund.


On the surface, it sounds great. Pick a retirement date and go on autopilot.


Perhaps that’s why these funds are taking over Wall Street. At the end of last year, more than $1.1 trillion had been invested in target date funds, which is more than seven times the figure in 2009.


So what’s my issue?


The strategy behind these funds is misleading. The funds don’t give much thought to a person’s goals or risk tolerance.


Why should people with nothing more than a retirement date in common use the same investment vehicle?


That’s why “set it and forget it” is dangerous.


During the 2008 financial crisis, the average target-date fund portfolio was nearly half stocks. Some were more. That includes the 2010 funds designed for people two years away from retirement.


When the sell-off started, target-date funds got hammered and investors were left with losses. Their autopilot strategy led to regret.


As for target-date funds offering “protection,” consider what happened in 2008. That year, the S&P 500 lost 38 percent and the Allianz Bernstein 2010 fund lost 33 percent.


A mere 5 percent of protection?


As with any investment, understand what you’re investing in and how it relates to your specific situation.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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