This Retirement Investing Tool Might Actually Be Working – Bloomberg Business

IMG_1399 When I was managing 401K plans one of my greatest frustrations was getting employees to pay attention to the investment options, learn about them and then select investments best for their needs.. We provided tons of written communications, online services providing expert advice with interactive tools and we even held regular retirement planning and investing educational meetings for employees and their spouses.  All this resulted in very modest success.  The plan provided an array of options including pre-mixed portfolios based on risk tolerance, target date retirement funds in addition to several index funds and fixed income and bond funds.

Still, too many investors placed all their money into the fixed income fund, or into the company stock fund. They were astute at buying high and selling low based on the swings in the stock market.  Many thought diversification was investing in large cap, mid cap and small cap equity index funds.  It was frustrating especially given the large amount of money we spent on all this communication and advice.

Given the above, it is indeed good news about target date retirement funds.  For the average investor with a goal of a secure retirement and little or no ability or desire to play the market, using a target date fund allows you to set it and forget it (unless your retirement date changes).

There is a strong lesson here. Pay attention to your investment options, assess your goals and risk tolerance, do something positive for your future retirement and stick with a sound strategy. You can do this!

Finally some good news for workers saving for retirement

For a decade, a new kind of mutual fund has been taking over Americans’ retirement portfolios.

The target-date fund is designed for people with no knowledge of investing. You pick the fund closest to the year you expect to retire—the Vanguard Target Retirement 2030, for example—and the fund does the rest. Containing a variety of stock and bond funds, the all-in-one funds gradually and automatically get less risky as retirement approaches.

There’s now evidence that target-date funds may be working. They’re giving investors solid returns, data from research firm Morningstar show. Just as importantly, they’re boosting those returns by protecting investors from their worst instincts.

Good thing, because the retirements of millions of Americans, and especially young people, now rely on target-date funds.

This year, for the first time, more than half of all 401(k) contributions will go into target-date funds, research firm Cerulli Associates estimates. It projects the assets in target-date funds to hit $2 trillion by 2019, when 88 percent of all 401(k) contributions will go into the funds.

With 10 years of history, there’s now enough of a track record to judge just how well investors are doing in target-date funds. The average per-year return over the past decade was 5 percent, Morningstar estimates. That’s about what you would expect from funds that are a blend of stock and bond funds. Stock funds were up an annual 7.5 percent over the past decade, while bond funds were up an average 4.4 percent.

But target-date funds have one big advantage over other kinds of mutual funds, the data show. The average mutual fund has a flaw, which is that the average investor hardly ever does as well as his or her funds. Investors tend to jump in and out of funds at the wrong time. They buy high, choosing funds only after they’ve done well. And they sell low, dumping underperforming funds just as they’re about to take off. Picture an investor buying into a tech fund at the height of the Internet bubble in 2000 and then selling a few years later just before the sector revived along with such stocks as Google and Apple.

Investors in target-date funds, at least so far, seem to have avoided this curse. They’ve been sticking with their funds and doing surprisingly well in the process.

via This Retirement Investing Tool Might Actually Be Working – Bloomberg Business.


  1. I paid attention to every mailing and e-mail you sent and attended some of those seminars. I learned a lot and my 401K is all the better for it. (And still growing.)


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