Listening to a financial advice talk show this morning and a retired man called with a question. He wanted confirmation of his 401k investments.
It turned out he and his wife decided that among funds available the best for them was the 2040 target date fund. Think about that for a minute.😕
He had no idea what a target date fund was. In this case the 2040 fund has a mix of investments designed for the person who expects to retire in 2040. In other words, higher risk for higher long-term return, not for a retired person seeking more stability while using the funds.
Target date funds typically offer an option for those already retired where the investment mix includes more fixed income investments.
The lack of understanding about 401k plans and retirement investing hurts a lot of people and has long-term consequences. Employers generally do a poor job educating workers on a continuous basis. It has been my experience that 401k investors save too conservatively, or too aggressively, fail to periodically rebalance their investments and do not understand the concept of asset classes and diversification.
Plan sponsors need to do a better job‼️
PS. Many 401k plans contain far too many investment options which only confuse and add no value.