Why Target Date Funds May Miss the Mark

by | May 23, 2024 | Established Professionals, Integras Insights, Retirement, Young Professionals

Most 401(k) and other retirement plans offer Target Date Funds (TDFs) as a default choice. They have become increasingly popular for a few good reasons but are rarely the best solution once your accounts achieve some size.

Let’s look at how they work and whether they are the most efficient choice for you.

TDFs are a great choice for beginners, or when you join a new employer plan. There is usually a lineup of funds targeting retirement dates in increments of five or so years. The concept is that the fund becomes increasingly conservative as the target date approaches, but that is a one-size-fits-all approach that can’t take your unique needs into account.

So, when are TDFs not the best investment choice?

To start, all of your money is invested with one fund family, instead of getting different approaches and methodologies. These funds are also usually invested across all asset classes and industries instead of those best suited to the current economic environment. They also evenly spread bond exposure instead of actively selecting the most appropriate bond sectors.

The biggest challenge with TDFs is that you don’t want all your investments too conservative as you enter retirement.

Yes, you want to make sure that you have some conservative assets to draw from during rough patches, but you still need growth during retirement to keep pace with inflation.

Here are a few things to consider:

· Do you actively rebalance your accounts?

· Does your plan have tools to evaluate your allocation vs. your goals and timeframes?

· Do you compare what you own against what’s available?

· Have you considered the advantages of an IRA for funds in an old employer plan?

· Are you layering investment risks to match your goal timeframes?

Learn more about Integras Partners’ investment strategies.
Call us to review your investment approach at (404) 941-2800.

You might also like…

Tax Deferred Exchanges with UPREIT Programs

Tax Deferred Exchanges with UPREIT Programs

If you sell an investment property like a rental home or other piece of commercial real estate, you will owe taxes on the gain. Between capital gains tax and depreciation recapture, a taxpayer could pay more than 1/3 of their gain in taxes. Many investors turn to DST...

read more
Deferring Tax on the Sale of Investment Property

Deferring Tax on the Sale of Investment Property

If you sell an investment property like a rental home or other piece of commercial real estate, you will owe taxes on the gain. Between capital gains tax and depreciation recapture, a taxpayer could pay more than 1/3 of their gain in taxes. Many people aren’t aware...

read more
Young Professionals: Establish Healthy Investing Habits

Young Professionals: Establish Healthy Investing Habits

Meet Megan. She’s in her early 30s, single, and fairly stable in her career, although she may change employers. Like most younger professionals we work with, Megan was unsure how to get started. She had a couple of previous company retirement accounts and a Roth IRA...

read more