Tracking the Rise of Target-Date FundsTarget-date funds (also called lifecycle funds) have become increasingly popular in recent years, especially in employer-sponsored retirement plans. More than 75% of 401(k) plans offer this type of fund — often as the default investment — and about one-third of 401(k) investors include target-date funds in their portfolios.1–2 Target-date funds are also held in IRAs and other types of accounts (see chart).
How Target-Date Funds WorkTarget-date funds are hybrid mutual funds that generally include a mix of asset classes: stocks, bonds, and cash alternatives. The target date is the approximate date when an investor would withdraw money — typically the date when he or she expects to retire. Target-date funds are generally available by date. Thus, an investor expecting to retire in 2030 might choose a 2030 fund. The further away the target date, the greater the risks the fund usually takes — a strategy based on the idea that investors with longer time horizons may have a greater opportunity to recover from potential losses. As the target date approaches, the fund typically shifts toward a more conservative asset allocation to help conserve the value it may have accumulated. A common misconception about target-date funds is that different funds with the same date are alike. In fact, they typically won’t have the same asset allocation or investment holdings. One study found that funds with a 2020 target date had stock allocations ranging from 48% to 90%.3 The turnover rate of assets and the glide path also vary among funds. The glide path is a formula that determines how the asset mix will change over time, before (and sometimes after) reaching the target date. The principal value of target-date funds is not guaranteed before or after the target date. The return and principal value of all mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. For some investors, target-date funds may offer a helpful approach to allocating assets. Be mindful that it’s important to look beyond the target date to determine whether a particular fund is appropriate based on your goals, time horizon, and risk tolerance. Asset allocation does not guarantee against investment loss; it is a method used to help manage investment risk. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. 1) Employee Benefit Research Institute, 2010 The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald. |
Many investors may find these funds to be appealing because they offer what appears to be a simple investment strategy. However, they may not be as simple as they seem.| The Giles Financial Group |
print this page| 16 Commerce Dr. PO Box 7005 | • | Wyomissing, PA | • | 19610 |
| Phone: 610 373-7311 | • | Fax: 610 373-5021 |
| • | cgipprich@gilesfinancial.com |
Securities Offered Through ValMark Securities, Inc. Member FINRA, SIPC Investment Advisory Services Offered Through ValMark Advisers, Inc. a SEC Registered Investment Advisor 130 Springside Drive, Suite 300, Akron, Ohio 44333-2431* 1-800-765-5201. The Giles Financial Group is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.
PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. ValMark Securities, Inc. makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is ValMark Securities, Inc. liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.
Investors should consult with their own professional advisor regarding the potential tax, estate, and legal considerations that may arise in connection with entering into a life settlements transaction. Proceeds from a life settlement transaction may be taxable under federal or state law to the extent the proceeds exceed the cost basis. The proceeds from a life settlement transaction may be subject to claims of creditors. The receipt of proceeds from a life settlement transaction may adversely impact eligibility for government benefits and entitlements. The amount received for the sale of the Policy may be impacted by the circumstances of the particular purchaser of the Policy, the insured’s life expectancy, future premiums, the death benefit, the terms of the Policy, and the current market for insurance policies, among other factors. The amount received for the sale of the Policy may be more or less than what others might receive for the sale of a similar policy. There may be high fees associated with the sell of a Life settlement.
Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as a financial planner.