Target-date funds have gained popularity recently. Such funds provide shareholders with a "glide path," from an aggressive to a more conservative portfolio, as the target date comes closer. The target date is supposed to be around the time of retirement so investors in a 2030 target-date fund, for example, will mainly hold stocks now and gradually increase bond holdings over the years.
However, target-date funds are not wealth preservation funds. That is, they don’t shift largely into bonds as the target date approaches. They typically hold 40-60 percent in stocks, as of the maturity date.
As a result, most target-date funds were hurt badly by the stock market crash of 2008, and that includes funds with a 2010 date. Among the most popular 2010 funds, losses last year ranged from 20 percent-35 percent.
The appeal of target-date funds is that investors can buy them and leave them alone, confident that the portfolio will evolve as shareholders grow older. If you are thinking about one for your IRA, plan on holding it long after you retire. Long-term, the emphasis on stocks is likely to pay off but these funds won’t necessarily protect your principal from losses as your retirement nears.
