I am quoted in the Wall St Journal today, criticizing Target Date Funds as reckless.

The Wall St Journal has 2 articles on Target Date Funds in today’s paper. One is about how regulators are going to “crack down” on target date funds. To that I say well done. The horse has long since left the barn, but I’m sure your posturing will make investors feel better.  The other is the article with link above.

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Target Date Funds are mutual funds that are designed to act like a portfolio structured to meet the needs of an investor planning to retire in a given year (or tight range of years). They are a collection of mutual funds -all from the same mutual fund company- that then act as a portfolio in a single fund.

In theory the concept has merit because it lets the investor have a supposedly well structured portfolio without having to do any work / analysis. Turns out it’s a bad idea in practice, and I’ve not been a fan of them.  Mutual fund companies like them because they allow fund companies to capture 100% of a client’s assets in their own funds.

Fidelity’s family of target date funds is the poster-child for why I don’t like lifecycle/target date funds.  Fidelity Freedom 2010 is what you’d have been invested in if you were 60something and within 5 years (or so) of retirement in 2007. If you were, you lost 42% from peak to trough. No one (other than sociopaths) has the stomach for that. Many probably sold in March at the bottom – having watched their life savings annihilated. True: had you held on, you’d have 40% of your loss back by now. But you’re still devastated and are looking at 7-10 more years to get back to where you were. Except now you’re retired and drawing the balance down. You’re life has been monumentally impacted by a single fund and risky overly-simplified philosophy.