While I am not personally a fan of Target Dated Funds, they do have a place for people just starting out investing or people who are too busy or lack the interest to follow the market on a regular basis. They are definitely better than doing nothing at all.
Target Dated Funds are designed and structured to maximize the investor’s returns by a specific date. They are built with a mix of stocks, bonds, and cash that changes over the target time horizon. The intent is that they build gains at the start and the early years by focusing most of the fund on riskier growth stocks and then move towards a heavier weighting of bonds and cash towards the end of the timeframe to lock in the gains.
The philosophy is sound and the intent is good. These funds have given people an easy to understand product that they can invest in and mostly forget about.
My issue with these funds has to do with their increased cost relative to just doing the exact same thing on your own. In most cases it is very easy to replicate what these targeted funds are doing with other available funds. The best example to me is the U.S. government TSP fund portfolio. There, the Target Dated Funds are literally made up of the individual funds and you can mimic the exact fund makeup, with a lower cost, if you simply spend a few minutes of your time.
I also just think that you will get better returns along with a lower cost if you stick with large cap index funds. There your returns can be maximized to such an extent that you may never need to eventually transition to a much more conservative portfolio. That is my plan. I want my growth to be so high that I never need to put most of my portfolio in bonds or cash. So, Target Dated Funds don’t fit my investment philosophy.
But, as I said above, if you don’t want to spend the time or energy to monitor and track your investments on a regular basis, then Target Dated Funds are not a bad option. But realize that you are giving something up both in lowering your costs and increasing your gains over the long term.
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Patient and Disciplined Saving 