In a recent CNBC article, Acorn Financial discusses the pros and cons of using target-date funds in 401(k) plans. These mutual funds are designed to provide a simple investment solution to clients by offering an asset allocation that automatically changes over time. At the beginning of the investment, the allocation is more aggressive and becomes increasingly conservative as the target-date, typically retirement, approaches.
James Gambaccini, CFP®, reminds investors that a cut-and-paste solution doesn’t work for everyone: “Often with target-date funds, the fund managers are making an assumption that the 401(k) is the entirety of the employee’s retirement funds, when in fact the client may have other IRAs or spousal retirement accounts. In doing so, both the assessed risk and portfolio allocation do not meet the client’s needs or retirement goals.”
For more details on target-date funds, view the full article here.
