Target-date funds are a type of mutual fund that are becoming increasingly popular among retirement savers. These funds are designed to automatically adjust their asset allocation over time, becoming more conservative as the target date (usually the date of retirement) approaches.
While target-date funds may seem like a convenient way to save for retirement, there are some potential drawbacks to be aware of.
First, target-date funds are not guaranteed to outperform a simple portfolio of index funds. In fact, many target-date funds have underperformed simple index fund portfolios in recent years.
Second, target-date funds typically have high fees. This is because they are actively managed (meaning a team of investment professionals are constantly buying and selling assets in an attempt to beat the market).
Third, target-date funds can be very volatile in the years leading up to the target date. This is because they are still invested in stocks, which can go up or down in value.
For these reasons, target-date funds may not be the best choice for everyone. If you are looking for a simple, low-cost retirement investment, you may be better off with a portfolio of index funds.
If you are considering investing in a target-date fund, be sure to do your research and understand the potential risks and drawbacks.