If a target date mutual fund was your favorite sports team. They would miss the playoffs this season.
In the last few weeks, lawyers filed six separate suits against 401(k) sponsors. Each of these lawsuits charged the BlackRock target-date funds with deficient investment performance. Versus other popular target-date funds.
A few months ago, mutual fund giant Vanguard received notice of a class-action suit. The charges are that Vanguard mismanaged some of its target-date funds.
Lawsuits are always bad. But the target date mutual fund news gets worse.
Two recently issued reports cast doubt on investing in target-date funds. The reports came from Morningstar. And Boston College’s Carroll School of Management and the TIAA Institute. Each report found target date funds expose older investors to unnecessary principal risk.
Target-date funds rebalance as the investor gets older. The stock and bond market asset allocation shifts to a more conservative profile. To lower risk when the prescribed retirement year (i.e., the target date) approaches.
Target date mutual funds in 401(k)’s is the ultimate “set-it- and forget-it” investment choice. The true “no brainer” 401(k) option.
The recent lawsuits involving target date funds have similar annual cost concerns. In some cases, the company 401(k) sponsor offered the same target date mutual funds. When other lower cost and better-performing investments were available.
The other concern is annual investment performance. Falling stock prices have taken their toll on all stock mutual funds. Rising interest rates have taken their toll on all bond market mutual funds.
In target date 401(k) mutual funds, there has been a “double whammy” over the last several months.
The stock and bond market environments have changed. Individual 401(k) target date mutual fund investors remain in a “set-it-and-forget-it” mindset.
Target date mutual funds no longer provide a conservative mix of stocks and bonds. Both asset classes are losing value now.
Add to that fact the traditional high annual management fees of target date mutual funds. And the fact that most target date mutual funds found on a default 401(k) menu are from the same family. Fidelity, Vanguard, Blackrock, etc.
Legal troubles. Excessive costs. Poor investment performance. Not a sound investment management option for an individual 401(k) investor. Of any age or tolerance for stock and bond market risk.
Now may be a good time to explore other mutual fund options for your 401(k). I can provide an independent, third-party, fiduciary level second opinion.
Reply in the comments below. If you are willing to share a copy of your default 401(k) mutual fund menu. I can reply with the lowest-cost and best-performing mutual fund list in your specific 401(k) plan.
Ric Lager
Lager & Company, Inc.
