I read a great deal of financial media articles. Sometimes I think I read too many.
There is a continuing stream of misinformation from the financial media regarding target-date mutual funds. This is especially true of investing in target date mutual funds in company 401(k) retirement plan accounts.
There is no chance on earth that a target-date mutual fund falls into the category as a managed account. I think that it is time that Minnesota company 401(k) retirement plan participants find out these facts.
Target-date mutual funds are a “set-it-and-forget-it” investment option. These mutual funds are a mixture of stocks and bonds. As the target year of the mutual fund increases, the mutual fund owns fewer stocks and more bonds.
Target-date mutual funds are designed to invest more conservatively as an individual company 401(k) retirement plan participant nears their desired retirement date.
A managed account is an investment advice relationship between an individual company 401(k) retirement plan participant and an independent, third-party investment advisor.
In this relationship, the investor advisor takes a fiduciary liability for the investment advice provided to the individual company 401(k) retirement plan participant.
The stock markets are near all-time highs. When the stock market goes down, the manager of a target-date mutual fund is not going to contact an individual company 401(k) retirement plan participant. All target-date mutual funds are “buy-and-hold” investments.
Interest rates are near all-time lows. When interest rates go up, and bond prices begin to fall, no phone calls or e-mails go out to target-date mutual fund investors.
Individual company 401(k) retirement plan participants who work with an investment advisor will have a principal preservation game plan in place for both a stock and bond market decline.
Target-date mutual funds are very different from managed company 401(k) retirement plan accounts. This fact seems to be lost on the majority of the financial media.
Ric Lager
Lager & Company, Inc.
