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Lesko: Eyes on Target Date Funds

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Jason: Many pre-retirees are turning to target date funds for retirement savings. Greg Lesko of Lesko Financial explains what they are. Greg...

Greg: Thanks, Jason. Target date funds are becoming more popular because of two realities: the decline of traditional pensions and the fact that Americans are still having a tough time saving enough for retirement.

Target date funds take the guesswork out of investing: you simply decide when you want to retire, keep putting money in, and forget about it. The fund automatically adjusts the mix of investments to become more conservative as you get closer to your retirement date, potentially lowering risk.

Jason: Is it the low-maintenance that makes them attractive to investors?

Greg: Yes--many people find the world of investing confusing, and target date funds do all the thinking for you. But it isn't just individual investors who are relying more on them; workplace-sponsored retirement plans are turning to them as well. Most companies have made TDFs their default investment option.

Jason: Is there a down side?

Greg: Well, not all target date funds are the same. Two funds can have very different results, depending on how they adjust their overall mix. For investors who fear risk, the funds might be viewed as too heavy on stocks, while for those who'd like to see more growth, the fund mix may be considered too conservative.

Also, the fees can be high. But for some people, putting their retirement savings on auto pilot is a major convenience, one which will hopefully encourage them to invest more.