Investing in Funds: A Monthly Analysis --- Retirement Planning: Before Buying a Target-Date Fund, here are five key questions to ask; Sure, it's easy to select an all-in-one fund geared to a year you might retire in; But what exactly are you getting?
Target-date funds drew a lot of criticism during the bear market for big losses. Whether or not the criticism was deserved, one thing is clear: Average investors need to better understand the risks and benefits of these popular retirement-savings vehicles.</br></br>Designed as hands-off, long-term holdings, target-date funds typically contain a retirement year in their names and shift to a more conservative asset mix as that year approaches. But as the market tanked in late 2008 and even supposedly conservative funds for people retiring in 2010 took a hit, questions arose about how well people really grasp these products.</br></br>Securities and Exchange Commission Chairman Mary Schapiro has asked her staff to prepare rule recommendations about how target-date funds are marketed, and the Labor Department's Employee Benefits Security Administration plans to require fund providers to give plan participants more information about target-date funds when they are among the default options in retirement-savings programs such as 401(k)s.</br></br>Target-date funds rebounded strongly along with the broad stock market last year. Funds geared to retirement in years between 2000 and 2010, for example, returned an average 22.4% last year after falling an average 22.5% in 2008, according to researcher Morningstar Inc.; this year, they're down a slight 0.7%. The rebound since 2008 "takes some of the immediate pressure off these funds, but there's still a lot of questions out there," says Laura Lutton, editorial director in the mutual-funds research group at Morningstar.</br></br>Here are five questions investors should ask: