The Benefits of Target-Date Funds by ProQuest


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									Your money1208.qxp    1/5/09    12:05 PM     Page 1

      30 Renal & Urology News                  DECEMBER 2008

                                                                                  Your Money

       The Benefits of Target-Date Funds
      Recent losses aside, these funds have proved to be sound investments under most market conditions

      BY STAN LUXENBERG                                                                                                                            Fund companies like to say that you
      MOST FUNDS HAVE been clob-                                                                                                                can buy a target fund and forget about
      bered in recent months. But the down-                                                                                                     it; professional managers will make
      turn has been particularly painful for                                                                                                    sure that the portfolio remains bal-
      shareholders in target-date funds. Dur-                                                                                                   anced. But shareholders should keep an
      ing the third quarter of 2008, the                                                                                                        eye on how their funds operate be-
      average target fund lost 10.0%, while                                                                                                     cause managers have been known to
      the S&P 500 dropped 8.4%. “Inves-                                                                                                         change their approaches. When target
      tors did not expect that the target                                                                                                       funds began early in this decade, many
      funds could drop so sharply,” says                                                                                                        had heavy weightings in bonds. Then
      Tom Idzorek, chief investment officer                                                                                                     stocks started rallying in 2003. Target
      of Ibbotson Associates, a Chicago in-                                                                                                     funds with relatively big holdings of
      vestment research firm.                                                                                                                   equities outperformed their more cau-
        Most target-date funds seek to be                                                                                                       tious competitors.
      cautious. Designed primarily for retire-                                                                                                     After the bull market started, funds
      ment savers, the funds hold diversified                                                                                                   operated by such companies as Fidelity

      portfolios of stocks and bonds. The                                                                                                       and Vanguard increased their stock
      bond holdings normally cushion results                                                                                                    holdings. By 2007, the average target
      in downturns. But seeking to diversify,      Retirement target funds are still a viable option, even in this economic downturn.           fund had 68% of assets in equities, com-
      many funds hold big stakes in foreign                                                                                                     pared with 55% in 2002. The moves
      stocks and commodities. During the           tion, putting a set amount of assets into       bonds. American Century has 52% of           proved ill-timed, however. The funds
      third quarter, foreign stocks and com-       high-quality bonds. But T. Rowe Price           assets in stocks and the rest in cash and    stocked up on equities just before the
      modities were crushed. That dragged          and other companies maintain siz-               bonds. Most other target funds have          markets collapsed.
      down average fund returns.                   able equity allocations after the target        higher stock allocations. Funds with            Now that stocks have been crushed,
        Target funds have become popular           dates. The idea is that savers need the         heavier equity weightings include T.         you can bet that some funds will begin
      choices for 401(k) accounts. Partic-         capital gains produced by equities to           Rowe Price Retirement 2015, with             shifting their allocations to bonds. That
      ipants in 401(k) plans are currently         support retirements lasting 30 years            66% of assets in stocks, and Vanguard        could be a smart move. Investors,

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