A target-date fund (TDF) is for those investors who are shooting for a clear retirement goal or deadline with their 401k. The money manager behind the target funds will then make changes to the asset mix to achieve the return targets specified by the mutual fund. For example, as the time frame gets closer to the general retirement age, there may be more investments in bonds versus stocks.
The idea of target funds is intriguing. However, after the financial crisis of 2008, the target date funds industry came under much criticism. After all, the funds sustained big losses, which made it much more difficult to reach the return goals. As a result, there was a flight of assets.
But with the improvement in the markets over the past couple years, there has been more interest in TDFs. In fact, according to research from Morningstar, the sector saw net inflows of $47.5 billion last year, with total assets reaching $341 billion.
Now keep in mind that TDFs are classified in terms of the years a person will likely retire. So, in this article, we’ll take a look at those that cover the period of 2016-2020. Here are some of the top:
T. Rowe Price Retirement 2020
The T. Rowe Price Retirement 2020 (MUTF: TRRBX) fund is the largest in its category, with $13.7 billion in assets. The portfolio manager, Jerome Clark, has proven to be adept at dealing with the volatility over the past few years.
This is the case even though he tends to have a bias towards equities (which is about 72% of the overall portfolio). Then again, T. Rowe Price has various top-notch mutual funds under management, such as Growth Stock (MUTF: PRGFX), Price Value (MUTF: TRVLX) and International Stock (MUTF: PRITX).
Vanguard Target Retirement 2020
The Vanguard Target Retirement 2020 fund (MUTF: VTWNX) is another large offering. It has $12 billion in assets.
Like many other Vanguard investments, the Target Retirement fund takes an index approach. They include the Total Stock Market Index Fund Investor Shares (46.4%), the Total Bond Market II Index Fund Investor Shares (33.6%) and the Total International Stock Index Fund Investor Shares.
In other words, the portfolio managers primarily focus on the finding the right asset allocation. Actually, this is really what a TDF fund manager should do, right?
Another nice benefit of the Vanguard Target Retirement is its low expense ratio, which is only 0.17%.
Wells Fargo Advantage DJ Target 2020
The Wells Fargo Advantage DJ Target 2020 (MUTF: WFDTX) fund prefers a lower-risk approach to retirement planning. This was certainly helpful during the plunge in 2008. At the time, the fund lost only 22.09%. Essentially, there were offsetting gains in the large, high-quality bond portfolio.
Since then, the Wells Fargo Advantage fund has performed nicely. In 2009, the return was 19.19% and a year later, there was an 11.41% gain.
What’s more, the fund uses indexes for its investments. The equity components are based on those from Dow Jones (equities) and Barclays (bonds).
JPMorgan SmartRetirement 2020 (JTTAX)
The JPMorgan SmartRetirement 2020 (MUTF: JTTAX) has been versatile. Keep in mind that the fund has been quite broad in its investments. They have included real estate equities, junk bonds and emerging market stocks.
An advantage is that JPMorgan has an extensive platform of alternative investments and funds. So why not leverage them?
Currently, the portfolio consists of 56.25% of stocks and 37.07% of bonds. And, the fund has had a good 12 months so far. The return is up 18.21%.
Tom Taulli’s latest book is “All About Short Selling” and his Twitter account is @ttaulli. He does not own a position in any of the stocks named here.
