In an attempt to bolster transparency, the SEC recently proposed more stringent disclosure rules for target-funds.
Target-date funds are somewhat of a unique investment tool in that they are funds which automatically adjust their allocation of equities and bonds dependent on one’s retirement date. In general, the funds become more conservative by allocating more asset base to bonds as the retirement date nears.
The SEC’s proposed rules would require funds to change their marketing strategies and disclose what type of assets the fund will invest in over its entire life. Additionally, the rule would state that marketing materials could be misleading if they focus on a single factor, such as age, as the primary basis for determining that an investment is appropriate.
Last, the rule would require all target-date funds to disclose that investors could potentially lose money if they invest in the fund.
At the end of the day, these proposed rules are forcing fund providers to do an investor’s homework for him or her. After all, investors should know the holdings, maturity dates and other information of their respective investments.
Some common target-date ETFs include:
- TDAX Independence In-Target (TDX), which is up about 3.6% over the past year and allocates 47.6% of its assets to bonds, 30.3% to cash and 22.2% to equities.
- TDAX Independence 2010 ETF (TDD), which is up nearly 6.2% over the last year and is designed for investors who plan to retire in 2010. TDD allocates 57.1% of its assets to bonds, 22.5% to equities and 20.4% to cash. After 2010, TDD adjusts its equity holdings to 11%.
- TDAX Independence 2020 (TDH), which is designed for investors who seek to retire in 2020. TDH is up nearly 11.3% over the past year and boasts the following asset allocations: 64.4% in equities, 35.1% in bonds and 0.6% in cash. After 2020, the fund adjusts itself to allocate 11% of its assets to equities.
- TDAX Independence 2030 (TDN), which is up 13.3% over the last year and is aimed at those who plan on retiring in 2030. TDN allocates 85.4% of its assets to equities and 14.6% to bonds. After 2030, the fund automatically adjusts and allocates 11% of its assets to equities.
- TDAX Independence 2040 (TDV), which has gained 12.1% over the past year, allocates 95.9% of its assets to equities and 4.1% to bonds. After 2040, the allocation of equities is adjusted downward to 11%.
Disclosure: No Positions