Target-date ETFs – all-in-one type funds that many investors have turned to for retirement savings – have recently come under the scrutiny of the SEC. Still, critics may not believe that regulators have been thorough enough.
The government promised to make “TDFs” less harmful to a retirement saver’s nest egg, writes Robert Powell for MarketWatch. The SEC delivered a 100-page report outlining its proposed new rules which would help “enhance investor understanding of target-date funds and reduce the possibility that investors will be confused or misled.”
Under the new rules, target-date fund providers will need to provide a clearer picture of what investors are buying, which includes a graphic depiction of asset allocations from inception to the target-date fund. The SEC also reminds investors to keep an eye on investments instead of sticking to a set-and-forget mindset.
Target-date funds invest in a mix of stock, bond and money-market funds. Over the period in which the fund is active, stock funds usually dominate the portfolio but reduce in weighting as the target-date fund approaches maturity, also known as a “glide path.” The main problem is that different funds may have different glide paths and asset allocations, even if they have the same target dates, or maturity dates.
A few industry experts praise parts of the SEC’s proposed rules, commenting that the changes for advertising and enhanced disclosure in TDFs are a step in the right direction. Furthermore, the proposal to include the ending asset allocation in the fund is also a prudent move, since investors would know when a fund reaches its most conservative investing mix.
Max Chen contributed to this article.