There, I said it and it’s true. At Smart401k, we spend much of our time thinking about how to explain things in a manner that’s relatable to the average participant (i.e., someone who doesn’t live and breathe investing and its terminology).
The brilliance, from a marketing perspective, of TDFs is that they’re exceedingly simple to explain. Just pick the date closest to when you think you’ll retire, and the fund will take care of the rest. That’s it … right?
Well not exactly. It turns out that making it so simple actually complicates things when you have to explain all the assumptions (and fund manager motivations) that go into a TDF – like when the market goes down … significantly.
Then the conversation turns from, ‘Just pick the date,’ to, ‘Well we use a glide path that goes through retirement, and our asset allocation contains more stocks/bonds than the average TDF.’ And what if someone asks why a TDF contains mutual funds from a single fund family?
The point I’m trying to make is not stay away from target date funds. We just need to ask, ‘How can we effectively educate participants so they can make an informed choice between a target-date fund, advice, managed accounts, model portfolios and selecting their own investments?’
Or should we? Are we missing the point by focusing on investments and not on contributions, setting goals and thinking about what plan participants want to do in retirement? Is there a way to do both?
If you’d like to join the conversation please leave your thoughts below.
President & CEO, Smart401k
Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at Smart401k.com.