Target-date funds: Different strokes

Target-date funds can be subject to wide equity allocation ranges, even within similar vintages. Later-dated funds, those which anticipate retirement in 2041 and beyond had median equity allocations between 82% and 89%; however, these funds offered by various managers may have equity allocations as low as 47% and as high as 99%.

Along with the large divide in equity allocations come the consequential swings in returns between peer funds. The base logic with target-date funds is to have more aggressive, or high equity, allocations for funds anticipating retirement further into the future than those planning for a more immediate retirement. Funds with low equity allocations in the longer-dated funds may be shortchanging their clients in long-term returns, but also reducing their risk of large losses.

Some of the widest ranges in equity allocations are in the nearer-dated funds, which traditionally should be preparing investors for retirement and preserving assets. But some might need the extra push from equities to make up for earlier losses or help catch up to retirement goals.