Ask Money

Target date funds

Chris Farrell Jun 1, 2010

Question: What are the best target-date retirement funds? Where is the best place to look for information that rates these funds? Jill, Cardiff, CA

Answer: Target dates funds are mutual funds that offer investors a well-diversified portfolio that automatically gets more conservative as the “target” date nears.

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When it comes to target date funds I prefer the ones that impose very low fees, put the money primarily into index funds, and keep the number of asset classes down to manageable proportions. Target date funds were sold as conservative investments but during the recent bear market a number of them badly tanked since they were loaded up with too much stock and even junk bonds.

A good place to start researching target funds is individual investor database Morningstar.com. It offers good information on the various target funds and it also ranks them.

For instance, this Bloomberg BusinessWeek article reports the Morningstar rankings of target date funds for yearend 2009. The ranking take into account returns, fees, and management. The top-ranked target-date providers were the American Funds, American Century Investments, T. Rowe Price, and Vanguard.

You could start your research by watching the video or reading the transcript of an interview on target funds with Morningstar’s director of personal finance, Christine Benz.

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