Live

Watch CBSN Live

4 Top Target-Date Funds, 4 More Pretty Good Ones and 2 to Avoid

Target-date funds occupy a very narrow, specialized niche in the mutual fund universe. They are balanced funds, and the balance is supposed to change over time. The intention is to reduce exposure gradually to stocks and increase exposure to bonds at a certain pace for each fund - known in the trade as its glide path - in order to continually provide the right mix of assets for someone who plans to retire at a predetermined time.

The quirkiness of the portfolios might incline an investor to focus on what separates the group from more conventional funds, but a recent report by the independent research firm Morningstar (you'll need a premium subscription to the Morningstar website to access it) highlights the differences among funds within the target-date category:

"Target-date funds are by no means a uniform investment type. Depending on the glide-path philosophy, the sub-asset classes used, the nature and quality of the underlying investments and a host of other factors, target-date funds can display markedly different risk and return characteristics."
The firm's analysts studied 22 families of target-date funds and used a variety of criteria, including management quality, Morningstar ratings on individual portfolio holdings, cost and corporate governance factors, to rate the fund groups as "top," "above average," "average," "below average" or "bottom."

Four of the 22 get the highest rating: Vanguard Target Retirement, T. Rowe Price Retirement, J.P. Morgan SmartRetirement and American Funds Target Date Retirement.

Four others are a notch below, at above average: Wells Fargo Advantage DJ Target Date, TIAA-CREF Lifecycle, American Century Livestrong and Vantagepoint Milestone.

Two series of target-date funds suffer the ignominy of being placed in the bottom group: AllianceBernstein Retirement Strategy and Oppenheimer LifeCycle.

If you're in the market for a target-date fund, the Morningstar report is a good place to begin the search. Making the right choice can be more critical when buying a target-date fund than other funds because of the set-it-and-forget-it aspect that is the group's defining characteristic. If you're going to hang on to an investment as you grow old and gray, better make sure it's a good one.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.