Recent Market Volatility Has Revealed This About Target Date Funds
The numbers are in. The fourth quarter of 2018 brought the markets well beyond correction territory and to the precipice of a bear market. For the first time since the 2008/2009 market crash, we’ve had the opportunity to glimpse at whether the various “fixes” to target date funds following that debacle have created a more durable vehicle. While the jury may still be out, we may have stumbled upon one unexpected benefit to target date funds (and default investments in general).
“Qualified Default Investment Options” (“QDIOs”), officially became part of the defined contribution lexicon with the 2006 Pension Protection Act. The opportunity to avoid having to making (an often difficult) investment decision has permitted an increasing number of retirement savers to simply have their money go into the default option. While QDIOs can fall into three broad categories, target date funds have become the most popular. “Most plan participants find the dizzying array of investment options within their plan somewhat intimidating,” says Lloyd A. Sacks, Managing Director, Sacks & Associates Wealth Management, Bridgewater, New Jersey. “Many participants will contribute a regular amount to either an index fund popular within their plan, target date funds based on their anticipated date of retirement, or a pre-allocated mix of multiple plan offerings.”