DC plan members who use target date funds (TDFs) as part of their investment strategy feel more secure about reaching their retirement goals, according to a study by ING U.S. Nearly three-quarters (71%) of target date investors indicated that TDFs help them to feel more confident that they are making sound investment decisions.
TDFs provide investors with automatic asset allocation over time through a single age- and risk-appropriate investment. Because of their simplified approach to investing, TDFs have become increasingly popular. According to research by Morningstar and Financial Research Corp., U.S. target date assets have grown from US$15 billion in 2002 to US$363 billion in 2011.
When asked about various features available in TDFs, all respondents showed a strong preference for those that are managed by multiple investment managers and are able to provide a guaranteed income stream at retirement. A huge majority (93%) of target date investors and nearly three-quarters (71%) of those who did not use them said they would want a TDF that provides stronger protection against market losses in the years leading up to, and including, retirement. Additionally, 80% of respondents using TDFs and 66% of those not using them said they would prefer less market risk at that stage of the investment cycle.
“These findings suggest that diversified, age-adjusted target date funds, when effectively designed, may work better than traditional offerings in bridging the gap between investor knowledge and long-term retirement objectives,” said Paul Zemsky, chief investment officer of multi-asset strategies with ING Investment Management.
“Like many of the latest 401(k) features, target date funds have evolved as a way to make saving for retirement easier and more automatic for the average plan investor,” added Rick Mason, president of corporate markets with ING U.S. Retirement.